author: Levine, J.

text:
    [663 NE2d 881, 640 NYS2d 840]
    In the Matter of Francis S., Appellant. District Attorney of New York County et al., Respondents.
    Argued November 29, 1995;
    decided December 28, 1995

      POINTS OF COUNSEL

      Stephen J. Harkavy, New York City, Starr McFerrin-Clancy and Felice Wechsler for appellant.
    I. It is constitutionally impermissible to apply the recommitment procedures prescribed in CPL 330.20 (14) to insanity acquittees adjudged not to have a dangerous mental disorder at their initial hearing and subsequently released into the community. (Jones v United States, 463 US 354; Addington v Texas, 441 US 418; Jackson v Indiana, 406 US 715; Humphrey v Cady, 405 US 504; O’Connor v Donaldson, 422 US 563; People v Stone, 138 AD2d 4; Baxstrom v Herold, 383 US 107; Bolton v Harris, 395 F2d 642; United States ex rel. Schuster v Herold, 410 F2d 1071; People ex rel. Henig v Commissioner of Mental Hygiene, 43 NY2d 334.) II. Assuming, arguendo, the constitutionality of the recommitment provision, the State’s failure to timely serve appellant or incorporate a legally sufficient affidavit with its recommitment application deprived the court of jurisdiction over appellant. (People v Stone, 73 NY2d 296; People ex rel. Auad v Director of Buffalo State Hosp., 48 Misc 2d 1009; Bova v Vinciguerra, 139 AD2d 797; People ex rel. Thorpe v Von Holden, 63 NY2d 546.) III. The determination of the trial court that appellant did not currently constitute a physical danger to himself or others as a result of mental illness was compelled by the legally competent evidence adduced at trial and should not have been disturbed. (City Univ. of N. Y. v Finalco, Inc., 129 AD2d 494; 829 Seventh Ave. Co. v Reider, 111 AD2d 670, 67 NY2d 930; Matter of Mental Hygiene Legal Servs. v Wack, 75 NY2d 751; Rivers v Katz, 67 NY2d 485.) IV. The recommitment application must be denied as a matter of substantive due process. (Faucha v Louisiana, 504 US 71; Matter of Torsney, 47 NY2d 667; Matter of Seltzer v Hogue, 187 AD2d 230; United States v Bilyk, 29 F3d 459; Levine v Torvik, 986 F2d 1506.)

      Dennis C. Vacco, Attorney-General, Albany (Howard L. Zwickel, Victoria A. Graffeo and Andrea Green of counsel), for Commissioner, New York State Office of Mental Health, respondent.
    I. The recommitment application was commenced in a timely manner and was properly supported by the affidavit of the psychiatrist who had treated defendant when he was most recently in an Office of Mental Health facility. (People v Stone, 138 AD2d 4, 73 NY2d 296; Matter of Jill ZZ., 83 NY2d 133; People ex rel. Thorpe v Von Holden, 63 NY2d 546.) II. The determination of the Court below that the Commissioner had satisfied his burden that defendant had a "dangerous mental disorder” was not an abuse of its discretion as a matter of law, was entirely reasonable based upon the record before the Court and did not offend substantive due process. (Matter of George L., 85 NY2d 295; Matter of Seltzer v Hogue, 187 AD2d 230; Northern Westchester Professional Park Assocs. v Town of Bedford, 60 NY2d 492; Stiles v Batavia Atomic Horseshoes, 81 NY2d 950; Hendrickson v Hodkin, 276 NY 252; Foucha v Louisiana, 504 US 71; Jones v United States, 463 US 354; Jackson v Indiana, 406 US 715; Matter of Mental Hygiene Legal Servs. v Rhodes, 195 AD2d 160.) III. Defendant’s recommitment to a secure facility under the CPL does not violate Federal or State guarantees of due process of law. (People v Stone, 73 NY2d 296; Jones v United States, 463 US 354; People ex rel. Henig v Commissioner of Mental Hygiene, 43 NY2d 334; Foucha v Louisiana, 504 US 71; Matter of Zamichow, 176 AD2d 807, appeal dismissed sub nom. Matter of Lloyd Z., 79 NY2d 851.)

      Robert M. Morgenthau, District Attorney of New York County, New York City (Morrie I. Kleinbart, Norman Barclay and Gary J. Galperin of counsel), respondent pro se.

    I. The supported and undisturbed factual findings of the trial court that defendant suffers from a dangerous mental disorder are beyond review in this Court. (Matter of Torres [People], 166 AD2d 228, 78 NY2d 1085; Matter of Francis S., 206 AD2d 4; Matter of George L., 85 NY2d 295; People v Bolden, 81 NY2d 146; Doctor’s Council v New York City Employees’ Retirement Sys., 71 NY2d 669; Town of Massena v Niagara Mohawk Power Corp., 45 NY2d 482; Schubtex, Inc. v Allen Snyder, Inc., 49 NY2d 1; Wragge v Lizza Asphalt Constr. Co., 17 NY2d 313; Matter of Mental Hygiene Legal Servs. v Wack, 75 NY2d 751; Foucha v Louisiana, 504 US 71.) II. CPL 330.20 (14) is constitutional. (Addington v Texas, 441 US 418; Matter of George L., 85 NY2d 295; Jones v United States, 463 US 354; New York Pub. Interest Research Group v Carey, 42 NY2d 527; Park Ave. Clinical Hosp. v Kramer, 19 NY2d 958; Mount St. Mary’s Hosp. v Catherwood, 26 NY2d 493; Matter of New York State Inspection, Sec. & Law Enforcement Empls. v Cuomo, 64 NY2d 233; Mathews v Eldridge, 424 US 319; Hickey v Morris, 722 F2d 543; Glatz v Kort, 807 F2d 1514.) III. There was no jurisdictional impediment to the conduct of the recommitment proceeding. (People v Escobar, 61 NY2d 431; People ex rel. Thorpe v Von Holden, 63 NY2d 546; People ex rel. Logatto v Hanes, 93 AD2d 676; Augustowski v Commissioner of Off. of Mental Health, 118 Misc 2d 277.)

      Davis Polk & Wardwell, New York City (John J. Clarke, Jr., Frank S. Moseley, Odgen N. Lewis, Thomas P. Ogden and Christopher J. Sprigman of counsel), for American Alliance for Rights & Responsibilities and others, amici curiae.

    CPL 330.24 (14) is constitutional. (People v Pagnotta, 25 NY2d 333; Matter of Van Berkel v Power, 16 NY2d 37; People v Escobar, 61 NY2d 431; Jackson v Indiana, 406 US 715; Jones v United States, 463 US 354; Baxstrom v Herold, 383 US 107; Foucha v Louisiana, 504 US 71; Addington v Texas, 441 US 418; Matter of Zamichow, 176 AD2d 807.)
   OPINION OF THE COURT

Levine, J.

In 1987, with the permission of the court and the consent of the People, defendant Francis S. entered a plea of not responsible by reason of mental disease or defect to charges of attempted assault in the first degree and possession of a weapon in the third degree (see, CPL 220.15). Before accepting that plea, the court made the requisite finding "that each element of [each] offense * * * charge[d] in the indictment would be established beyond a reasonable doubt” (CPL 220.15 [5] [a]). Following a psychiatric examination and initial hearing to assess his present mental condition (see, CPL 330.20 [2], [6]), he was determined to be a "track 2” insanity acquittee, that is, mentally ill but not suffering from a dangerous mental disorder (see, Matter of Jill ZZ., 83 NY2d 133, 137), and was remanded to the custody of the Commissioner of Mental Health (the Commissioner) to be civilly committed for a four-month period (see, CPL 330.20 [7]). The hearing court also issued a five-year order of conditions, which required defendant, inter alla, to comply with the terms of the treatment plan prescribed for him by the Office of Mental Health (OMH).

Pursuant to that plan, defendant was treated on both an inpatient basis in a nonsecure facility and on an outpatient basis at various State psychiatric clinics over the next several years. However, in early 1991, he unilaterally changed his treatment center in violation of his order of conditions.

