author: Gabrielli, J.

text:
    The People of the State of New York, Respondent, v Paul R. Dean, Appellant.
    Argued October 16, 1978;
    decided December 6, 1978

      POINTS OF COUNSEL

      Edward J. Nowak, Public Defender, for appellant.
    I. The prosecution of appellant for grand larceny under indictment No. 534 was precluded by the doctrine of collateral estoppel and the lower court’s decision denying appellant’s pretrial motion on that issue was error. (Ashe v Swenson, 397 US 436; Matter of McGrath v Gold, 36 NY2d 406; United States v Oppenheimer, 242 US 85; Sealfon v United States, 332 US 575; People v Rodgers, 184 App Div 461, 226 NY 671; Matter of Levy, 37 NY2d 279; Benton v Maryland, 395 US 784; People v Cunningham, 62 Misc 2d 515; People v Disisto, 27 Misc 2d 217, 17 AD2d 31.) II. The lower court’s ruling with respect to appellant’s pretrial motion for a dismissal pursuant to CPL 210.20 (subd 1, par [g]) and CPL 30.30 (subd 1, par [a]) was in error. (People v Prosser, 309 NY 353; People v Rodriguez, 45 AD2d 41; People v Sturgis, 38 NY2d 625; People v Swinton, 52 AD2d 561; People v Johnson, 38 NY2d 271; People v Taranovich, 37 NY2d 442; Barker v Wingo, 407 US 514; People v McLaurin, 38 NY2d 123; People v Goodman, 44 AD2d 862; People v Valentin, 46 AD2d 906.) III. The District Attorney, after objection by defense counsel, should not have been permitted to explore the meaning of defense Exhibit B by extrinsic evidence. (Sabo v Delman, 3 NY2d 155; Laskey v Rubel Corp., 303 NY 69; Fogelson v Rackfay Constr. Co., 300 NY 334, 301 NY 552; Higgs v de Maziroff, 263 NY 473; Peo v Kennedy, 16 AD2d 306; Storer v Ripley, 282 App Div 950; People v Walker, 85 App Div 556, 178 NY 563; People v Glickman, 194 App Div 103; People v Rodriguez, 38 NY2d 95.) IV. Various aspects of the court’s charge, to which proper exceptions were taken, were improper and highly prejudicial to the defense. (Matter of Winship, 397 US 358; People v Cotto, 28 AD2d 1116; People v Jones, 27 NY2d 222; People v Balian, 49 AD2d 94; Screws v United States, 325 US 91; Kibbe v Henderson, 534 F2d 493; United States v Clark, 475 F2d 240; Holland v United States, 348 US 121; Bollenbach v United States, 326 US 607; United States v Singleton, 532 F2d 199; United States v Howard, 506 F2d 1131.) V. The doctrine of double jeopardy precluded the trial of indictment No. 534 and the lower court’s denial of defendant’s motion on that issue was error. (Green v United States, 355 US 184; Ashe v Swenson, 397 US 436.) VI. Defense Exhibit B constituted a complete defense to this indictment. The indictment should have been dismissed at the close of defendant’s case. VII. The prosecutor’s summation was highly inflammatory and prejudicial to defendant, and requires reversal. (People v Lovello, 1
      NY2d 436; People v Castelo, 24 AD2d 827; People v La Fontaine, 39 AD2d 734; People v Anderson, 46 AD2d 150; People v Jones, 47 AD2d 761.) VIII. Defense counsel’s motion for a mistrial during voir dire was improperly denied. IX. The cumulative impact of the errors in (1) allowing parol evidence to interpret the terms of defense Exhibit B, (2) the charge to the jury, and (3) the prejudicial impact of the prosecutor’s remarks on summation, warrants a reversal, even if those errors could be considered harmless individually. (People v Crimmins, 36 NY2d 230.)

      Lawrence T. Kurlander, District Attorney (Adam H. Bernstein and Kenneth R. Fisher of counsel), for respondent.
    I. Neither double jeopardy nor collateral estoppel operate to preclude trial of indictment No. 534 after partial acquittal on indictment No. 535. (Ashe v Swenson, 397 US 436; Benton v Maryland, 395 US 784; Hoag v New Jersey, 356 US 464; Harris v Washington, 404 US 55; United States v Friedland, 391 F2d 378; United States v Kramer, 289 F2d 909; Sealfon v United States, 332 US 575.) II. The motion for dismissal based upon appellant’s statutory speedy trial rights was properly denied. (People v Gruttola, 43 NY2d 116; People v Morales, 42 NY2d 129; People v Marrero, 44 NY2d 675; People v Rathbun, 48 AD2d 149.) III. The cross-examination relative to the security agreement filed by Lincoln First was properly permitted. (Rudman v Cowles Communications, 30 NY2d 1; Mobil Oil Corp. v Fraser, 55 AD2d 824; Mister Filters v Weber Environmental Systems, Div. of Walter Kidde & Co., 44 AD2d 639; Germaine v Safeguard Ins. Co., 7 AD2d 830, 8 AD2d 587; Matter of Cromwell Towers Redevelopment Co. v City of Yonkers, 41 NY2d 1; Aron v Gillman, 309 NY 157; People v Walker, 85 App Div 556, 178 NY 563; People v Glickman, 194 App Div 103.) IV. The court’s charge was sufficient; no grounds for reversal are contained therein. (People v Jones, 27 NY2d 222; People v Balian, 49 AD2d 94.) V. Defense Exhibit B did not constitute a complete defense to the indictment. VI. The prosecutor’s summation was not prejudicial; the statements complained of by appellant were proper comments on the evidence adduced at trial. VII. Defense counsel’s motion for a mistrial during voir dire was properly denied.
   OPINION OF THE COURT

Gabrielli, J.

On September 21, 1973, a Monroe County Grand Jury returned indictments No. 533 through No. 538 against the defendant, charging him with 38 counts of grand larceny in the second degree in violation of section 155.35 of the Penal Law, six counts of issuing a bad check in violation of section 190.05 of the Penal Law, and two counts of grand larceny in the third degree in violation of section 155.30 of the Penal Law. Some two years later the defendant was brought to trial on indictment No. 534, and was convicted of three counts of grand larceny in the second degree. It is this conviction which is the subject of this appeal and we must decide whether the delay between his indictment and January 15, 1976, when this trial commenced, violated his right to a speedy trial.

To understand the reasons for the delay requires a summary of the events that occurred between indictment and trial. The defendant was arraigned on September 24, 1973, and after pleading not guilty to all counts of the indictments he was released on a $25,000 bond. Following certain pretrial motions a trial on indictment No. 533 began on May 8, 1974. The jury returned a verdict of not guilty on May 31. A trial on indictment No. 535 was then commenced on September 18, 1974, concluding on September 27, 1974. That indictment charged the defendant with having committed the crimes of grand larceny and issuing a bad check when he paid a $60,503.56 obligation to the Insana Company with a worthless check, knowing it to be worthless. The jury found him not guilty of grand larceny but guilty of the misdemeanor of issuing a bad check. On November 26, 1974 the defendant was sentenced to 90 days in the Monroe County Penitentiary. Following an affirmance of that conviction he surrendered and commenced service of the sentence on June 12, 1975.

Before trial commenced on the instant indictment the defendant moved for an order dismissing the indictment. By application dated September 9, 1975, he asserted that the lapse of two years since indictment and arraignment violated the right to a speedy trial guaranteed by statutes and the Federal Constitution (CPL 30.20; 30.30; Civil Rights Law, § 12; People v Prosser; 309 NY 353; US Const, 6th Arndt; Barker v Wingo, 407 US 514). The motion to dismiss was denied, and following a trial the defendant was convicted of three counts of grand larceny. The Appellate Division unanimously affirmed the conviction and leave to appeal was granted by an Associate Judge of this court.

The most exacting requirement of the speedy trial right is found in CPL 30.30 which provides that a motion to dismiss must be granted where the People are not ready for trial within six months and the defendant is accused of a felony. It establishes a precise cutoff for unexcused delay. If the People are not ready for trial within the time sanctioned by the statute, the indictment must be dismissed and the defendant released.

At first blush, it would appear that dismissal might be warranted here. Defendant’s motion to dismiss recited a delay in excess of six months from the date of indictment. In opposition to the motion the People, at the hearing, stated that they were always ready for trial, and that the calendar had been so marked. They did not submit any papers or records in opposition, relying on the factual statement made and a display of their readiness for trial; and the hearing ensued.

We recently held that where a defendant has moved for a dismissal it may be summarily granted if the answering papers do not present a factual dispute for the court to resolve (People v Gruden, 42 NY2d 214; CPL 210.45, subd 4, par [c]). In Gruden (p 215), however, and unlike the case before us, the court pointed out that "[t]he People did not dispute the facts alleged in the defendants’ motion papers”. CPL 30.30 has been described as the most significant criminal legislation of 1971 (Denzer, Practice Commentary, McKinney’s Cons Laws of NY, Book 11 A, CPL 30.30), yet it could become a mockery if an assertion of readiness, without any substantiation, excuses needless delay. If an unexcused delay in excess of six months had been shown by clear documentary proof by the defendant, his motion would doubtless have been granted. In this case, however, the actual period of unexcused delay was less than six months, as will be herein demonstrated. Defendant’s inability to show any ground constituting legal basis for the motion renders academic the question of the People’s preparedness, and the motion was properly denied (cf. People v Gruden, supra; CPL 210.45, subd 5, par [a]).

The actual elapsed time between indictment and trial for speedy trial purposes must be computed in light of CPL 30.30 (subd 4), which requires that the certain delays described in that section be excluded from the time limitation. Subdivision 4 recognizes that certain delays are inherent in any criminal justice system and must be tolerated, and that other delays are caused by the defendant and should not prejudice the People’s right to bring him to trial.

Important here is the reasonable delay resulting from other proceedings concerning the defendant, including pretrial motions, trial of other charges, and the period during which such matters are under consideration by the court, as well as certain appeals. Taking these factors into account in the instant case shows that during the great majority of time at issue the defendant was involved in trials or appeals involving his other indictments, and there was thus ample reason for the People not to move indictment No. 534 to trial.