That order of conditions was due to expire August 7, 1992. On August 4, 1992, the Commissioner applied for a recommitment order seeking to have S. placed in a secure facility on the ground that because of his mental condition he currently presented a danger to himself or others (see, CPL 330.20 [14]; CPL 330.20 [1] [c]). OMH reached this conclusion based on S.’s persistent noncompliance with the order of conditions, his psychiatric history, and the circumstances underlying his arrests on several occasions during 1991 and 1992. Although S. could not initially be located and failed to appear on the recommitment application’s return date, he was brought before the hearing court following his arrest on new criminal charges.

S. moved to dismiss the application on both constitutional and statutory jurisdictional grounds. The court denied the motian in all respects and held a hearing to determine whether S. currently suffered from a dangerous mental disorder — the requisite statutory basis for recommitment under CPL 330.20 (14).

The hearing evidence consisted primarily of expert psychiatric evaluations and evidence of S.’s treatment history and his numerous arrests in the more than five years since he was permitted to plead not responsible. Six psychiatrists testified, three on behalf of the State petitioners and three on behalf of defendant. All six agreed that S. was suffering from a mental disorder; the primary source of disagreement was over whether S. currently suffered from a dangerous mental disorder requiring inpatient care. However, even S.’s expert witnesses agreed that if he were to revert to alcohol and drug abuse upon release, his condition would deteriorate.

At the conclusion of the hearing, Supreme Court found that S. was mentally ill. The court also found it highly likely that upon release, S. would revert to uncontrollable behavior and would relapse into substance abuse. The court nevertheless felt constrained under the authority of Matter of Torres (People) (166 AD2d 228, affd for reasons stated below 78 NY2d 1085) to deny the recommitment application because, as a result of his present hospitalization and enforced medication, S.’s dangerous behavior had diminished.

The Commissioner of Mental Health and the District Attorney (who had appeared in support of the recommitment application as permitted by CPL 330.20 [14]) appealed. A three-Justice majority at the Appellate Division (with one Justice dissenting) concurred with Supreme Court’s finding of mental illness but held that S.’s temporary stabilization in the hospital did not preclude a finding of current dangerousness (206 AD2d 4, 6-7). Upon its review of the hearing evidence, the Appellate Division found that S. was suffering from a dangerous mental disorder and, rejecting defendant’s constitutional and jurisdictional claims, reversed and granted the recommitment application (id., at 21-22). That Court granted defendant leave to appeal, and we now affirm.

Initially, we reject defendant’s contention that the Appellate Division’s finding that he was suffering from a dangerous mental disorder is erroneous. Both Supreme Court and the Appellate Division found that defendant suffered from a mental illness, the first element of a dangerous mental disorder, and because that finding is supported by evidence in the record it is beyond our further review (see, Dalton v Educational Testing Serv., 87 NY2d 384, 391; Humphrey v State of New York, 60 NY2d 742, 743). Moreover, Supreme Court applied an erroneous legal standard in finding that the second element of a dangerous mental disorder — his current dangerousness as a result of his mental illness — had not been established solely because S.’s condition was stabilized during hospitalization (see, Matter of George L., 85 NY2d 295, 303-305). On the other hand, the Appellate Division majority quite properly based its determination that S. had a dangerous mental disorder on his history of prior relapses into violent behavior and of recurrent substance abuse and noncompliance with treatment programs upon release (see, id., at 308). Thus, in our view, the Appellate Division’s finding of S.’s present dangerousness more nearly comports with the evidence in the record (see, Matter of Mental Hygiene Legal Servs. v Wack, 75 NY2d 751, 752).

We likewise reject S.’s argument that statutory predicates for the hearing court’s jurisdiction were not met. S. argues that, because he was not served with notice of the application for recommitment until after his order of conditions had expired, the application was not timely. However, CPL 330.20 (14) does not require that notice be served upon the defendant during the pendency of the order of conditions, but instead, requires only that the application be made within that time frame (see, id. ["At any time during the period covered by an order of conditions an application may be made * * * to the court * * * for a recommitment order”]), and that the defendant be "give[n] written notice of the application” (id.). As there is no dispute that the Commissioner applied for the recommitment order prior to the date the order of conditions was to expire, the jurisdictional requirement of subdivision (14) was met.

S. also maintains that the hearing court lacked jurisdiction to entertain the recommitment application because it was not supported by a legally sufficient psychiatric affidavit as required by CPL 330.20 (20). According to that provision, any application by the Commissioner for an order pursuant to CPL 330.20 must be supported by an affidavit from at least one psychiatric examiner setting forth the defendant’s clinical diagnosis, the examiner’s opinion with respect to the application, and a detailed analysis of the defendant’s mental condition which caused the examiner to formulate that opinion (CPL 330.20 [20]). We agree with the Appellate Division that the affidavit of Dr. Castillo and accompanying exhibits satisfied the statutory criteria in all respects. While Dr. Castillo’s affidavit could have been more detailed, it contained a diagnosis (bipolar disorder, manic) and a basis for concluding that S. was suffering from a dangerous mental disorder, namely S.’s history of inpatient psychiatric treatment, his failure to comply with the order of conditions, and the circumstances of two recent arrests, the details of which were contained in correspondence from the District Attorney attached to the affidavit. Nor is there any jurisdictional fatality with respect to S.’s remaining objection to the application, that it was made with the knowledge it contained an erroneous designation for the place of service upon him. As we have explained, it is the making of the application, and not the service of notice, that establishes jurisdiction under the statute.

We are similarly unpersuaded by the constitutional challenges of S. to the recommitment procedures of CPL 330.20 (14) as applied in this case. Stripped to its essentials, his argument is that, if at the initial hearing after being found not responsible by reason of mental illness, the acquittee is found not to have a dangerous mental disorder, due process and equal protection principles prohibit the Legislature from denying the acquittee the procedural safeguards accorded other persons solely committed through the civil procedures of the Mental Hygiene Law. As we have repeatedly recognized, however, the provisions of CPL 330.20 for imposing orders of conditions through which the criminal court retains supervisory authority over insanity acquittees, and the section authorizing recommitment upon a finding that an acquittee has a dangerous mental disorder, reflect a legislative judgment that, having concededly once engaged in criminal conduct as a result of mental illness, the insanity acquittee continues to present a serious risk of a recurrence of dangerous behavior derived from mental illness. Thus, in People v Stone (73 NY2d 296, 302), we said:

"The plain purpose of a recommitment order within that statutory scheme is to keep a criminal acquittee previously found through one of these devices not to suffer from a dangerous mental disorder and, thus, not thereby subject to the CPL procedural devices, within the CPL’s continued oversight, due to the potentiality of a dangerous mental disorder” (emphasis supplied).

In Matter of Oswald N. (87 NY2d 98, 104), we recognized the inability of modern psychiatry to guarantee the safety of the public through effective treatment permanently removing the potentiality of recurrent violent acts by persons found not responsible by reason of mental illness, thereby justifying extended continuous supervision over the acquittee by the criminal court through an order of conditions. And in Matter of George L. (85 NY2d 295, 306, supra), we relied upon one legal commentator who had demonstrated that the legislative judgment of the continued latent risk of recurrence of an insanity acquittee’s dangerous mental disorder has a sound basis in clinical studies of recidivism among insanity acquittees.

The Supreme Court in Jones v United States (463 US 354, 365, n 13) held that the very imprecision of the field of psychiatry militates in favor of judicial deference to such legislative judgments:

"the lesson we have drawn [from the uncertainty of diagnoses in the field of the psychiatry of violent behavior] is not that government may not act in the face of this uncertainty, but rather that courts should pay particular deference to reasonable legislative judgments”.

Thus, as we have already held, equal protection principles do not prevent different treatment of insanity acquittees from other persons subject to civil commitment because acquittees may validly be regarded as a separate class, even when no longer diagnosed as having a dangerous mental disorder (see, Matter of Oswald N., 87 NY2d, at 105, supra). The holding in Oswald N. is controlling here on S.’s equal protection claim.

The Legislature’s rationally based apprehension of significant risk that a person, whose mental illness resulted in the commission of a crime, may relapse into dangerousness, also surmounts due process concerns. The Supreme Court in Jones v United States (supra) sustained the validity of a provision imposing upon an insanity acquittee the burden of proof by a preponderance of the evidence to show either recovery from mental illness or lack of dangerousness, even in a statutory retention hearing that could be held well after acquittal. The reasons the Supreme Court found sufficient for permitting lesser procedural safeguards on initial commitment or in such a retention hearing than are required for otherwise civilly committed persons are equally applicable here. Just as in the case of initial commitment or retention, upon a recommitment there are stronger counterbalancing legitimate State interests of public safety in the case of a criminally insane acquittee than other candidates for civil commitment (Jones v United States, supra, at 366). There also remains a diminished concern as to the risk of an erroneous determination of mental illness based merely on "idiosyncratic behavior” because the acquit-tee’s mental illness-related conduct consisted of the commission of a crime, established beyond a reasonable doubt {id., at 367). Placing the burden on the Commissioner of Mental Health and the District Attorney to establish at a recommitment hearing by a preponderance of the evidence that an acquittee has a dangerous mental disorder, together with other statutory procedural safeguards in CPL 330.20, amply satisfy the requirements of procedural due process (Jones v United States, supra; People v Escobar, 61 NY2d 431).

The recommitment procedures of CPL 330.20 also comport with principles of substantive due process. As we have already demonstrated, recommitment of an insanity acquittee upon a finding of a dangerous mental disorder has a direct and substantial relationship with the State’s legitimate concern for the potentiality of the deterioration of the acquittee’s mental condition and relapse into dangerous behavior.

Moreover, the recommitment procedures of section 330.20 bear a reasonable relation to the purpose for which the acquit-tee is recommitted, i.e., "to treat the individual’s mental illness and protect him and society from his potential dangerousness” (Jones v United States, 463 US, at 368, supra). Since recommitment cannot be ordered except upon findings of both mental illness and dangerousness (see, CPL 330.20 [1] [c]; [14]), the statutory scheme does not run afoul of the holding in Foucha v Louisiana (504 US 71).

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

Chief Judge Kaye and Judges Simons, Titone, Bellacosa, Smith and Ciparick concur.

Order affirmed, without costs.

      . To prove that the insanity acquittee suffers from a dangerous mental disorder, the State must establish two facts: that the acquittee has a mental illness as defined in Mental Hygiene Law § 1.03 (20) that is, the acquittee is afflicted "with a mental disease or mental condition which is manifested by a disorder or disturbance in behavior, feeling, thinking, or judgment to such an extent that the person afflicted requires care, treatment and rehabilitation” and that as a result of that condition, the acquittee "currently constitutes a physical danger to [him or herjself or others” (Mental Hygiene Law § 1.03 [20]; CPL 330.20 [1] [c]).

      . Note, Rules for An Exceptional Class: The Commitment and Release of Persons Acquitted of Violent Offenses by Reason of Insanity, 57 NYU L Rev 281, 295-296 (1982).

      . As previously discussed, the application for recommitment must be accompanied by a sufficient affidavit of a psychiatric examiner (CPL 330.20 [20]); the recommitment order is subject to the same time limitations as are provided for commitment and retention orders (CPL 330.20 [1] [f]; [14]); and the acquittee can obtain a rehearing and review pursuant to the provisions of Mental Hygiene Law §§ 9.35 or 15.35 (CPL 330.20 [16]).


source: Caselaw Access Project

license: Public Domain

text:
    [663 NE2d 886, 640 NYS2d 845]
    In the Matter of Harris Beckman et al., Respondents, v Greentree Securities, Inc., Respondent, and James Goldberg, Appellant.
    Argued November 27,1995;
    decided January 9, 1996

      POINTS OF COUNSEL

      Simon S. Kogan, New York City, for appellant.
    I. The lower courts both failed to recognize that the National Association of Securities Dealers, Inc. (NASD) deprived appellant of due process because it failed to follow its own rules respecting service of the notice of claim and notice of the hearing. (Cohen v

      Hallmark Cards, 45 NY2d 493, 70 AD2d 509; Matter of Sea Ins. Co. v Hopkins, 91 AD2d 998; Seldner Corp. v Grace & Co., 22 F Supp 388; Matter of PPX Enters. [Ducale Edizione Musicali], 42 NY2d 897; Matter of Republique Francaise [Cellosilk Mfg. Co.], 309 NY 269; Wurster v Armfield, 175 NY 256; Berizzi Co. v Krausz Casing Co., 239 NY 315; Matter of Rosenberg [Wolfe], 180 Misc 500; Allen & Co. v Shearson Loeb Rhoades, 111 AD2d 122; Southland Corp. v Keating, 465 US 1.) II. The lower courts erred when they failed to recognize that the NASD’s Code of Arbitration Procedure’s rules governing notice were not reasonably calculated to give appellant notice and opportunity to be heard and therefore violate the Due Process Clause. III. The lower courts erred in refusing to vacate the award because the method of service utilized by the NASD was not reasonably calculated to provide notice of either the pendency of the claim or of the date and time of the hearing; accordingly, appellant was deprived of due process. (Matter of Republique Francaise [Cellosilk Mfg. Co.], 309 NY 269; Matter of PPX Enters. [Ducale Edizione Musicali], 42 NY2d 897; Austern v Chicago Bd. Options Exch., 716 F Supp 121, 898 F2d 882; Mutual Fire, Mar. & Inland Ins. Co. v Norad Indus., 868 F2d 52; McLaughlin, Piven, Vogel v Gross, 699 F Supp 55; Mathews v Eldridge, 424 US 319.)

      Rosen, Einbinder & Dunn, P. C, New York City (Michael Einbinder and Deena L. Schiffman of counsel), for Harris Beck-man and another, respondents.
    I. An arbitration award should be confirmed absent misbehavior or misconduct on the part of the arbitrator or for failure of an arbitration board to follow procedures. (Mutual Fire, Mar. & Inland Ins. Co. v Norad Indus., 868 F2d 52; Matter of McKenna v County of Nassau, 61 NY2d 739; Transit Cas. Co. v Trenwick Reins. Co., 659 F Supp 1346, 841 F2d 1117; Matter of Garcia v Federal Ins. Co., 46 NY2d 1040; Matter of PPX Enters. [Ducale Edizione Musicali], 42 NY2d 897; Bank Leumi Trust Co. v Katzen, 192 AD2d 401.) II. The courts below both found that the NASD followed its rules regarding notice and service. (Thermasol, Ltd. v Dreiske, 78 AD2d 838, 52 NY2d 1069; Matter of Sea Ins. Co. v Hopkins, 91 AD2d 998; Cascione v Acme Equip. Corp., 23 AD2d 49; Matter of Republique Francaise [Cellosilk Mfg. Co.], 309 NY 269.) III. The courts below properly found that the NASD notice requirements provide adequate due process. (Matter of Severin [County of Broome], 89 AD2d 689; Matter of Seneca Falls Cent. School Dist. [Lorenz], 117 Misc 2d 879; Matter of Nationwide Mut. Ins. Co. [Monroe], 75 AD2d 765; McLaughlin, Piven, Vogel v Gross, 699 F Supp 55.)
   OPINION OF THE COURT

Levine, J.

At issue in this appeal is the validity of an arbitration award granted against appellant upon default. Petitioners were investment clients of Greentree Securities, Inc., a New York City brokerage firm which was a member of the National Association of Securities Dealers, Inc. (NASD). Appellant was employed by Greentree between 1985 and 1988 as an NASD registered representative, authorized to act as a broker and investment advisor for Greentree clients and was the broker responsible for petitioners’ account beginning in 1986.

In the spring of 1988, a dispute arose between petitioners and Greentree regarding the latter’s responsibility for severe investment losses in three over the counter securities for which Greentree was a market maker. Petitioners claimed that those losses resulted from material misrepresentations and nondisclosures on the part of Greentree and appellant. Petitioners made a formal complaint to NASD’s District Business Conduct Committee. While the investigation of that complaint was still pending, petitioners on September 26, 1988 filed with the NASD arbitration director in New York City a demand for arbitration of that dispute pursuant to NASD’s Code of Arbitration Procedure.