Following his September 24, 1973 arraignment the defendant made an application for relief by pretrial motion. After oral argument and a period when the motion was under consideration, the first indictment was set down for trial on May 8, 1974. Thus the delay prior to defendant’s first trial on indictment No. 533 was excused, it being devoted to the preparation, argument, and consideration of defendant’s motion directed at the six indictments.

The first trial was concluded on May 31, 1974. It was followed by a hiatus until September 18, 1974, for which no excuse appears in the record. Presumably, the activities of the District Attorney in respect to this defendant were spent preparing for the trial on indictment No. 535 which commenced September 18. This period is not, however, and excusable delay within the contemplation of the statute, and therefore the three and one-half months are to be counted as part of the six-month period.

The trial which began on September 18 was completed on September 27. He was found guilty of the crime of issuing a bad check to the Insana Company in an amount exceeding $60,000. On the day of sentencing defendant filed a notice of appeal as well as an application for release on bail during the pendency of said appeal. Significantly, the bail application advanced the argument which was to be the main ground for appeal: that a corporate officer may not be held criminally liable for issuing a bad check when he is neither the drawer nor a representative drawer, in circumstances where he did not sign the check personally. Upon appeal from that judgment, the Appellate Division discussed this issue and argument at some length before rejecting it in an opinion issued May 30, 1975 (People v Dean, 48 AD2d 223). Following the unanimous Appellate Division affirmance of his conviction the defendant sought leave to appeal to this court by application dated June 25, 1975. Again, he urged the same issue of lack of "personal involvement” in challenging the conviction. However, the criminal leave application was denied on November 13, 1975 finally terminating that case.

The appellate history of the Insana indictment is necessary for an understanding of why the statutory speedy trial provision was not violated. The appeal involved an unusual case of first impression which, if decided in defendant’s favor, could well have warranted the dismissal of the remaining indictments against him. The prosecutor was entitled to await the outcome of the appeal before subjecting both the defendant and his office to the expense and travail of a trial which might well have proved to be futile. In the unique situation that existed here the elapsed time during the pendency of a related appeal that would directly affect the validity of this indictment is excluded from the computations of CPL 30.30 (People v Rarback, 40 NY2d 922).

While the request for a certificate of leave to appeal was still pending, the defendant moved the Monroe County Court to dismiss the indictments remaining against him on the ground that he had been denied his right to a speedy trial. The motion was decided two days before trial began on this charge. Thus the last remaining time before trial was covered by the clear terms of CPL 30.30 (subd 4, par [a]) which excuses the time during which a pretrial motion is being considered by a court.

A review of the period between September, 1973 and January, 1976 discloses less than six months of unexcused delay. During the three and one-half months between the trials of indictments No. 533 and No. 535 defendant was not involved in any criminal matters or proceedings. There was also a period of less than one month between the May 30 Appellate Division decision and the June 25 criminal leave application to this court. Otherwise all the elapsed time was occupied with other matters involving the defendant as recited in CPL 30.30 (subd 4) and, hence, the six-month time limitation of CPL 30.30 was not exceeded.

Beyond the requirements of CPL 30.30 there exists a general speedy trial right expressed in CPL 30.20 and section 12 of the Civil Rights Law. Whether this right has been infringed depends upon an examination of five factors: (1) the extent of the delay; (2) the reason for the delay; (3) the nature of the underlying charge; (4) whether or not there has been an extended period of pretrial incarceration; and (5) whether or not there is any indication that the defense has been impaired by reason of the delay (People v Taranovich, 37 NY2d 442, 445). Here the defendant suffered no pretrial incarceration, there is no showing of prejudice, and the above discussion recites a valid reason for the People to delay the prosecution. Although the length of the delay might seem long, on balance we find that there was no deprivation of defendant’s speedy trial right. In response to defendant’s contention that in any event under CPL 210.45 (subd 6) he was entitled to an evidentiary hearing on the issue of denial of speedy trial, it suffices to observe that he never made a timely request for such a hearing.

In addition to the speedy trial ground urged by defendant for a reversal of his conviction, he argues that this prosecution was barred by the doctrine of collateral estoppel. The jury in the Insana trial (indictment No. 535) acquitted him on the grand larceny charge, although he was convicted of issuing a bad check (Penal Law, § 190.05). The grand larceny acquittal does not, however, require a conclusion that defendant could not have intended to commit grand larceny when he procured 4.5 million dollars worth of Xerox stock with worthless checks. The not guilty verdict for the $60,503.56 transaction on March 16, 1973 could well have been reached by the jury without their finding that defendant had no larcenous intent throughout the period of March 16-23, 1973, when he caused the issuance of the checks involved here. As was aptly articulated by the Appellate Division, "it is certainly plausible that the jury based its acquittal upon the belief that no property had been obtained or withheld by means of the bad check issued to' Insana or that defendant had no specific knowledge of the deposit of the Insana bond proceeds in the company account and thus no intention of stealing them. Since it cannot be determined with any degree of certainty that the earlier acquittal under Indictment No. 535 necessarily represented a finding by that jury that defendant lacked larcenous intent with respect to his transactions with Lincoln First Bank, collateral estoppel should not be recognized as a bar to the present prosecution” (56 AD2d 242, 248-249).

We have considered the remaining contentions raised by the defendant on this appeal, and we find them to be likewise without merit.

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

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

Order affirmed.

      . CPL 30.30 (subd 4) provides that:
      "4. In computing the time within which the people must be ready for trial pursuant to subdivisions one and two, the following periods must be excluded:
      “(a) a reasonable period of delay resulting from other proceedings concerning the defendant, including but not limited to proceedings for the determination of competency and the period during which defendant is incompetent to stand trial; pre-trial motions; appeals; trial of other charges; and the period during which such matters are under consideration by the court”.

      . The transaction involved in the Insana indictment (No. 535) was a worthless check signed by a company employee at defendant’s direction. Defendant argued that he could not be criminally liable when the check was returned, as it was drawn on his corporation and he had not signed it. Indictment No. 534, which is being appealed here, involved three checks which were signed by the same company employee under similar circumstances. Thus, if defendant’s argument had been accepted by the appellate courts, the result would have been a valid defense as a matter of law to this indictment.


source: Caselaw Access Project

author: Jones, J.

license: Public Domain

text:
    In the Matter of New York State Council of Retail Merchants, Inc., et al., Respondents, v Public Service Commission of the State of New York, Appellant, and Long Island Lighting Company, Inc., Intervenor-Appellant.
    Argued October 16, 1978;
    decided December 6, 1978

      POINTS OF COUNSEL

      Peter H. Schiff and John C. Crary for appellant.
    I. The commission’s establishment of the new Service Classification 2 —Multiple Rating Period classification was fully consonant with the provisions of the statute and was rationally based. (City of Rochester v Rochester Gas & Elec. Corp., 233 NY 39; Permian Basin Area Rate Cases, 390 US 747.) II. The other assertions of discrimination below were also without merit. (Matter of Lefkowitz v Public Serv. Comm., 50 AD2d 338, 40 NY2d 1047.) III. The commission’s adoption and calculation of the SC2-MRP rate was amply supported by the record evidence. IV. The commission determined revenue requirement using traditional cost of service methodology. (Federal Power Comm, v Hope Natural Gas Co., 320 US 591; Matter of City of New York v Public Serv. Comm, of State of N. Y, 17 AD2d 581, 13 NY2d 594; Matter of Lefkowitz v Public Serv. Comm., 50 AD2d 338, 40 NY2d 1047.)

      David K. Kadane, Edward M. Barrett and James J. Stoker, III, for intervenor-appellant.
    I. The choice of the SC2-MRP class of customers was cost-based. II. The SC2-MRP meets three of the legal criteria for class formation — quantity used, the time when used, and other reasonable considerations. (Matter of Lefkowitz v Public Serv. Comm., 50 AD2d 338, 40 NY2d 1047.) III. The lower court did not give appropriate weight to a commission decision concerning an area of judgment peculiarly within the commission’s expertise. (Matter of International Ry. Co. v Public Serv. Comm., 226 NY 474; Matter of Brooklyn Union Gas Co. v Maltbie, 245 App Div 74; Campo Corp. v Feinberg, 279 App Div 302, 303 NY 995; Federal Power Comm, v Hope Natural Gas Co., 320 US 591; St. Joseph’s Stock Yards Co. v United States, 298 US 38; Matter of Lefkowitz v Public Serv. Comm., 50 AD2d 338, 40 NY2d 1047; City of Rochester v Rochester Gas & Elec. Corp., 233 NY 39.)

      Stuart M. Rosen, Paulann M. Caplovitz and Irwin H. Warren for respondents.
    I. The court below properly performed its critical role in reviewing and annulling the administrative determination in issue. (New Rochelle Water Co. v Public Serv. Comm., 38 AD2d 375, 31 NY2d 397; Matter of Pavilion Natural Gas Co. v Public Serv. Comm., 56 AD2d 413; Matter of Lefkowitz v Public Serv. Comm., 50 AD2d 338, 40 NY2d 1047.) II. Implementation of SC2-MRP unduly discriminates against customers forced to purchase electricity thereunder, in violation of subdivisions 2 and 3 of section 65 of the Public Service Law. (Matter of Lefkowitz v Public Serv. Comm., 40 NY2d 1047; New York Tel. Co. v Public Serv. Comm., 286 App Div 28, 309 NY 569.) III. There is no substantial evidence in the record to support approval of SC2-MRP. (Capital Tr. Co. v Public Utilities Comm., 213 F2d 176, 348 US 816; New Rochelle Water Co. v Public Serv. Comm., 38 AD2d 375; Matter of Lefkowitz v Public Serv. Comm., 50 AD2d 338; Home Box OfRce v Federal Communications Comm., 567 F2d 9.) IV. It is an error of law to base SC2-MRP on capacity costs that will not be incurred during the period in which SC2-MRP will be in effect. (People ex rel. Kings County Light. Co. v Willcox, 210 NY 479; Matter of Consolidated Edison Co. of N. Y. v Public Serv. Comm., 53 AD2d 131, 40 NY2d 803; People ex rel. Municipal Gas Co. v Public Serv. Comm., 224 NY 156; Williams v Washington Metropolitan Area Tr. Comm., 415 F2d 922; Federal Power Comm. v Hope Natural Gas Co., 320 US 591; Federal Power Comm. v United Gas Pipe line Co., 386 US 237; St. Lawrence Gas Co. v Public Serv. Comm., 42 NY2d 461.)