Appellant terminated his employment with Greentree in late November 1988 and took a position with another securities firm. A "U-4” notice of the change in employment was filed December 1, 1988 with NASD’s registration office in Washington, D.C. On December 9, 1988 NASD’s director of arbitration sent notice of petitioners’ demand for arbitration and statement of their claim by certified mail to Greentree and appellant care of Greentree at the firm’s New York City address. The notice required filing with the arbitration office of an executed submission agreement and a statement of answer to petitioners’ claim within 20 business days, as provided in the NASD Code of Arbitration Procedure, a copy of which was enclosed with the notice. The mailed notice and enclosures were not returned to NASD. When the time for response expired, NASD’s director of arbitration sent a notice on January 24, 1989, also by certified mail, to Greentree and to appellant care of Greentree, informing them of their default and that the arbitration would proceed to a hearing and possible award in their absence. This notice was returned to NASD with a notation that delivery was refused.

The arbitration was conducted by default in California, petitioners’ State of residence, and resulted in an award of some $167,000 in compensatory damages and $75,000 in punitive damages. Petitioners then brought this proceeding to confirm the award and obtain judgment upon it (see, CPLR 7510, 7514). Appellant cross-moved to vacate the award and dismiss the petition on the grounds inter alla that he never received actual notice of the pendency of the arbitration and that NASD’s procedures for service of notice of arbitration as applied in this case denied appellant procedural due process.

Supreme Court granted the petition, concluding that NASD’s service of notice to appellant by mailing it to Greentree was in conformity with NASD’s Code of Arbitration Procedure, that NASD did not have actual notice of appellant’s change of employment and that appellant’s lack of notice of the arbitration was attributable to Greentree’s failure to comply with its own obligation under the Code to convey notice to appellant or notify NASD that it was not representing appellant and furnish appellant’s address. The Appellate Division affirmed (212 AD2d 461), agreeing with Supreme Court that the service here complied with NASD’s Code of Arbitration Procedure and that the failure to give appellant actual notice was "solely attributable” to Greentree’s breach of its obligations under the Code (id., at 461-462).

Appellant has appealed as of right based on his claim that NASD’s notice of arbitration procedures in this case denied him due process of law. We conclude that there was no due process violation in this case and now affirm.

We reject appellant’s contention that the notification method employed here and the proceeding upon default against him deprived him of his due process right to notice and opportunity to defend. Due process does not require actual receipt of notice before a person’s liberty or property interests may be adjudicated; it is sufficient that the means selected for providing notice was "reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections” (Mullane v Central Hanover Bank & Trust Co., 339 US 306, 314). "The means employed must be such as one desirous of actually informing the absentee might reasonably adopt to accomplish it” (id., at 315). The notice procedure chosen need not eliminate all risk that notice might not actually reach the affected party (id., at 319). Unquestionably, mailed notice may suffice (see, Tulsa Collection Servs. v Pope, 485 US 478, 490; Mennonite Bd. of Missions v Adams, 462 US 791, 799).

We conclude that the December 9, 1988 mailed service upon Greentree of petitioners’ arbitration claim was a means reasonably calculated to provide notice to appellant. Section 25 (c) (2) of the NASD Code of Arbitration Procedure provides that "[i]f a member firm and a person associated with the member firm are named parties to an arbitration proceeding at the time of the filing of the Statement of Claim", service on the "associated person” may be effected by service upon the member firm, "which shall perfect service upon the associated person” (NASD Code of Arbitration Procedure § 25 [c] [2] [emphasis supplied]). The parties agree that appellant was a "person associated” with Greentree when petitioners’ claim and demand for arbitration was filed with NASD. Appellant conceded before Supreme Court that service upon Greentree in this case was in compliance with the notice requirements of the NASD Code of Arbitration Procedure and the courts below so held.

As a condition of his registration as a dealer’s representative with NASD, appellant expressly agreed to comply with and be subject to all rules of NASD. Appellant does not dispute that those rules included NASD’s Code of Arbitration Procedure, governing the important subject of resolution of disputes between customers and member securities dealers. Accordingly, appellant had consented to Greentree’s agency for service of notice of any arbitration claim asserted against him which was filed with NASD before his association with Greentree ended. Greentree, in turn, was obligated under the Code to "perfect service” on appellant and, if it chose not to represent him, "advise all parties and the Director of Arbitration of that fact, and * * * provide such associated person’s current address” (NASD Code of Arbitration Procedure § 25 [c] [2]). Greentree apparently accepted delivery of the December 9, 1988 notice of arbitration claim and did not advise NASD’s director of arbitration that it chose not to represent appellant.

There is no constitutional or other legal impediment to enforcement of appellant’s consent to Greentree’s agency for accepting service of notice of arbitration (see, Gilbert v Burnstine, 255 NY 348, 355-357; Matter of Samincorp S. Am. Mins. & Mdse. Corp. [Tikvah Min. Co.], 43 Misc 2d 27, 29; see also, Pohlers v Exeter Mfg. Co., 293 NY 274, 279; Kenny Constr. Co. v Allen, 248 F2d 656 [upholding contractual designation of agent for service of process]; Restatement [Second] of Agency, ch 8, Introductory Note, at 581 ["As in the case of contracts and conveyances, one with apparent authority to give or receive a notification can bind the principal, and it is unimportant, unless known to the other party, that the agent does not intend to act for the principal’s business”]).

NASD was, thus, entitled to assume that Greentree would fulfill its legal obligation as an NASD member securities dealer to perfect service upon appellant or notify NASD if it declined to represent appellant and supply NASD with appellant’s address. Even if NASD’s arbitration department could be charged with notice of appellant’s change of employment through the December 1 filing of the U-4 form, once delivery of the December 9 notice was apparently accepted and not returned, NASD at that point had no reason to doubt Greentree’s compliance with its duties under NASD’s rules. Moreover, NASD could reasonably assume that Greentree and appellant continued to be united in interest in defending against petitioners’ claim, the same position they had presented in responding to petitioners’ complaint to NASD’s District Business Conduct Committee.

Nor is the foregoing conclusion undermined by Green-tree’s subsequent refusal to accept delivery on behalf of itself and appellant of NASD’s January 24, 1989 notice of their default in responding to petitioners’ claim. Due process mandates only one notice of a pending adjudicatory proceeding and the opportunity to be heard in opposition. Once NASD satisfied its initial burden of employing a method of giving notice reasonably likely to afford actual timely notice to appellant, as it did here by the December 9 mailing of the arbitration claim, when appellant failed to respond due process did not require NASD to ensure that any subsequent notice was likely to reach him (see, Mullane v Central Hanover Bank & Trust Co., 339 US, at 317-318, supra; Sari v U.S. Drug Enforcement Admin., 987 F2d 10, 14 [Mullane "has not generally been interpreted to require a party to make additional attempts beyond notice that is legally satisfactory at the time it is sent”], cert denied 510 US 888; Weigner v City of New York, 852 F2d 646, 652 ["Once the City sent (valid) notice, it was not required to send additional notices (at) each step in the foreclosure proceeding”], cert denied 488 US 1005).

This case is readily distinguishable from Matter of Republique Francaise (Cellosilk Mfg. Co.) (309 NY 269, rearg denied 309 NY 803) and Matter of PPX Enters. (Ducale Edizione Musicali) (53 AD2d 555, affd 42 NY2d 897), the cases principally relied upon by appellant. In each of those cases, the serving party clearly should have known that the means chosen for providing notice was not reasonably calculated to give actual notice and an opportunity to be heard in opposition. In Cello-silk, the only notice of demand for arbitration, served by mail upon the respondent corporation, was returned unopened with the notation "out of business” (309 NY, at 278, supra). In PPX Enters., the Court concluded that "[a] notice mailed to a provisional town in Italy four days in advance of a hearing plainly fails to meet [the] standard [of being reasonably calculated to give actual notice and an opportunity to be heard]” (53 AD2d, at 557, supra). Contrastingly here, the notice of arbitration claim was timely, was mailed to an agent who was obligated to convey it to appellant and was not returned. Indeed, in Cello-silk, the Court remarked that the case might have been resolved differently had the notice not been returned unopened and marked "out of business” (309 NY, at 278-279, supra).

For all of the foregoing reasons, we conclude the requirements of due process were satisfied in this case. We have considered appellant’s additional arguments in support of reversal and find them also to be without merit.

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

Chief Judge Kaye and Judges Simons, Titone, Bellacosa, Smith and Ciparick concur.

Order affirmed, with costs.


author: Levtne, J. Chief Judge Kaye

text:
    [663 NE2d 890, 640 NYS2d 849]
    A.J. Temple Marble & Tile, Inc., Respondent, v Union Carbide Marble Care, Inc., et al., Appellants.
    Argued January 3, 1996;
    decided February 13, 1996

      POINTS OF COUNSEL

      Kaufmann, Feiner, Yamin, Gildin & Robbins, New York City (David J Kaufmann, Daniel Gildin, Susan H. Morton and William F. Cuozzi of counsel), for appellants.
    I. The law of statutory construction dictates reversal. (Matter of Capone v Weaver, 6 NY2d 307; New Amsterdam Cas. Co. v Stecker, 3 NY2d 1; Matter of Meyer, 209 NY 386; Mayor of City of N. Y. v Manhattan Ry. Co., 143 NY 1; Matter of Budd v Valentine, 283 NY 508; Matter of New York Tel. Co. v Ferris, 257 App Div 415, 282 NY 667; Matter of Podiatry Socy. v Regents of Univ. of State of N. Y, 78 Misc 2d 731; Furey v Town of Gravesend, 104 NY 405; Blitzkrieg Amusement Corp. v Rubenstein Bros. Drinks, 184 Misc 975.) II. The lower court’s decision, as summarily affirmed by the Court below, would render the New York Franchise Sales Act absurd. III. Nothing in the legislative intent underlying the New York Franchise Sales Act supports the lower court’s decision appealed from herein. IV. The lower court’s interpretation of section 691 (3) of the New York Franchise Sales Act violates the Due Process Clauses of both the United States and the New York State Constitutions. (Usery v Turner Elkhorn Min. Co., 428 US 1; Matter of Casse v New York State Racing & Wagering Bd., 70 NY2d 589.) V. The lower court’s decision appealed from herein will have profound negative consequences on the economic and public policy interests of this State. VI. The extraordinary powers of the Attorney-General under the New York Franchise Sales Act may now be deployed against all officers, directors and employees of a franchisor regardless of their complete noninvolvement in any statutory violation. VII. The lower court’s decision as summarily affirmed by the Court below imposes an unreasonable burden upon the individual defendants herein. VIII. The lower court’s decision appealed from herein ignores a sister State appellate decision construing identical statutory language which should have been accorded great weight in this case of first impression. (Bellegarde v Union Bag & Paper Co., 90 App Div 577, 181 NY 519; Lipstein v Provident Loan Socy., 154 App Div 732; People v Meikrantz, 77 Misc 2d 892; Ward v Bochino, 181 Misc 355, 268 App Div 814; All Seasons Resorts v Abrams, 68 NY2d 81; Matter of Fink v Lefkowitz, 47 NY2d 567.)

      Schnader, Harrison, Segal & Lewis, New York City (W. Michael Garner of counsel), for respondent.
    I. The complaint alleges that the nonfranchisor defendants-appellants materially aided in the acts and transactions that violated the Act. (219

      Broadway Corp. v Alexander’s, Inc., 46 NY2d 506; Rovello v Orofino Realty Co., 40 NY2d 633; McGill v Parker, 179 AD2d 98.) II. The lower courts’ interpretation of section 691 (3) of the Franchise Sales Act was correct. (Retail Software Servs. v Lashlee, 854 F2d 18; Mon-Shore Mgt. v Family Media, 584 F Supp 186; Matter of Southland Corp. v Attorney-General of State of N. Y., 148 Misc 2d 390.) III. Defendants-appellants do not have standing to challenge the lower courts’ construction of the Act. (Matter of Dairylea Coop. v Walkley, 38 NY2d 6; Matter of Gilkes v New York State Div. of Parole, 192 AD2d 1041, 82 NY2d 654.) IV. Alternatively, this Court may affirm the order of the Court below on other grounds. (Eaves Brooks Costume Co. v Y.B.H. Realty Corp., 76 NY2d 220; Menorah Nursing Home v Zukov, 153 AD2d 13.) V. Defendants-appellants’ constitutional challenge to section 691 (3) fails. (Matter of Beach v Shanley, 62 NY2d 241; Cibro Petroleum Prods. v Chu, 67 NY2d 806; Matter of Nassau County Dept. of Social Servs. [Tiffany B.] v John B., 111 AD2d 168, 65 NY2d 606, cert denied sub nom. Blake v Nassau County Dept. of Social Servs., 474 US 862; Ulster County Ct. v Allen, 442 US 140.) VI. Defendants-appellants’ remaining arguments are wholly lacking in merit.
   OPINION OF THE COURT

Levtne, J.

This appeal concerns the scope of section 691 (3) of the General Business Law, which imposes joint and several liability on certain persons for fraudulent activities in connection with the registration, sale and promotion of franchises. The specific issue raised is whether that section imposes liability on the franchisor’s officers, directors and other persons who directly or indirectly control the franchisor without regard to whether their actions "materially aided” the statutory violations.

In the late 1980s, Union Carbide Chemicals and Plastics (UCC & P), a wholly owned subsidiary of Union Carbide Corporation (Union Carbide), established Union Carbide Marble Care to develop and market marble cleaning and restoration franchises under the trade name MarbleLife. Plaintiff A. J. Temple Marble & Tile, Inc. purchased four new MarbleLife franchises in June 1990, but was unsuccessful in developing any of them. Following Union Carbide Marble Care’s sale of the franchise business to one of its franchisees in 1993, plaintiff filed suit against Union Carbide Marble Care, UCC & P, Union Carbide, and certain individual officers, directors and employees of the corporate defendants alleging that plaintiff had been induced into purchasing the franchises based on defendants’ material misrepresentations and omissions.

As pertains to this appeal, plaintiff alleged that Union Carbide Marble Care had violated the antifraud provision of the New York Franchise Sales Act (see, General Business Law § 687) by fraudulently representing, inter alla, that the purchase of a MarbleLife franchise included the use of the Union Carbide trademarks and service marks and by concealing a preexisting plan to limit capital investment and abandon the franchise business if certain financial goals at various check points were not met. UCC & P, Union Carbide and the individual defendants were claimed to be jointly and severally liable for these violations under section 691 (3) of the Franchise Sales Act which imposes joint and several liability on a partner, executive officer, director or other controlling person of a franchisor, including "a person occupying a similar status or performing similar functions, and an employee of a person so liable, who materially aids in the act of [sic] transaction constituting the violation” (General Business Law § 691 [3]).

Defendants moved to dismiss various causes of action in the complaint, including the Franchise Sales Act claim as to the nonfranchisor defendants. Defendants argued that section 691 (3) imposes joint and several liability only on persons whose actions materially aid the violator and sought dismissal on the ground that the complaint failed to allege that the nonfranchisor defendants materially aided the franchisor’s statutory violations. In opposing defendants’ motion, plaintiff argued that the statutory phrase "materially aids” modifies only "employee” and, thus, that the other categories of named affiliated persons are presumptively vicariously liable for the statutory violations based solely on their relationship to the franchisor. Supreme Court rejected both parties’ reading of the joint and several liability provision of section 691 (3) and held that the phrase "materially aids” was intended to qualify the liability of controlling persons, but not officers, directors, or employees. Based on that interpretation, Supreme Court denied the motion to dismiss the statutory cause of action as to all of the nonfranchisor defendants except two former Union Carbide Marble Care directors who had joined the company subsequent to plaintiff’s franchise purchase (162 Misc 2d 941). The Appellate Division affirmed for the reasons stated by Supreme Court (214 AD2d 473), and subsequently granted defendants’ motion for leave to appeal to this Court, certifying the following question for our review: "Was the order of this Court, which affirmed the order of the Supreme Court, properly made?” We conclude that the plain meaning of General Business Law § 691 (3) supports defendants’ interpretation — that joint and several liability is imposed only on executive officers, directors, and controlling persons of the franchisor whose actions materially aid the statutory violations. Viewing the sufficiency of the complaint in light of our interpretation of the statute, we conclude that dismissal of the Franchise Sales Act claim is warranted as to all but one of the nonfranchisor defendants.