      Louis J. Lefkowitz, Attorney-General (John G. Proudfít and Cyril H. Moore, Jr., of counsel), for State of New York, amicus curiae.

    The Public Service Commission’s decision was correct and necessary. (Matter of Lefkowitz v Public Serv. Comm., 50 AD2d 338, 40 NY2d 1047; Federal Power Comm. v Hope Natural Gas Co., 320 US 591; City of Rochester v Rochester Gas & Elec. Corp., 233 NY 39; International Ry. Co. v Public Serv. Comm., 226 NY 474; Campo Corp. v Feinberg, 279 App Div 302, 303 NY 995.)

      James T. B. Tripp and Philip J. Mause for Environmental Defense Fund, amicus curiae.

    The selective implementation of rates which reflect costs more precisely than simple kilowatt-hour rates is within the Public Service Commission’s authority. (Graver v Edison Elec. Illuminating Co., 126 App Div 371; People ex rel. New York & Queens Gas Co. v McCall, 219 NY 84.)
   OPINION OF THE COURT

Jones, J.

We conclude that there was a rational basis for and substantial evidence in the record to support the determination of the Public Service Commission authorizing the introduction of time-of-day pricing as the basis for a new rate structure for the furnishing of electricity, and, as a first step to that end, approving the proposal of Long Island Lighting Company to initiate the program by charging particularly designed time-of-day rates to a small group of its largest commercial and industrial customers.

On August 8, 1975 Long Island Lighting Company (LILCO) filed an application with the Public Service Commission for a general rate increase. In response the commission issued an order initiating case No. 26887, which order also directed the company to file "rate proposals to price electricity by time of day”. Pursuant to that directive LILCO filed proposed rate "Service Classification 2 — Multiple Rating Period” (hereafter "SC2-MRP”). That filing was served on all parties to case No. 26887 and as well on all parties to case No. 26806 (proceeding on motion of the commission as to rate design for electrical corporations).

On January 29, 1975 the commission had issued an order stating that the "rapidly increasing costs of new generating facilities and the rising cost of fuel both make it urgent, in the interest of energy conservation and the efficient use of resources, that the structure of energy prices reflect, to the greatest extent feasible, the variations in the incremental costs of service because of differences in the time of consumption, as well as in all other cost-influencing factors”. By the same order the commission instituted case No. 26806, the so-called "generic proceeding”, to consider, among other things, "whether marginal or incremental costs provide a reasonable basis for determining the rate structure of electric utilities”, and to resolve certain issues concerning the legality, theory and practicality of marginal cost pricing before approval of any specific rate proposals. On the basis of an extended record (which included the testimony of a host of economists, engineers and experts in rate design who had been subjected to cross-examination by the Council of Retail Merchants and also included the testimony of an economist who appeared on behalf of the council) the commission concluded in that proceeding on August 10, 1976 "that marginal costs do provide a reasonable basis for electric rate structures”. The commission added, however: "This finding does not mean that rate structures must in all cases embody marginal cost pricing, or that rate structures in any case should be based exclusively on such principles. But it does mean that marginal costs are an important tool for consideration in all rate cases, and that failures to take these principles into account should be justified”. After noting its cognizance of the problems of both the utility companies and their customers and denying any intention to inflict unnecessary or unreasonable hardship, the commission stated: "To the extent that implementation of marginal principles might involve abrupt changes, the Commission’s guiding principle will be gradualism consistent with appreciable improvement.” Noting that LILCO and Consolidated Edison Company of New York had already presented marginal cost analyses, other electric utilities were directed to transmit their studies, and the commission advised that it would proceed to evaluate LILCO’s proposed marginal cost-based rates in case No. 26887. No aspect of case No. 26806, which has not been concluded, is now being appealed.

Accompanying LILCO’s filed proposed rate SC2-MRP was the marginal cost study which formed the basis of the proposed rate. LILCO submitted expert testimony with respect both to the manner in which marginal costs were translated into rates and to the economic basis for the proposed SC2MRP rate. This testimony was subject to cross-examination by the Council of Retail Merchants which also introduced expert testimony of its own.

On December 16, 1976 the commission approved SC2-MRP. The council’s request for a rehearing before the commission was denied. The council then instituted the present proceeding under CPLR article 78 which was transferred to the Appellate Division. On May 31, 1978 that court annulled the commission’s determination. The commission and LILCO have appealed to our court. We now reverse the judgment of the Appellate Division and confirm the order of the commission.

As a matter of analysis it appears that our consideration should proceed on three levels. The first involves the validity of time-of-day rate structures in principle; the second, the validity of the particular time-of-day rate structure proposed by LILCO; and the third, the permissibility of the classification of consumers to which LILCO proposes initially to apply its proposed time-of-day rate structure.

As to the first level there is no dispute. Respondents do not challenge the validity in principle of a rate structure based on quantity and time of consumption. Indeed classification of service "based upon the quantity used [and], the time when used” is expressly authorized by statute (Public Service Law, § 66, subd 14; cf. id., § 65, subd 5).

Because the Appellate Division annulled the commission’s determination at the third level, concluding that the proposed SC2-MRP rate "constitutes an unlawful inter-class price discrimination in violation of subdivisions 2 and 3 of section 65 of the Public Service Law” (62 AD2d, p 316), without passing on the validity of the time-of-day rate structure itself, we first address this aspect of the case on which the disposition below was based. The promulgation of any classification of consumers, any subdivision of the whole, necessarily, of course, involves differentiation; the critical question is whether the particular classification works an undue or impermissible discrimination. It appears that the Appellate Division took the view that to withstand assault the particular classification must be based on some identifiable cost-justification, that rate fixing that departs from cost-justification would produce an undue preference or advantage favoring those who are not within the class, in violation of the provisions of subdivision 3 of section 65 of the Public Service Law. That court then rejected the commission’s and LILCO’s attempt to demonstrate that there was a direct cost allocation basis to support the proposed consumer classification. While not abandoning their contentions that cost-justification can be shown in support of the proposed classification the commission and LILCO contend, and we agree with them, that in this instance at least the choice of consumers to be included within SC2-MRP was made on a rational basis incident to the phasing in of a new rate structure, and that selective, step-by-step implementation of a new theory of rate fixing is permissible.

LILCO, having been directed by the commission to file a rate based on marginal costs, with the benefit of suggestions made by commission staff, calculated the company’s marginal costs and then placed those costs into three rating periods. The choice of the particular periods was a function of metering capability, homogeneity of costs within different hours, the probability of loss of load for each hour and the likelihood of consumer reaction. As a result of this weighing process the following periods were identified:

Period 1 (off-peak period, lowest demand): Midnight to 7 a.m.; all days, all year;

Period 2 (peak period, greatest demand): 10 a.m. to 10 p.m. weekdays and Saturdays, June 1 to September 30; and

Period 3 (intermediate or "shoulder” period): all remaining times.

The company then selected the group of its consumers to which new rates based on quantity and time-of-day consumption would be applied in the first phase of eventual across-the-board application. It chose its largest commercial and industrial consumers. The line of demarcation was fixed at those consumers whose peak demand exceeded 750 kilowatts in any two of the preceding 12 months — as of September, 1976 there were about 175 customers in this category.

The commission’s interest in the development of a more sophisticated rate structure was predicated on its view that the present condition of the State’s economy made such development imperative. "Repeatedly in recent rate decisions we have stated our intention to hold rates down to the lowest reasonable level, precisely because we realize that energy costs have become oppressive to large numbers of consumers and have a magnification effect throughout the economy. Over two years ago we embarked on a program of utility management and efficiency audits and, additionally, we are demanding commitments to increased productivity. We are confident that these efforts will help to hold rates down; but they alone cannot reach the two principal cost factors that have pushed utility rates to unprecedented levels: the escalating costs of new construction and of fuel, particularly oil.” Prior to the present proceedings, time-of-day and marginal cost pricing principles had never been used in New York State as a basis for pricing electricity. In its consideration of this new approach to rate fixing the commission recognized that peak usage by every customer imposes the same costs on the system and did not seriously contend that a time-of-day rate structure would not affect all of LILCO’s customers approximately evenly, conferring similar benefits and imposing comparable burdens.

In the implementation of the new rate structure by LILCO, however, the commission made two critical determinations. First, it determined that there should be "selective implementation as a part of a programmed plan”, that the "interest of all ratepayers is best served by a step-by-step application of time-of-day metering because of the enormous cost that a widescale mandatory metering program would entail”. Thus, it rejected contentions that time-of-day metering should initially be applied across the board. Second, acknowledging that "[a]ny cut off point for the first step inevitably involves some element of arbitrariness, as does any reasonable classification”, it approved the particular classification of consumers proposed by LILCO for its first phase implementation.

We have held that rate discrimination can be countenanced only if it is either cost-justified or if some other rational basis is to be found in the record. (Matter of Lefkowitz v Public Serv. Comm., 40 NY2d 1047, 1048.) Thus, it is not conclusive that there may not have been shown a sufficient cost-justification for the proposed classification or even that it departed from cost allocation, if there exists another rational basis for that classification. In our view the commission’s determination in approving LILCO’s proposal must be upheld if there exists a rational, though not necessarily cost-related, predicate for the commission’s action. We find that there is a rational basis both for the determination that introduction of the newly designed rate structure should proceed on a step-by-step basis rather than across the board at the outset, and for the conclusion that the first step classification proposed by LILCO was reasonable in the circumstances.