The Franchise Sales Act (General Business Law §§ 680-695) was enacted in 1980 to combat abuses that had accompanied the growth of the franchising industry and had resulted in substantial losses to New York residents (Sponsor’s Mem, 1980 NY Legis Ann, at 286; Mem of Assembly Rules Comm, Bill Jacket, L 1980, ch 730; see, General Business Law § 680 [legislative findings and policy]). The Act contains comprehensive disclosure and registration requirements and an expansive antifraud provision. The Department of Law is vested with broad investigatory and enforcement powers (General Business Law §§ 688, 689, 692) and, in addition, a violation of the Act gives rise to both penal (id., § 690) and civil liability (id., § 691). Under the civil remedies provision, a person who offers or sells a franchise in violation of the Act is liable to the purchaser for damages or, where the violation is willful and material, for rescission plus interest (id., § 691 [1]). In áddition to providing for a cause of action against the primary violator, the Act imposes joint and several liability on certain other persons affiliated with the franchisor (General Business Law § 691 [3]). As noted, this appeal concerns the proper interpretation of that provision, which provides in full:

"A person who directly or indirectly controls a person liable under this article, a partner in a firm so liable, a principal executive officer or director of a corporation so liable, a person occupying a similar status or performing similar functions, and an employee of a person so liable, who materially aids in the act of [sic] transaction constituting the violation, is also liable jointly and severally with and to the same extent as the controlled person, partnership, corporation or employer. It shall be a defense to any action based upon such liability that the defendant did not know or could not have known by the exercise of due diligence the facts upon which the action is predicated” (General Business Law § 691 [3] [emphasis supplied]).

At issue is whether the qualifying phrase "who materially aids in the act of [sic] transaction constituting the violation” applies to all or only some of the enumerated categories of persons.

Our objective in construing a statute is to give effect to the legislative intent. Where the language of a statute is clear, it is presumed that that intent is reflected in the words chosen by the Legislature and the plain meaning they express (People v Graham, 55 NY2d 144, 152; Matter of Carr v New York State Bd. of Elections, 40 NY2d 556, 559; McKinney’s Cons Laws of NY, Book 1, Statutes § 94). A plain reading of section 691 (3) indicates that "materially aids” refers to all of the potentially jointly and severally liable defendants: controlling persons, partners, officers, directors, and employees of the franchisor. Although the scope of this provision has received only limited treatment by the courts and commentators, others have reached a similar conclusion as to its meaning (see, Retail Software Servs. v Lashlee, 854 F2d 18 [2d Cir] [interpreting section 691 (3) as making officers and directors jointly and severally liable if they materially aid the violation]; Dunham, Liability of Shareholders, Officers, Directors, and Employees for Franchise Law Violations, 13 Franchise LJ 101, 121 [spring 1994] [same]).

Ordinary rules of statutory construction support this interpretation as well. Where, as here, a descriptive or qualifying phrase follows a list of possible antecedents, the qualifying phrase generally refers to and modifies all of the preceding clauses (Matter of Budd v Valentine, 283 NY 508, 511; Matter of New York Tel. Co. v Ferris, 257 App Div 415, affd 282 NY 667; McKinney’s Cons Laws of NY, Book 1, Statutes § 254; see also, People v Rosenberg, 138 NY 410, 415). Because the legislative history of the Franchise Sales Act is silent as to the intended scope of joint and several liability, we interpret section 691 (3) in accordance with its plain and literal meaning (Matter of Schinasi, 277 NY 252, 259 ["courts may not reject a literal construction (of a statute) unless it is evident that a literal construction does not correctly reflect the legislative intent”], rearg denied 278 NY 624).

We thus reject plaintiffs alternate construction of the statute, that the "materially aids” clause applies only to employees. Although the qualifying clause immediately follows the affiliated person category of employee, it is set off from that category by a comma. Common marks of punctuation are used to clarify the writer’s intended meaning and thus form a valuable aid in determining legislative intent (see, McKinney’s Cons Laws, Book 1, Statutes § 253). In this case, punctuation sets off the materially aids clause from all of the enumerated categories of persons, indicating that it was intended to apply to each one. Because this is a reasonable and workable construction of the statute and because there is no evidence that another meaning was intended, we are not at liberty to simply ignore the Legislature’s punctuation (cf., Matter of Brooklyn El. Ry. Co., 125 NY 434 [transposing comma where literal interpretation rendered amendment superfluous]).

For this same reason, Supreme Court’s interpretation must be rejected. An interpretation that the "materially aids” clause refers only to controlling persons, and not to the rest of the enumerated categories of affiliated persons set forth in the statute after controlling persons but before the "materially aids” clause, simply does not comport with a plain reading of the statute.

Plaintiff contends, however, that the construction we now adopt is at odds with the Act’s use of the term "person,” which is defined to include the franchisor’s officers, directors and controlling persons (see, General Business Law § 681 [13] [defining "person” as "an individual, corporation, partnership * * * and * * * any other person that has a substantial interest in or effectively controls such person, as well as the individual officers, directors, general partners, trustees or other individuals in control of the activities of each such person”]). The term "person” is used throughout the Act. Thus, the Attorney-General is authorized to prescribe by regulation the "persons” affiliated with the franchisor who are to be identified in the registered offering prospectus (id., § 683 [2] [d]; see, 13 NYCRR 200.3 [b] [4] [definition of principal]; 200.4 [c] [2], [3] [requiring disclosure of identity, business experience, and litigation status of designated affiliated persons]).

The term "person” is also used to define the proscribed conduct in connection with franchising (see, e.g., General Business Law § 683 [1] ["It shall be unlawful and prohibited for any person to offer to sell or sell * * * any [unregistered] franchise”]; § 687 [1] ["It is unlawful for any person to make any untrue statement * * * or wilfully to omit * * * any material fact” in the offering prospectus]), and to indicate against whom criminal and civil penalties may be imposed (e.g., General Business Law § 689 [1] [authorizing actions by the Department of Law for an injunction and penalties against "any person” who violates the Act and "any other person * * * participating in” the proscribed conduct]; § 690 ["Any person who knowingly violates any of the provisions of this article or any rule or regulation issued thereunder shall be guilty óf a class A misdemeanor”]). Likewise, if one of the individuals or entities defined as a person directly participates in an unlawful offer or sale, there is civil liability for the purchaser’s resulting damages under section 691 (1).

In all of the foregoing ways, the Act directly imposes sanctions upon the personal commission of statutory violations by corporate officers, directors, and controlling persons. Additionally, however, where a statutorily defined person affiliated with the franchisor does not personally violate the Act by participating in the fraudulent franchise offer or sale, he or she may still be held liable for the statutory violations of others if his or her actions materially aided the violation (see, General Business Law § 691 [3]; see generally, Dunham, Liability of Shareholders, Officers, Directors, and Employees for Franchise Law Violations, op. cit. [distinguishing direct and indirect statutory liability of officers and directors]).

There is thus no conflict in these provisions; instead, the provisions imposing direct and indirect liability complement one another in forming a cohesive basis for imposing liability on all of the individuals and entities potentially involved in an unlawful or fraudulent transaction. In contrast, under plaintiff’s interpretation of the section, whereby presumptive vicarious liability is imposed merely on the basis of a relationship to the franchisor without regard to direct participation in the selling or the giving of material aid, section 691 (1) — the provision imposing liability on affiliated "persons” for their own statutory violations in selling or offering a franchise— becomes redundant. Indeed, one would expect that provision to describe only the franchisor’s liability since, under plaintiff’s reading of the statute, every affiliated officer, director, and controlling person would be vicariously liable under section 691 (3) whether or not that affiliated individual or entity participated in or materially aided the unlawful sale. Our interpretation of the statute, on the other hand, gives full meaning to the words used in both subdivisions governing the imposition of civil liability.

Finally, we note that the parties’ reliance on the case law from other jurisdictions is of no assistance in interpreting section 691 (3) because the wording and punctuation of those statutes differs from our own. Moreover, other jurisdictions have interpreted similarly worded statutes in contradictory fashion (compare, Eastwood v Froehlich, 60 Cal App 3d 523, 131 Cal Rptr 577 [materially aids clause modifies only employees], with Vukusich v Comprehensive Accounting Corp., 150 111 App 3d 634, 501 NE2d 1332 [materially aids clause applies to all listed persons]).

Furthermore, while we recognize that one impetus for the enactment of the Franchise Sales Act was the fact that existing Federal and State securities laws could not be used to combat franchise sales fraud (see, Hearing on 1980 NY Senate Bill S 5320, Apr. 15, 1980, at 14-15), we do not agree with the California courts that have interpreted an analogous franchise statute as imposing presumptive liability on all affiliated persons except employees based on the theory that the standard for secondary liability under their State’s franchise act was intended to replicate the Federal securities law standard (see, e.g., Eastwood v Froehlich, 60 Cal App 3d 523, 131 Cal Rptr 577, supra).

The Federal provisions imposing joint and several liability for securities fraud are worded much more narrowly than section 691 (3); they impose liability only on controlling persons and do not list specific categories of potentially liable persons by title as does section 691 (3) (see, 15 USC § 77o [imposing joint and several liability on "(e)very person who * * * controls any person liable” under the Act] [1933 Securities Act]; 15 USC § 78t [a] [imposing joint and several liability on "(e)very person who, directly or indirectly, controls any person liable under any provision of this title”] [1934 Securities Act]). Thus, secondary liability is imposed under those statutes only on affiliated persons who are in a position to directly supervise or influence the violator (see, e.g., Farley v Henson, 11 F3d 827, 835; Arthur Children’s Trust v Keim, 994 F2d 1390, 1396-1397), which is an intensely factual inquiry precluding the automatic imposition of liability on every director and parent corporation (see, Arthur Children’s Trust v Keim, 994 F2d, at 1396, supra).

To rely on general references to the Federal securities law as evidence that the Legislature intended to impose joint and several liability on all named affiliated persons without regard to whether their conduct materially aided the violation, would therefore have the effect of significantly expanding the Federal standard, since, unlike the Federal securities laws controlling person provisions, the Franchise Sales Act would then impose presumptive liability for the franchisor’s violations on all directors, officers, parent companies and other affiliated persons irrespective of whether they were in a position to directly control the violator. Without specific evidence that the Legislature intended to so enlarge the Federal securities law standard for joint and several liability, we decline to follow that course.

Having concluded that Supreme Court’s interpretation of the statute does not comport with its plain meaning, we need not reach defendants’ alternate contention that the lower courts’ interpretation renders the statute unconstitutional (see, People v Felix, 58 NY2d 156, 161, appeal dismissed 464 US 802).

The final issue is whether the complaint sufficiently pleads facts showing that the nonfranchisor defendants materially aided the franchisor’s allegedly fraudulent acts. We find the allegations of the complaint sufficient in this respect only as to defendant Richard Broockmann, president of the Union Carbide Marble Care board of directors. The complaint alleges that Broockmann developed the MarbleLife business plan with its limit on capital investment and financial check points, that he directly participated in the unlawful franchise sales, and that he was responsible for misrepresentations in the solicitation materials. If true, these allegations unambiguously indicate that Broockmann materially aided the misrepresentations and omissions complained of. However, as to UCC & P, Union Carbide and John Clerico, the complaint alleges no more than their relationship to the franchisor, that is, their position as a controlling person or director and officer. Nor is the conclusory statement that Union Carbide Marble Care Chair Gerald Ehrens "participated in and directed the unlawful conduct” a sufficient factual allegation that his actions materially aided the franchisor’s violations. Similarly deficient is the allegation that Union Carbide Chair R.D. Kennedy approved of Broockmann’s business plan, since it is not the business plan itself that is alleged to be in violation of the statute, but defendants’ concealment of that plan in promoting the franchise. Thus, the complaint, insofar as it alleges that defendants Union Carbide, UCC & P, Kennedy, Ehrens, and Clerico are jointly and severally liable for the franchisor’s Franchise Sales Act violations, should be dismissed. That dismissal, however, should be without prejudice to plaintiff to apply at Supreme Court, if so advised, for leave to amend (CPLR 3211 [e]; see, Sanders v Schiffer, 39 NY2d 727, 729).

Accordingly, the order of the Appellate Division should be modified, without costs, in accordance with the opinion herein, as so modified, affirmed, and the certified question answered in the negative.

Chief Judge Kaye

(concurring). I agree with the majority that, in light of the comma between the words "liable” and "who materially aids,” a literal reading of General Business Law § 691 (3) compels the conclusion that a "controlling person” such as a partner, officer or director of a business that has violated the Franchise Sales Act is jointly and severally liable only if that person "materially aid[ed]” in the violation itself (see, majority opn at 581).

I write separately, however, to express my concern that section 691 (3), as now interpreted, imposes secondary liability on such a narrow class of individuals as to be virtually meaningless in practical application, thereby stripping the statute’s private enforcement mechanism of any real impact. As we now read the statute, in order for an officer or director to be secondarily liable in a private lawsuit brought by a purchaser of a franchise, that person must have (a) directly or indirectly controlled a person liable under the statute (General Business Law § 691 [3]); (b) not have made any untrue statement of a material fact or have engaged in any device, scheme, course of business or artifice to defraud in the course of offering or selling the franchise (General Business Law § 681 [13]; §§ 687, 691 [1]); (c) yet materially aided in the act or transaction constituting the violation (General Business Law § 691 [3]) and (d) either have known or not have been negligent in not knowing that the violation took place (id.). It is hard to construct such a situation.

Unlike a lower-level employee who materially aided in a violation of the Act by providing false financial information without knowing its import, the likelihood that a high-level executive such as a director — charged with the duty of good faith and reasonable care with respect to the corporation’s affairs (see, Business Corporation Law § 717) — unwittingly, yet materially, aided in a violation of the Act is slim. Few if any executives of a corporation that has violated the Franchise Sales Act, therefore, will be secondarily liable under section 691 (3): they will either be primarily liable under section 687 or they will not be liable at all.

I suspect this is not what the Legislature intended. First, it seems unlikely that section 691 (3) would have been enacted to serve virtually no purpose. Second, New York’s Franchise Sales Act, like other State franchise acts, was adopted in 1980 (L 1980, ch 730) to remedy the perceived gap resulting from the largely unsuccessful efforts to regulate franchise sales — which had experienced rapid growth in the American economy after World War II — under the Federal securities laws (see, e.g., Hearing on 1980 NY Senate Bill S 5320, Apr. 15, 1980, at 14-15; Rollinson, Franchise Attorney Responsibility to Franchise Purchasers, 2 J of [ABA] Forum Comm on Franchising 20, 21 [1982]; Emerson, Franchise Contract Clauses & the Franchisor’s Duty of Care Toward its Franchisees, 72 NC L Rev 905, 926, n 81). California was the first State to pass such an act in 1971 (Cal Corp Code § 31000 et seq.) and the California courts have frequently noted the strong affinities between California’s Franchise Investment Law and the Federal securities laws (see, e.g., Keating v Superior Ct. [Southland Corp.], 31 Cal 3d 584, 645 P2d 1192, 1199, revd on other grounds sub nom. Southland Corp. v Keating, 465 US 1; Courtney v Waring, 191 Cal App 3d 1434, 1438, 237 Cal Rptr 233; Eastwood v Froehlich, 60 Cal App 3d 523, 529, 131 Cal Rptr 577).

The language in section 691 (3) in particular — nearly identical to that of the analogous California provision except for the comma (Cal Corp Code § 31302) — closely parallels the 1934 Securities Act (compare, General Business Law § 691 [3] ["A person who directly or indirectly controls a person liable under this article * * * is also liable jointly and severally with and to the same extent as the controlled person”], with 15 USC § 78t [a] ["Every person who, directly or indirectly, controls any person liable under * * * this title * * * shall also be liable jointly and severally with and to the same extent as such controlled person”]). Section 691(3) and the 1933 Securities Act even include nearly identical good faith/lack of knowledge defenses {compare, General Business Law § 691 [3] ["It shall be a defense to any action * * * that the defendant did not know or could not have known by the exercise of due diligence the facts upon which the action is predicated”], with 15 USC § 77o [controlling person liable "unless the controlling person had no knowledge of or reasonable ground to believe in the existence of the facts by reason of which the liability of the controlled person is alleged to exist”]).