It appears that there had been no consumer or utility experience with the new rate structure in theory or in practice, that its implementation will be possible only with the installation of relatively expensive metering devices and that the regulatory body has found that effective utilization will "require detailed and individual consumer education on an individual basis” which "can be done most efficiently with a relatively small group of consumers at the outset”. On such a record we cannot say that the courts are entitled to substitute their judgment for the evaluation of the commission, giving fair consideration to the expertise possessed by the commission in weighing the impact of rate-fixing factors on both the utilities and the consuming public and reaching the ultimate determination as to how appropriately to proceed in this given instance. To the extent that it is applicable, equal protection analysis recognizes the right of government to move forward by gradual progression rather than by universal application or not at all. (Erznoznik v City of Jacksonville, 422 US 205, 215; Dandridge v Williams, 397 US 471, 486-487; Williamson v Lee Opt. Co., 348 US 483, 489.) Thus, we conclude that there was warrant for the commission’s determination to implement time-of-day rates in progressive steps rather than to apply the new rates to all customers at one time.

By similar analysis we find that the record compels the conclusion that there was a rational basis for approval of the group of consumers selected by LILCO for first stage application of the new rate structure. Several considerations entered into the choice of the class of consumers to which the new rates would be applied in the first instance. Prior to having been required to propose a marginal cost-based rate, LILCO had at its own expense placed the type of sophisticated meters required by such a rate with its largest use commercial and industrial class of customers for the purpose of collecting load data. Not only could it be found that it was appropriate to use the large use consumers because their high kilowatt hour usage would result in a much lower metering cost per kilowatt hour, thus producing a minimal customer burden relative to what it would be for other customers on LILCO’s system; additionally, meters were already in place for these consumers, thereby postponing "the enormous cost that a widescale mandatory metering program would entail”. Necessary consumer education can most efficiently be undertaken with a relatively small group of informed, sophisticated consumers. The group selected was making substantial payments to LILCO and thus had a real potential for usage responsiveness; its large consumption of energy offered both opportunity and inducement to take effective action, perhaps even at some initial cost to the consumers, to shift more load to off-peak periods. There was warrant for the hope that some significant decrease in the use of inefficient generating facilities might be realized, even without proof as to the precise degree of elasticity in energy consumption among the included consumers. Here again the identification of relevant factors, the weighing of the relative significance of each and of all taken in combination, the appropriateness of the balance struck in the ultimate selection of the group of customers for initial application of the new rate structure — all are matters lying within the areas of the commission’s expertise with respect to which the courts should be realistically reluctant to intervene.

In passing we note, that the commission considered and rejected the suggestion that the new rate structure should first be put into effect on a voluntary rather than a mandatory basis. The fact that such a plan of implementation has been adopted in other States and surely could be said to have a rational basis, does not establish that it is the only rational plan or that the mandatory plan approved by the commission in this instance did not have a rational basis. Indeed, other considerations of public acceptance and of the effect of consumer self-selection might raise questions as to the efficacy and desirability of introduction of time-of-day rate fixing in any voluntary manner. At the very least there were matters lying well within the scope of the commission’s authority, out of reach of judicial intrusion. Then, too, we observe that in the design of the particular first phase implementation, efforts were made to assure that the selected consumers as a class will not pay total revenues to LILCO greater than they would have had to pay had their rates not been redesigned. Also steps were taken, for instance by the application of the so-called "two-thirds rule” to moderate the effect of the new rates. These factors, too, bear on the rationality and reasonableness of the particular implementation plan which was approved by the commission.

In sum we conclude that the record compels the conclusion that there was a rational basis for the determination of the commission to approve both the introduction of time-of-day rate fixing on a gradual progression basis and the first stage application proposed in this instance by LILCO. Thus, we disagree with the conclusion reached at the Appellate Division.

It remains then to consider whether the commission’s adoption and calculation of the SC2-MRP rate is supported by the evidence in the record — the issue which was not reached at the Appellate Division. We reject respondents’ arguments that the commission’s approval of SC2-MRP was both unreasonable and unsupported by substantial record evidence. At the outset we observe again that we are in an area presenting problems of a highly technical nature, the solutions to which in general have been left by the Legislature to the expertise of the Public Service Commission. As the commission observed, "judgment has had to be exercised in assessing costs and translating them into rates”. It is only when it can be shown that the exercise of judgment was without any rational basis or without any reasonable support in the record that the determination of the commission may be set aside (Matter of Campo Corp. v Feinberg, 279 App Div 302, 307, affd 303 NY 995). "The courts will not interfere with the conclusion [of the rate-making agency] except to safeguard the consumer against arbitrary power” (City of Rochester v Rochester Gas & Elec. Corp., 233 NY 39, 49; Permian Basin Area Rate Cases, 390 US 747, 797-799).

LILCO’s SC2-MRP classification was derived from a marginal cost study which focused on three principal areas of cost: (a) marginal energy or running costs; Ob) marginal capacity costs; and (c) marginal customer costs. There was uncontroverted evidence that production costs increased in times of peak demand when it became necessary to put the less efficient, more costly generating facilities on the line. Thus, in this aspect the marginal running cost of producing electrical energy is related to the costs associated with the utilization of the least efficient generating plant.

Respondents specifically attack the component of marginal capacity cost — costs associated with the construction of new plant. LILCO used long-run marginal capacity costs in conjunction with the short-run marginal running costs. There is expert testimony in the record that this combination, as a practical matter, yielded the most economically efficient price at the time, and that in this instance inasmuch as curtailment costs (the value of the output which would not be produced if electricity demand exceeded supply, causing blackout or brownout) could not be computed; long-run incremental capacity costs were a reasonable surrogate for short-run curtailment costs. These were matters to be judged by the commission.

Similarly respondents challenge the use of projected costs of a prospective gas turbine generator which it was said would be purchased to meet peak demand if such demand approached LILCO’s system generating capacity, on the ground that LILCO had determined that it presently had more than ample capacity to meet any possible demand for many years hence, and thus that any such approach is totally hypothetical. How to balance such arguments against countervailing contentions is properly to be left to commission expertise and judgment. Thus, it was for the commission to weigh assertions that inasmuch as generating capacity is added in lumps it is necessary to consider fairly large increments in forecast demand, and that, even if there be present overcapacity which is likely to continue to exist for some time, recognition must nonetheless be given the long lead time required for the construction of new generating facilities. It was for the commission, in the light of such contentions, to determine whether and to what extent LILCO’s scheduled installation of five gas turbines in 1976 (although later canceled when the level of projected peak demand did not materialize) provided a relevant basis for computing incremental generating costs. Indeed on the record before the commission it appears that consideration of this factor was not opposed and that, as the commission recited, "there was little controversy in this case about the use of the combustion turbine as the measure of marginal capacity cost”. Likewise the estimation of LILCO’s "loss of load probability” (the risk of demand exceeding supply) in the face of LILCO’s recognized surplus capacity and the evaluation of its impact on marginal capacity cost involved the selection and weighing of operational and economic factors properly to be left to the commission.

Finally, say respondents, a primary goal of marginal cost-based pricing is to conserve resources and to improve utility efficiency (in theory by sending consumers price "signals” which are designed to influence their consumption patterns), but, respondents continue, the record does not support the conclusion that this will be the result in this instance inasmuch as the initial group of consumers was selected without regard to their ability to respond to price signals. The determinative fact, however, is that the record does not establish that conservation of resources and improved utility efficiency will not be the result of the new rate structure. It suffices if there is evidence that they may be. Even in the absence of proof that each of the affected consumers had an elasticity of demand in consequence of which it could respond to price signals, it cannot be concluded that the new rate structure will not produce significant changes in consumption patterns, whether by way of shifts from peak period consumption to consumption in off-peak or shoulder periods or by way of reduced consumption of energy in consequence of the installation of more efficient electricity using equipment or the redesign of present equipment to achieve the same end. It will only be after the new rates have been in operation that the practical effect of the carrot and the club can reliably be measured. The determination of the commission could be set aside on this ground only if it were demonstrated on the record that the new rate structure would not operate to conserve resources or to improve utility efficiency. The record in this case would support no such adverse finding. Additionally the real test on this approach will come when time-of-day pricing is applied across the board, not alone to the small segment of consumers to which the new rate structure is initially applied in first stage implementation, but to all of LILCO’s customers. We cannot say, with the evidence which is in the record that the pricing signals contained in the SC2MRP tariff might not be effective to achieve the desired goal or that there is insufficient warrant for the commission’s determination to take the first step into time-of-day pricing and to authorize LILCO’s selective implementation of the program starting with the largest commercial and industrial consumers.

Recognizing the novel character of time-of-day pricing for electricity we conclude that the determination of the commission in approving LILCO’s SC2-MRP rate proposal represents a rational and reasonable step in the direction pointed by the commission toward time-of-day pricing for electricity and that it finds substantial support in this record.

For the reasons stated the judgment of the Appellate Division should be reversed, with costs, and the determination of the commission confirmed.

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

Judgment reversed, etc.

      . That classification approval in the past has been based on pertinent cost-justification data is not surprising. As the commission noted:
      "Historically in this State, and elsewhere, each customer within a defined service classification has paid for his electricity at a rate calculated through an averaging process: the rate he paid was related not to his individual consumption habits and the costs they imposed on society, but to the consumption characteristics of the entire group. This was essentially true even under the most enlightened regulatory practice, which involved trying to tie the rates charged the various groups of customers to the cost of serving them. The costs were the costs of serving the group, not the individual: through the use of one or more cost of service allocation methodologies, aggregate revenue responsibility would be assigned to a service classification in relation to that class contribution to total system costs. Thereafter rates for that class would be established so as, in the aggregate, to achieve the class revenue target.
      "In thus designing rates, efforts have been made to allocate greater responsibility to those members of the class more responsible for the costs imposed by the class on the system — for example by the inclusion of seasonal differentials or separate demand charges and rachets — but one principal factor which influences cost has largely been ignored; the time of the day at which service is demanded.”

      . It is reported that the charges to some 109 customers in the included class would be less under the new rate schedule than they would have been under the former schedule, with decreases going to 17.7%.

      . Under the "two-thirds rule”, the rates charged were to be increased by not more than two thirds of the difference between the old and new rates.

      . No particular attention is invited to this third area of cost in our court.


text:
    In the Matter of the Arbitration between HRH Construction Corporation, Appellant, and Bethlehem Steel Corporation, Respondent.
    Argued October 16, 1978;
    decided December 6,1978

      POINTS OF COUNSEL

      Irving D. Lipkowitz, Gerald D. Roth and Stephen Sussman for appellant.
    I. It is fundamental that parties cannot be required to arbitrate unless they have so agreed, and that courts, not arbitrators, determine whether there has been such an agreement. Pearl Street has not changed those rules. (Lehman v Ostrovsky, 264 NY 130; Marchant v Mead-Morrison Mfg. Co., 252 NY 284; Stanley & Son v Trustees of Hackley School, 42 NY2d 436; Pearl St. Dev. Corp. v Conduit & Foundation Corp., 41 NY2d 167; Matter of Exercycle Corp. [Maratta], 9 NY2d 329; Matter of Weinrott [Carp], 32 NY2d 190; Matter of Riverdale Fabrics Corp. [Tillinghast-Stiles Co.],
      306 NY 288.) II. The limited arbitration clause in the subcontract must be given effect, and the delay claims involved in the Citibank action are excluded from arbitration. (Marchant v Mead-Morrison Mfg. Co., 252 NY 284; Stanley & Son v Trustees of Hackley School, 42 NY2d 436; County of Sullivan v Edward L. Nezelek, Inc., 42 NY2d 123; Pearl St. Dev. Corp. v Conduit & Foundation Corp., 41 NY2d 167; Matter of Riverdale Fabrics Corp. [Tillinghast-Stiles Co.], 306 NY 288.)

      James H. Reidy and Kevin D. Slakas for respondent.
    I. The arbitrators should decide which of the conflicting arbitration provisions should control. (Pearl St. Dev. Corp. v Conduit & Foundation Corp., 41 NY2d 167; ITT Avis v Tuttle, 27 NY2d 571; Laurino v Hewman, 10 AD2d 725; Posner v United States Fid. & Guar. Co., 33 Misc 2d 653; Posner v New York Mut. Underwriters, 16 AD2d 1013; Hodom v Stearns, 32 AD2d 234.) II. The disputes between the parties are arbitrable under both arbitration provisions. III. The lawsuit was commenced as the result of an arrangement between the owner and contractor to attempt to bring the disputes in arbitration within the purview of the exceptive provisions of the limited arbitration clause.
   OPINION OF THE COURT

Jones, J.

We hold that a provision in an otherwise broad arbitration clause that the determination of particular disputes in another judicial or arbitration proceeding shall be determinative and conclusive between the parties, does not limit the scope of arbitration but constitutes a directive as to how the dispute in question shall be resolved in arbitration.

Petitioner in this proceeding for a stay of arbitration is the general contractor in the construction of the Citicorp Center, a commercial complex on Lexington Avenue in the City of New York, under a contract with the owner executed on April 2, 1974, subsequently superseded by a contract dated June 30, 1975. Respondent is the subcontractor for the fabrication and erection of structural steel for the project.

When the parties were unable to resolve differences between them arising out of the subcontract, on March 7, 1977 the subcontractor filed a demand for arbitration with the American Arbitration Association of a "Claim for Contract Balances, Extra Work and Damages for Breach of Contract”, citing two arbitration provisions found in the contract documents. Principal reliance is placed on the arbitration provision found in section 5(cc) of the subcontract: "All disputes, controversies or claims of any and all kinds which may arise out of, under or in relation to this Agreement, or the breach thereof, except as hereinafter provided, shall be submitted to and settled by arbitration in the City of New York in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association, and judgment upon the award may be entered in any court having jurisdiction thereof. Provided, however, and it is hereby expressly agreed, that any determination reached by any Court or any Board of Arbitration or authority duly constituted and appointed under and by virtue of the terms and provisions of the Contract between the Contractor and the Owner in any wise involving the interpretation or construction of the terms and provisions of said Contract or the Contract Documents and/or the manner or sufficiency of the performance of the work comprehended therein insofar as same may relate to or affect any part or portion of the work comprehended herein, and hereby undertaken to be done and performed by the Subcontractor, shall, with like force and effect, be determinative and conclusive of any controversy or dispute with reference thereto between the parties to this Agreement and in the event of any such action or proceeding brought against the Contractor by the Owner or the Owner’s successors or assigns, the Subcontractor may, at the option of the Contractor, be brought into such action or proceeding as a third-party defendant.” Reliance is also placed on a broad arbitration clause which appears in section 7.10.1 of the contract between the owner and the general contractor, which is said to have been incorporated in the subcontract by reference, and on the interrelation between these two arbitration provisions.

On March 16, 1977, nine days after the subcontractor’s demand for arbitration, the owner commenced an action in Supreme Court against the general contractor for damages allegedly resulting from delays in the project occasioned by the subcontractor. Thereafter, on March 21, 1977, pursuant to the option granted in section 5(cc) of the subcontract the general contractor impleaded the subcontractor in the owner’s action. Within the statutory 20-day period the general contractor also instituted the present special proceeding to stay the arbitration previously demanded by the subcontractor, contending that the claims that the subcontractor sought to submit to arbitration involved the same "manner or sufficiency of the performance of the work” as formed the basis for the claims asserted by the owner in the legal action against the general contractor. Relying on the terms of the proviso clause of section 5(cc) of the subcontract, the general contractor contended that, because of the identity of subject matter of the two sets of claims, the institution by the owner of the legal action operated, ipso facto, to remove the claims of the subcontractor against the general contractor to the extent of such identity from the reach of arbitration under section 5(cc).

After the subcontractor had made a cross motion to compel arbitration Special Term granted an order staying arbitration "as to all matters which are the subject of the action heretofore instituted” by the owner and of the third-party action, directing that the subcontractor was entitled to arbitration of matters in dispute not involved in the pending action and third-party action and ordering that whether any particular matter arising in the litigation or arbitration is properly to be determined in one forum or the other should "be first determined by the forum in which the issue may first arise”. On cross appeals by the parties, the Appellate Division unanimously modified Special Term’s order, denying the motion to stay and granting the motion to compel arbitration in all respects.

On appeal to this court by the general contractor, we now affirm that modification, albeit on an analysis which differs from that at the Appellate Division. Our determination is predicated on our conclusion that the proviso language of section 5(cc) of the subcontract is not, as the general contractor contends, to be interpreted as an exception to the otherwise broad arbitration provision contained in that section but rather constitutes a restriction on the award which may be made in the arbitration proceeding.

At the outset we observe that while the contract provisions involved in the present case are the same as, and the contentions of the parties as to the interrelation of sections 5(cc) and 7.10.1 are similar to, those in Pearl St. Dev. Corp. v Conduit & Foundation Corp. (41 NY2d 167) — a decision paradoxically relied on by both parties as dispositive of the present case— the dispute between the parties here is quite different from that posed in Pearl St. The issue now before us turns, in our view, not on any interplay between sections 5(cc) and 7.10.1 but on the significance to be given the proviso clause in section 5(cc), on which neither party relied in Pearl St. (supra, p 169, n). Indeed it appears that the provisions of section 7.10.1 of the contract between the owner and the general contractor are irrelevant for the purposes of this litigation, and our disposition of the present appeal is in no way dependent thereon.

We turn then to analysis of the proviso in section 5(cc) and of the interrelation between the different provisions of that section. It is the contention of the general contractor that the proviso clause, in particular because of the earlier phrase, "except as hereinafter provided”, must be understood as imposing a limitation on the scope of the questions to be arbitrated, in effect as excluding certain disputes from submission to arbitration. So to interpret the proviso would produce clumsy consequences which we cannot conclude that the draftsmen intended. Thus, what would initially be arbitrable would suddenly cease to be arbitrable in consequence of the institution of judicial or arbitration proceedings by a third party, the owner, producing an aberational result — arbitrability would then hinge on the act of one not a party to the controversy between the general contractor and the subcontractor. Beyond that, the timing of the third-party act might become significant, even determinative. Thus, what would be the consequence if the proceeding brought by the owner were not begun until after the expiration of the statutory 20 days within which an application for a stay of arbitration must be made (CPLR 7503, subd [c]), or, even later, after the arbitration hearings had begun? In another perspective would it be open to the general contractor to defeat the subcontractor’s right to arbitration by itself instituting an action against the owner? Had the parties intended such apparently bizarre results they could have chosen unmistakable language to prescribe it.

It appears to us that the more natural and reasonable analysis of section 5(cc) is that the parties started out with the broad agreement that "all disputes, controversies or claims of any and all kinds which may arise out of, under or in relation to this agreement, or the breach thereof’ between them would be submitted for settlement in the arbitration forum. It was foreseeable, however, that identical issues arising out of the same fact complex might also arise in litigation or arbitration between the owner and the general contractor, raising the possibility of inconsistent determinations. To avoid that obviously undesirable result the parties laid down a directive to be followed in any arbitration proceeding; they agreed that in the event of such parallel proceedings results reached in the judicial or arbitration proceeding between the owner and general contractor would be determinative and conclusive in all arbitration proceedings between the general contractor and the subcontractor. In other words the exception phrase and the proviso are to be read together as meaning that all disputes are to be submitted to arbitration in the normal manner except that as to disputes which are also raised in proceedings between the owner and the general contractor, the results in the latter shall also determine the outcome in arbitration between the general contractor and the subcontractor. Perhaps to counter possible claims of unfairness, express provision was made for the general contractor to bring the subcontractor into the owner’s action or proceeding. Viewed in this light, the proviso clause establishes a reasonable means for bringing about a practical consistency in the results of two associated but otherwise potentially independent proceedings — at least, if the proceedings between the owner and the general contractor have been instituted prior to the termination of the arbitration proceeding and conceivably even if subsequently instituted.

The appropriateness of this interpretation of the proviso portion of section 5(cc) is underscored when consideration is given to the means devised at Special Term in this case to give effect to the position advanced by the general contractor which that court adopted. It is apparent, as the parties concede, that some of the issues submitted to arbitration by the subcontractor lie outside the ambit of the owner’s action. Where that line is to be drawn, involving, as it undoubtedly will, interpretation of the terms of the contract between the general contractor and the subcontractor, would normally be left under a broad arbitration clause for resolution by the arbitrator (e.g., Pearl St. Dev. Corp. v Conduit & Foundation Corp., 41 NY2d 167, 171, supra; Matter of Exercycle Corp. [Maratta], 9 NY2d 329, 336). Special Term, however, directed that such issues should be "first” resolved in the forum in which each first arose, a result which scarcely could have been within the contemplation of either party to the contract.

In sum, then, we conclude that the present case offers but another application of the basic principle that arbitration is a creature of contract, yielding to agreement which the parties may conclude (Stanley & Son v Trustees of Hackley School, 42 NY2d 436, 438-439; cf. Matter of American Ins. Co. [Messinger — Aetna Cas. & Sur. Co.], 43 NY2d 184, 193-194). It has long been recognized that by agreement the parties may determine the procedures to be followed in arbitration, e.g., by express adoption of the rules of the American Arbitration Association or of other specified rules. In this instance they agreed as to the substantive rule on the basis of which the award was to be made in their arbitration proceedings in a limited class of disputes. So long as their agreement does not transgress a provision of statute or run afoul of public policy it must be accorded full recognition.

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

Judges Jasen, Gabeielli, Wachtler, Fuchsberg and Cooke concur; Chief Judge Breitel taking no part.

Order affirmed, with costs.

      . "7.10.1 All claims, disputes and other matters in question arising out of, or relating to, this Contract or the breach thereof, shall be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association then obtaining unless the parties mutually agree otherwise. This agreement to arbitrate shall be specifically enforceable under the prevailing arbitration law. The award rendered by the arbitrators shall be final, and judgment may be entered upon it in accordance with applicable law in any court having jurisdiction thereof.”

      . The owner’s claims against the general contractor are predicated on the latter’s agreement to be responsible for acts and omissions of its subcontractors.


author: Fuchsberg, J. Jones, J.

text:
    Berley Industries, Inc., Respondent, v City of New York, Appellant.
    Argued September 18, 1978;
    decided November 30, 1978

      POINTS OF COUNSEL

      W. Bernard Richland, Corporation Counsel (James P. Griffin and L. Kevin Sheridan of counsel), for appellant.
    Use of the Eichleay formula to compute alleged increased home office overhead caused by delay is inappropriate. It produces an unrealistic result by unduly focusing solely on the extent of delay. The jury’s award which reflects the use of this formula is, therefore, excessive. (Mars Assoc. v Board of Educ., 53 AD2d 532; Peru Assoc. v State of New York, 70 Misc 2d 775, 39 AD2d 1018; Terry Contr. v State of New York, 42 AD2d 619; Seglin-Harrision Constr. Co. v State of New York, 264 App Div 466; Westcott v State of New York, 264 App Div 463; Rusciano Constr. Corp. v State of New York, 37 AD2d 745,
      789; Snyder Plumbing & Heating v State of New York, 21 Misc 2d 591.)

      Eli Saul Cohn and Franklin E. Tretter for respondent.
    I. The reasonableness of plaintiffs overhead allocation is a question of fact for the jury. (Mars Assoc. v Board of Educ., 53 AD2d 532; Gilroy v American Broadcasting Co., 58 AD2d 533; Hedin Constr. Co. v United States, 347 F2d 235.) II. Appellant has failed to distinguish the cited authorities concerning overhead. (Mars Assoc. v Board of Educ., 53 AD2d 532; Subterrane Corp. v City of New York, 11 Misc 2d 566, 5 AD2d 984.) III. The jury verdict below should not be disturbed. (Lee v Lesniak, 40 AD2d 756; Owen v Rochester-Penfield Bus Co., 304 NY 457; Matter of Kornblum Metals Co. v Intsel Corp., 38 NY2d 376; Wadsworth v Delaware, L. & W. R. R. Co., 296 NY 206; Haftel v Kestler, 53 AD2d 572; Marion v McCasland, 16 AD2d 781.)
   OPINION OF THE COURT

Fuchsberg, J.

This action for breach of a construction contract addresses the circumstances in which a mathematically stated rule, such as the so-called "Eichleay formula”, may be applied to determine the amount of home office overhead, if any, which may be included in arriving at a contractor’s delay damages.

Plaintiff, Berley Industries, was the heating, ventilating, and air conditioning contractor for a combined 48th precinct police station and firehouse then being constructed by the City of New York. The contract price was in excess of $472,000. It is conceded that, for causes attributable to the city, plaintiff was unable to start on this project for many months after it received notice to proceed. As a result, some of its work was not completed until 355 days after the two years stipulated in the agreement had gone by. At the two-year mark, as measured in monetary terms, Berley had completed 87% of its undertaking, leaving only approximately $60,000 worth left to be done. It should also be noted that this was but one of 11 construction contracts aggregating over $5,800,000 which plaintiff was engaged in performing at the same time.

Berley’s suit, inter alia, sought damages for increased home office overhead expenses during the period of the overrun; presumably, to the extent of all but that represented by the final $60,000, it had already been compensated for its regular overhead expenses by the very terms of its contract with the city. At trial, the sole proof it introduced to establish the increase took the form of testimony by its Comptroller. This witness, who had not been in Berley’s employ at the time the contract was fulfilled and had no personal knowledge of the facts, calculated the increase in home office overhead at $19,262. He did so solely by applying an arithmetical procedure which he claimed he had developed, but which counsel later referred to as the "Eichleay formula”. It consisted of no more than the use of Berley’s total billings during the period as a denominator of a fraction of which the billings for the 48th Street precinct was the numerator, the multiplication of that fraction by Berley’s total home office expenses for the same period, the division of the sum so produced by the number of days involved in the period and, finally, treating the result as though it were the daily additional overhead for 48th Street, multiplication of it by the 355-day overrun.He provided no substantiation that even a single penny’s increase in overhead beyond what the rest of the plaintiff’s business would in any event have required had in fact been incurred.

Over objection, Trial Term submitted the Comptroller’s formula and calculations to the jury, which returned a verdict in Berley’s favor. The judgment entered thereon was affirmed by a divided Appellate Division, but only on constraint of its prior decision in Mars Assoc. v Board of Educ. (53 AD2d 532). The ensuing analysis persuades us that its order should be reversed.

It is fundamental to the law of damages that one complaining of injury has the burden of proving the extent of the harm suffered (e.g., Haughey v Belmont Quadrangle Drilling Corp., 284 NY 136; Palsgraf v Long Is. R. R. Co., 248 NY 339). Delay damages, including ones in overhead, are no exception. A contractor wrongfully delayed by its employer must establish the extent to which its costs were increased by the improper acts because its recovery will be limited to damages actually sustained (Uvalde Asphalt Paving Co. v New York, 196 App Div 740, 762; Encyclopedia, New York Law, Damages, § 565, pp 20-21). Speculation or conjecture will not suffice (25 Fifth Ave. Mgt. Co. v Ivor B. Clark, Inc., 280 App Div 205, affd 304 NY 808; Restatement, Contracts, § 331; 13 NY Jur Damages, § 16).

Particularly in actions ex contractu, however, when it is clear that some injury has been occasioned, recovery will not necessarily be denied a plaintiff when it is apparent that the quantum of damage is unavoidably uncertain, beset by complexity or difficult to ascertain (cf. Reynolds Securities v Underwriters Bank & Trust Co., 44 NY2d 568; Matter of Rothko, 43 NY2d 305; Bigelow v RKO Radio Pictures, 327 US 251). The law is realistic enough to bend to necessity in such cases. A jury then may draw reasonable inferences from the other, though lesser, proofs actually presented in order to arrive at an estimate of the amount of extra costs which are the natural and probable result of the delay (Jones Co. v Burke, 306 NY 172; Dunkel v McDonald, 272 App Div 267, affd 298 NY 586). Even then, there must be a definite and logical connection between what is proved and the damages a jury is asked to find (see Dunkel v McDonald, supra; 13 NY Jur Damages, § 16, p 441).

It is relevant to the application of these principles that, in the case before us now, any increase in home office overhead was not merely hard to measure, but was lacking altogether. True, unlike job site overhead increases whose relationship to a particular job will usually be capable of direct proof, the connection between home office overhead increases and delay in a particular project will more often be indirect. But because proof is indirect does not mean it does not exist. Here there was no showing that the delay caused an increase in home office activity or expense of any kind. So far as the record shows, all expenditures for office overhead may have been completed when the 87% level was reached. Nor was there any showing that this was a case where the delay precipitated, or was precipitated by, engineering or design problems that call for central staff consideration. Above all, there was no claim by the plaintiff that proof was not available. It fell back, instead, on the formula it put forth through the Comptroller.

The mathematical formula did not fill the void. At not a single point in the equation which it set up was there a component which represented an actual item of increased costs, whether attributable to the delay on the city’s job or not. The computation it essayed was therefore no less speculative because it was cast in a mathematical milieu. And, insofar as it was offered as a substitute for direct evidence of overhead damage, there was no accompanying foundation from which it could be found that, because of the character of Berley’s business, increased overhead attributable to delay was impossible of proof without the aid of the formula. Nor was there any attempt to prove that the formula was logically calculated to produce a fair estimate of actual damages. Absent these preconditions, it was but an unsupported opinion. It did not serve to expand Berley’s ability to recover any more than the reasonable value of any additional home office expenses it might have been able to prove by other means.

In rejecting the formula we, of course, are aware of the fact that, under the Eichleay nomenclature, it has been applied in a series of home office cases, which for the most part accept the formula largely without analysis and almost as a matter of administrative convenience (e.g., Luria Bros. & Co. v United States, 369 F2d 701 [US Court of Claims; FBI audit in advance of trial accepted pursuant to stipulation between parties]; Hedin Constr. Co. v United States, 347 F2d 235 [US Court of Claims; Government did not challenge commissioner’s figure]).

The case before us readily reveals how the mechanical imposition of a formula akin to the one advanced by the plaintiff can all too easily bring a harsh daily penalty when only compensatory damages are warranted or even when the doctrine of damnum absque injuria is in order. For all practical purposes, it would completely ignore the safeguards against overreaching and arbitrariness to which the law of evidence has long been committed. As Justice (now Presiding Justice) Murphy pointed out in his dissent below, "The damages computed under the 'Eichleay formula’ would be the same in this case whether the plaintiff had completed only 1% or 99% of the job on the scheduled completion date of May 7, 1971. This rather bizarre result is caused by the fact that the 'Eichleay formula’ focuses on the length of the delay to the exclusion of many other important factors bearing on actual damages. If, on May 7, 1971, the plaintiff was merely required to spend $100 to complete the job, the 'Eichleay formula’ would still require that the defendant pay $19,262 for the 335-day delay * * * I can only conclude that the mathematical computations under the 'Eichleay formula’ produce a figure with, at best, a chance relationship to actual damages, and at worst, no relationship at all”. Neither at argument nor in its brief did plaintiff deny the implications of this critique.

Nor is this all. Assuming there had been proof of increased home office expenses in this case, the formula here would have distorted them. Only $60,000 of work was to be performed during the overrun time. Yet, in the fixing of its proportion of any assumed increase, the formula would be asking the city to bear not just a share based on the mathematical relationship between that sum and the plaintiff’s total billings during the period of protraction. It would also be burdened with a sum based on the 87% of the $472,000 contract which had not been delayed and, consequently, did not reflect work to be performed during this period. The failure to recognize the distinction between the 87% already performed and the 13% remaining to be performed would multiply the amount of the damages.

The reach of the hypothetical damages which the formula would generate is also demonstrated by the present case. The $19,262 which the Comptroller arrived at as the city’s share of "increased” home office overhead here was more than all other damages found for the delay, including the costs of materials and labor at the job site where the balance of the contract was actually fulfilled.

Accordingly, since it was error to submit the Comptroller’s formula to the jury, the order of the Appellate Division should be reversed and the case remitted to the trial court for a new trial limited to the issue of delay damages.

Jones, J.

(concurring). I am in agreement with the majority as to the disposition of this appeal. I cannot concur, however, in as broad an apparent condemnation of the so-called Eichleay formula as the majority opinion might be read to express.

In my analysis the Eichleay formula may be a useful and acceptable tool in some cases for measuring damages when there is an unavoidable inability precisely to allocate items of head-office expense to a particular construction project. Indeed on the new trial that could prove to be true in this case.

The difficulty with the determination of damages made by the jury here, which mandates reversal, is that the claimant, which had the burden of proof, wholly failed in this instance to introduce evidentiary proof which might have served as a predicate for application of the Eichleay formula (or indeed of any other formula). As the majority opinion points out, there is no direct proof in this record that the delay caused any additional office overhead expense. Absent evidence that there was some such damage, there is no occasion to apply any rule to measure its extent. Because the jury here did not separately identify the component of office overhead in its general verdict as to delay damages, there must be a new trial on the issue of damages.

If it can be shown that the maintenance of head-office functions, in whole or more likely in part, was required to complete the balance of the work to be performed, a determination may then be in order as to the proper amount of the total office expense properly to be allocated to the conceded delay. There must be some evidence, however, of the causal relationship between delay and additional expense incurred. Depending on the proof, the Eichleay formula might be one acceptable means of measuring this component of the damages sustained by claimant in consequence of the delay.

I would also suggest that it is irrelevant that in the abstract the Eichleay formula, related as it directly is to the period of delay, would produce the same result whether there remained 1% or 99% of the job to be completed. The determinative consideration must be the extent of head-office services required for the completion of the job. That in turn would depend, not on any ratio of the work to be completed to total work to be performed, but on the nature of the work that remained to be completed and the extent to which head-office services and facilities were reasonably required for such completion.

In short, in my analysis, the difficulty in this instance is not with the Eichleay formula itself but arises from the total absence of proof to warrant its application.

Judges Gabrielli, Wachtler, and Cooke concur with Judge Fuchsberg; Judge Jones concurs in a separate opinion in which Chief Judge Breitel and Judge Jasen concur.

Order reversed, with costs, and the case remitted to Supreme Court, New York County, for a new trial limited to the issue of delay damages.

      . From Eichleay Corp. ([CCH] 60-2 BCA, par 2688).

      . The steps in this process may be restated as follows:
      1. Billings for this Contract X Total Overhead for Period = Allocable Overhead
      Total Billings for Period
      2. Allocable Overhead = Daily Contract Overhead
      Days of Performance
      3. Daily Overhead X No. of Days Delay = Overhead Claimed
      The applicable figures were:
      1. $473,071 X $568,352 = $46,342 2. $46,342 = $57.50 3. $57.50 X 335 = $19,262
      5,801,952 806

      . The $19,262 was part of a larger claim for total delay damages in the amount of $45,-499 (inclusive of any job site overhead damage). Two nonoverhead items in the amount of $5,649 and $2,223 having been withdrawn from that total, the net claim was for $37,627, leaving only $18,365 for all but the $19,262 home office overhead claim. (The total verdict was for $34,696.55.)


text:
    In the Matter of Sam Gordon, as Administrator of the Estate of Ida Gorodetsky, Deceased, Respondent, v Bialystoker Center and Bikur Cholim, Inc., Appellant.
    Argued October 17, 1978;
    decided December 6, 1978

      POINTS OF COUNSEL

      Norman L. Rosenthal for appellant.
    I. In this action to recover moneys donated by decedent to defendant charitable institution, the court below erroneously invoked a contract doctrine of constructive fraud; instead of having the burden of showing that the donations were freely and voluntarily made, defendant had improperly cast upon it the burden of showing that it did not acquire decedent’s property by fraud, undue influence or coercion. (Reoux v Reoux, 3 AD2d 560; Cowee v Cornell, 75 NY 91; Matter of Bartel, 33 AD2d 987; Matter of Corse, 16 Misc 2d 538; Matter of Van Alstyne, 207 NY 298; Matter of Sherman, 227 NY 350.) II. Even if a contract doctrine of constructive fraud were applicable to the case at bar, in the absence of clear and convincing evidence of misconduct, public policy should bar the shift to a charitable institution of the burden of exculpating itself from a charge of fraud, undue influence and coercion. (Palmer v Palmer, 162 NY 130; Matter of Diocese of Rochester v Planning Bd. of Town of Brighton, 1 NY2d 508; People ex rel. Watchtower Bible & Tract Soc. v Haring, 8 NY2d 350; Allegheny Coll, v National Chautauqua County Bank, 246 NY 369; Home & Hosp. of Daughters of Israel v President & Directors of Manhattan Co., 285 App Div 1135; Matter of Heim, 255 App Div 1007.) III. On November 3, 1972 decedent and defendant charitable institution dealt on terms of equality; no confidential relationship existed between them; the transfer of $15,000 was free and voluntary and was a valid gift by decedent to defendant charitable institution. (Stout v Smith, 98 NY 25.) IV. Having placed decedent’s donation in issue, it was improper, inequitable and oppressive for plaintiff administrator to invoke the social worker privilege; he should have been estopped from asserting entitlement to the benefits of a shift in the burden of proof. (Bauman v Steingester, 213 NY 328; People v Buchanan, 145 NY 1; People v Rodriguez, 38 NY2d 95; People v Ressler, 17 NY2d 174; People v Melski, 10 NY2d 78; Matter of Levinsky, 23 AD2d 25; Grueling v Breakey, 56 AD2d 540; Brooks v Hausauer, 51 AD2d 660; Moses v Woodbury, 54 AD2d 961; Josephs v Oliver, 48 AD2d 688; Fitzgerald v Burbank & Co., 451 F2d 670.) V. On November 13, 1972, no confidential relationship existed between decedent and defendant charitable institution; the underlying agreement evidencing decedent’s intent to donate the balance of her moneys upon her death was fair and reasonable; the residual donation was a valid gift. VI. The order of the court below constitutes an unwarranted forfeiture by appellant of decedent’s donation. (Tebin v Moldock, 19 AD2d 275, 14 NY2d 807.)

      Sanford S. Kan tor for respondent.
    I. Due to the inequality of the parties, the transaction is presumed to be void and defendant had the burden of proving the integrity and fairness of the transaction and, the complete understanding of Ida Gorodetsky. (Allen v La Vaud, 213 NY 322; Ten Eyck v Whitbeck, 156 NY 341; Barnard v Gantz, 140 NY 249; Green v Roworth, 113 NY 462; Matter of Smith, 95 NY 516; Cowee v Cornell, 75 NY 91; Reoux v Reoux, 3 AD2d 560.) II. A special fiduciary, or confidential relationship existed between the parties. (Mazza v Cillis, 267 App Div 266; Sachs v Cluett, Peabody & Co., 265 App Div 497; Allen v La Vaud, 213 NY 322; Matter of Corse, 16 Misc 2d 538; Matter of Phillips, 12 Misc 2d 402.) III. Ida Gorodetsky did not possess and display the requisite capacity needed to contract. (Ortelere v Teachers Retirement Bd., 25 NY2d 196.) IV. Fraud, duress and undue influence were practiced upon the deceased. (Arakjinjian v Arakian, 268 App Div 41; Rider v Miller, 86 NY 507.)
   OPINION OF THE COURT

Jones, J.

In this action to recover property transferred as a gift to a charitable nursing home for the elderly and infirm by one of its patients, the donee bears the burden of proving by clear and convincing evidence that the gift was voluntarily and understandingly made by the donor, uninfluenced by fraud, duress or coercion.

By this action the administrator of the estate of Ida Gorodetsky seeks to recover from the nursing home in which Ida was a resident at the time of her death the balance of funds transferred to the home by Ida less than a month preceding her death, over and above the cost of care provided to her during her 22-day stay at the nursing home and her funeral expenses.

Evidence produced at the trial, without a jury, disclosed that on August 8, 1972 the decedent, Ida, who was 85 years old and had lived alone for the past 10 years, was admitted to Brooklyn-Cumberland Hospital after having suffered a stroke with resulting partial paralysis. (The social worker assigned to her at the hospital later learned that she had two brothers and a niece but that the relatives had not been close to her; the niece stated that neither she nor her father had seen Ida for at least 10 years.) The attending physician at the hospital, who saw the patient daily from the time of admission to her removal to the infirmary of defendant nursing home on November 13, 1972, testified that she was confused, drowsy and at times semicomatose, partially paralyzed, unresponsive and uncooperative, sometimes required to be restrained for her own safety and of impaired hearing. He stated that she was not coherent, could not be understood and was not capable herself of understanding. There was little change in her condition during the entire period of her stay at the hospital.

At the suggestion of an acquaintance of Ida, in October, 1972 defendant nursing home, with which decedent had had no prior association, sent one of its staff social workers to the hospital to see the elderly lady. After the nursing home had learned that Ida had funds of her own the director sent the social worker back to see Ida again on November 3, 1972 for the purpose of having a withdrawal slip signed by the decedent so that funds could be obtained to pay for her care at the nursing home, a request having by then been made for her admittance to the home. At that time Ida had the sum of $27,864.46 — which represented her total assets — on deposit in the Lincoln Savings Bank. The social worker secured Ida’s mark on two withdrawal slips in the presence of two social workers at the hospital and a notary public. One withdrawal slip authorized the issuance of a check in the amount of $15,000 payable to the nursing home for the "Benefit of Ida Gorodetsky”. At the instruction of the executive director of the home, the social worker presented that withdrawal slip to the savings bank on November 6, 1972 and deposited the check that she received in the general fund of the home as a donation. The second withdrawal slip, made out for $14,000, was not presented to the savings bank because it exceeded the balance in Ida’s account after the $15,000 had been withdrawn.

On November 13, 1972 Ida was moved to the infirmary of the nursing home and examined by the staff physician, who found that she was unable to speak, made no spontaneous movement and was paralyzed in both hands. That same day, within an hour and a half of admission, she was visited by a group consisting of the executive director of the institution, its fund raiser, one of its social workers and a notary public and was presented with a collection of instruments on each of which she placed her mark. The instruments included an application for admission to the home, an admission agreement, a withdrawal slip on the Lincoln Savings Bank in the amount of $12,864.46 (the balance in the account), an assignment to the home of the $12,864.46 in the savings account and a letter which made a donation to the nursing home of the $15,000 previously withdrawn by the issuance of a check payable to the home and which also directed that any balance of the assigned funds, after payment of fees due to the home for Ida’s care during her life and of funeral expenses, be retained by the home as a donation.

Ida died on December 5, 1972 while still a resident of defendant home. The administrator of her estate, a brother, commenced this action to recover the $15,000 obtained by the home by presentation of the withdrawal slip on November 6 and the balance of the remaining funds assigned on November 13, less amounts applied to Ida’s care and funeral expenses. Supreme Court dismissed the complaint, concluding that plaintiff had failed to meet the burden of proving fraud or undue influence which the court imposed on plaintiff and also that, having failed to sustain the burden of proving that Ida did not understand the nature of her acts, plaintiff had failed to establish his right to recovery. The Appellate Division reversed and granted judgment to plaintiff, finding that, because the decedent and defendant did not act from positions of equality, only slight evidence was required to shift to defendant donee the burden of proving by clear and satisfactory evidence that the transfer of the claimed gift was freely and voluntarily made, and that, because a confidential relationship existed between the parties, the burden was on defendant to establish that it did not acquire decedent’s property by fraud, undue influence or coercion, which burden defendant failed to meet.

The order of the Appellate Division should be affirmed.

It is indisputable that on November 13, 1972, when the gift on which defendant predicates its claim to the funds in dispute was made, there existed between the donor and donee a fiduciary relationship arising from the nursing home’s assumption of complete control, care and responsibility of and for its resident. As the executive director of that institution testified at some length, the residents of the nursing home are dependent on the home "to take care in effect of their very livelihood, their existence”; they "rely upon the people in the home to take care of them * * * They have no means of taking care of themselves”, and ask and receive help from the staff of the home. According to the witness, "every one of [the residents’] particular needs * * * is administered to them by the help, the nurses or the doctors” of the home and in many instances — as was the case with the decedent — "they .have no other source of getting that kind of help and don’t get any help other than from the institution”. The acceptance of such responsibility with respect to the aged and infirm who, for substantial consideration availed themselves of the custodial care offered by the institution, resulted in the creation of a fiduciary relationship and the applicability of the law of constructive fraud. Under that doctrine, where a fiduciary relationship exists between parties, "transactions between them are scrutinized with extreme vigilance, and clear evidence is required that the transaction was understood, and that there was no fraud, mistake or undue influence. Where those relations exist there must be clear proof of the integrity and fairness of the transaction, or any instrument thus obtained will be set aside or held as invalid between the parties” (Ten Eyck v Whitbeck, 156 NY 341, 353). As was said long ago, in articulating the concept of constructive fraud: "It may be stated as universally true that fraud vitiates all contracts, but as a general thing it is not presumed but must be proved by the party seeking to relieve himself from an obligation on that ground. Whenever, however, the relations between the contracting parties appear to be of such a character as to render it certain that they do not deal on terms of equality but that either on the one side from superior knowledge of the matter derived from a fiduciary relation, or from an overmastering influence, or on the other from weakness, dependence, or trust justifiably reposed, unfair advantage in a transaction is rendered probable, there the burden is shifted, the transaction is presumed void, and it is incumbent upon the stronger party to show affirmatively that no deception was practiced, no undue influence was used, and that all was fair, open, voluntary and well understood. This doctrine is well settled” (Cowee v Cornell, 75 NY 91, 99-100). So here, the Appellate Division properly concluded that defendant, rather than plaintiff (as the Justice at Trial Term had held), bore the burden of proof on the issue whether Ida’s gift of funds was freely, voluntarily and understandingly made. Examination of the record demonstrates without cavil the correctness of the Appellate Division’s determination that that burden had not been met.

Both the Trial Justice and defendant focus on the absence of any fiduciary relationship between Ida and the nursing home on November 3, 1972.(the date on which she executed withdrawal slips for defendant’s social worker while still a patient in Brooklyn-Cumberland Hospital) and from that fact have moved to the conclusion that the burden of proof had not shifted to the nursing home. To this there are two responses. What is overlooked is the circumstance that in legal contemplation the gift of funds was not effected at that time but was completed on November 13, after the donor had become a resident at the home, when the instrument of donation was executed. Defendant’s executive director testified repeatedly that when she sent the social worker to see Ida in the hospital on November 3 to have a withdrawal slip executed it was "to get funds for the woman to stay at the home”. That the nursing home itself regarded the gift as made on November 13 is evident from the letter which the director and others presented to Ida for execution when she was admitted to the home on that date, the first paragraph of which states, "I do hereby make a donation of the sum of $15,000 to the Bialystoker Center and Bikur Cholim, Inc., also known as Bialystoker Home and Infirmary for the Aged, located at 228 East Broadway, New York, New York” and which recites the fact of her previously having executed a withdrawal slip for such sum for the issuance of a check to the home. It is therefore the relationship which existed on November 13, and not the absence of a relationship on November 3, which fixes the burden of proof in the present action.

Beyond that, even were the donation to be viewed as having been made on November 3, there was then such an inequality of position in this instance between the hospital patient and the nursing home as to warrant the imposition on the latter of the burden of proof prescribed by the Appellate Division. The home was aware of the patient’s mental and physical infirmities and weakness. Nothing to that point had remotely suggested that the patient might be disposed to make a gift to the home, or indeed that she even knew of its existence. The parties were brought together only in contemplation of the patient’s transfer to the home; the transaction between them had no other meaning. That the patient was inescapably reposing confidence in the home from the moment of their first encounter was implicit in the circumstances.

We reject out of hand defendant’s contention that, as a charitable organization, it should not be made subject to the same evidentiary burden that would be imposed on a profit-making institution. However worthy may be the objectives to which its funds are dedicated, no justification exists for relieving it of the obligation, when circumstances suggest a substantial risk of overreaching, of affirmatively demonstrating that assets it has acquired have come to it from a willing and informed donor, untainted by impermissible initiative on the part of the donee.

Finally, defendant argues that reversible error was committed by the exclusion of testimony by the two social workers who were present in Ida’s hospital room on November 3 when she executed the first two withdrawal slips on her savings bank account. The trial court’s ruling was predicated on the social worker privilege created by CPLR 4508 and a conclusion that no effective waiver of the privilege had been made by plaintiff administrator. We observe that the language appearing in this section, descriptive of what the statute protects against, what material is protected and what effects a waiver, is different from that employed in other statutory sections establishing testimonial privilege (CPLR 4503, 4504, 4505, 4507). However, we find it unnecessary to consider whether the offered proof came within the protected embrace of CPLR 4508 or whether having placed Ida’s mental condition in issue, the administrator of her estate was estopped to raise the bar of CPLR 4508 (cf. Koump v Smith, 25 NY2d 287, 294). Noting also that in our court the respondent does not address the correctness of the exclusionary ruling, we assume for purposes of the present appeal that the excluded testimony should have been received. We conclude, however, that its exclusion does not dictate a reversal. Taken in the view most favorable to the nursing home, the testimony offered, in conjunction with the other evidence in the case, was insufficient as a matter of law to sustain the burden of proof resting on the nursing home.

Accordingly, there being no reversible error in the disposition at the Appellate Division, the judgment appealed from and the order of the Appellate Division thereby brought up for review should be affirmed, with costs.

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

Judgment appealed from and order of the Appellate Division brought up for review affirmed, with costs.