In marked contrast to section 691 (3), however, the Federal securities laws impose secondary liability on any officer or director (as opposed to merely an employee) exercising control over the primary wrongdoer who knows about the violation or who negligently fails to supervise the wrongdoer and thus stands behind the scenes and allows the violation to take place — regardless of whether the controlling person "materially aided” in the violation (see, e.g., Marbury Mgt. v Kohn, 629 F2d 705, 715; Savino v Hutton & Co., 507 F Supp 1225, 1241-1243). Contrary to the assertions of the majority, the New York Franchise Act does not expand upon or materially differ from the governing Federal securities law standard by imposing liability on affiliated persons "irrespective of whether they were in a position to directly control the violator.” (Majority opn at 584.) The language and structure of the statute in fact make clear that only partners, officers and directors who control violators of the Act or who "occupy! ] a similar status or perform! ] similar functions” are liable under section 691 (3) as controlling persons.

From the perspective of a plaintiff like the one here attempting to defeat a motion to dismiss at the pleading stage, there is obviously an enormous difference between requiring the allegation that an officer or director controlled another person, who has violated the Act, and requiring the additional allegation that the controlling person also materially assisted in the violation itself. It thus appears that the section’s now-fateful comma may have substantially diminished the Franchise Act’s over-all effectiveness in combating "the sale of franchises where such sale would lead to fraud” (General Business Law § 680 [2]).

Judges Simons, Bellacosa, Smith and Ciparick concur with Judge Levine; Chief Judge Kaye concurs in result in a separate opinion in which Judge Titone concurs.

Order modified, etc.

       The liability of those defendants, Reed Freeman and Ralph Lutjen, is not at issue in this appeal.

       California Corporations Code § 31302, entitled "Liability for acts of agents” provides as follows: "Every person who directly or indirectly controls a person liable * * * every partner in a firm so liable, every principal executive officer or director of a corporation so liable, every person occupying a similar status or performing similar functions, every employee of a person so liable who materially aids in the act or transaction constituting the violation, are also liable jointly and severally with and to the same extent as such person, unless the other person who is so liable had no knowledge of or reasonable grounds to believe in the existence of the facts by reason of which the liability is alleged to exist.”
      One commentator, noting that this provision is to date "the only [State] franchise statute giving rise to extensive litigation of joint and several liability,” recognizes that it imposes secondary liability on officers and directors "who have no actual knowledge of the facts giving rise to a violation, but who on reasonable investigation could have learned those facts” (Dunham, Liability of Shareholders, Officers, Directors and Employees for Franchise Law Violations, 13 Franchise LJ 101, 122, 123 [1994]).


author: Bellacosa, J.

text:
    [663 NE2d 898, 640 NYS2d 857]
    Donald H. Baughman et al., Appellants, v Merchants Mutual Insurance Company, Respondent.
    Argued January 9, 1996;
    decided February 13, 1996

      POINTS OF COUNSEL

      Lipsitz, Green, Fahringer, Roll, Salisbury & Cambria LLP, Buffalo (John A. Collins of counsel), for appellants.
    I. Because the exclusionary clause relied upon by Merchants is ambiguous, the insurer’s motion for summary judgment should have been denied, and plaintiffs’ cross motion for partial summary judgment granted. (Miller v Continental Ins. Co., 40 NY2d 675; York v. Sterling Ins. Co., 114 AD2d 665, 67 NY2d 823; Handelsman v Sea Ins. Co., 85 NY2d 96; Lavanant v General Acc. Ins. Co., 79 NY2d 623; State of New York v Home Indem. Co., 66 NY2d 669; Thomas J. Lipton, Inc. v Liberty Mut. Ins. Co., 34 NY2d 356; Venigalla v Penn Mut. Life Ins. Co., 130 AD2d 974, 70 NY2d 747; Seaboard Sur. Co. v Gillette Co., 64 NY2d 304; Hartol Prods. Corp. v Prudential Ins. Co., 290 NY 44; Sincoff v Liberty Mut. Fire Ins. Co., 11 NY2d 386.) II. Merchants was not a grantee of the release tendered to John Schutt, Jr., Inc. by Diana K. Landwehr, and may not raise the defense of release.

      Hurwitz & Fine, P. C, Buffalo (Thomas P. Cunningham and Dan D. Kohane of counsel), for respondent.
    I. Plaintiffs Baughman and Baughman, Inc. are not "persons insured” under the Merchants policy. (Liss v Trans Auto Sys., 68 NY2d 15; Matter of Callanan v Town of Clarkstown, 191 AD2d 861; Matter of Fine v S.M.C. Microsystems Corp., 75 NY2d 912; Caporino v Travelers Ins. Co., 62 NY2d 234; Cetta v Robinson, 145 AD2d 820; Michaels v City of Buffalo, 85 NY2d 754; Bird v St. Paul Fire & Mar. Ins. Co., 224 NY 47; Venigalla v Penn Mut. Ins.

      Co., 130 AD2d 974.) II. Diana K. Landwehr cannot maintain an action against Merchants.
   OPINION OF THE COURT

Bellacosa, J.

The dispositive issue on this appeal, before the Court as of right based on a two-Justice dissent at the Appellate Division (CPLR 5601 [a]), is whether a particular commercial insurance policy clause excludes coverage for a 1978 single-vehicle accident. We conclude that the coverage for the owners with respect to the accident and personal-trip circumstances presented by this case was definitively excluded by the policy clause at issue.

Plaintiffs, Donald H. Baughman and Donald H. Baughman, Inc., owners of the tractor at issue here, appeal from the declaration in favor of defendant Merchants Mutual Insurance Company and against plaintiffs’ effort to have the carrier indemnify them. While we agree with the result and, thus, affirm the order of the Appellate Division, our conclusion rests essentially on the interpretation of the policy clause at issue.

Baughman, Inc., leased the tractor involved in the accident to John R. Schutt, Jr., Inc., and pursuant to that lease Baughman, Inc.,' also dispatched drivers in response to requests from Schutt. Merchants issued a general liability vehicle policy to Schutt covering all vehicles Schutt owned or leased. In February 1978, driver Ralph E. Landwehr, an employee of Baughman, Inc., was "dispatched” to Schutt, and acting in accordance with Schutt’s instructions, made a number of pickups and deliveries in the leased tractor-trailer. Following the final delivery of the day at a plant in Tonawanda, New York, Landwehr decided to drive the tractor to Niagara Falls, New York, to visit a friend. Landwehr’s home in Springville, New York, was in the opposite direction. While crossing the Grand Island Bridge on the way to Niagara Falls, one of the tractor’s wheels came off, causing the tractor to crash into the guardrail, hurling the vehicle and Landwehr over and into the icy Niagara River. Landwehr was seriously and permanently injured. The New York Workers’ Compensation Board rejected his claim for benefits on the ground that the accident did not occur within the course of his employment. That determination is not appealed.

Landwehr then sued Schutt, Baughman, and Baughman, Inc., and won a substantial judgment. Approximately $1.2 million of the judgment remains unpaid, and plaintiffs Baughman and Baughman, Inc. are the only entities against whom the judgment remains operative.

Merchants Mutual Insurance Company had declined to defend plaintiffs Baughmans in the underlying action. Plaintiffs ultimately brought this declaratory judgment action seeking to have Merchants cover the judgment against them. Supreme Court dismissed the complaint. The Appellate Division technically modified, with the same essential result, by declaring in favor of the defendant insurer. The Court held that the earlier ruling of the Workers’ Compensation Board that Landwehr was not acting within the scope of his employment at the time of the accident was determinative. The Court concluded that the plaintiffs were not "insureds” under the policy because the truck was not being "exclusively” used in the scope of the business of the named insured.

While the parties agree that plaintiffs are "owners” of the vehicle as that term is defined and covered in the policy, the determinative issue on this appeal devolves to whether the insurer properly denied coverage pursuant to the exclusionary "Endorsement” to the policy. That endorsement excludes coverage if "the [vehicle] is not being used exclusively in the business of the named insured * * * but this limitation shall not apply to a [vehicle] while en route, at the request of the named insured, to engage in such exclusive use and not transporting property for others” (emphasis added). Schutt is the "named insured” under the policy and plaintiffs Baughmans’ interests rise or fall with the operation and effect of the above-quoted clause.

Plaintiffs argue that the language of the exclusion clause is ambiguous, and that as a result it should be construed against the insurer. That was the view of the dissenting Justices at the Appellate Division. We disagree with that reasoning and the result it would compel.

The policy emphasizes the "exclusive use” feature in order definitively to distinguish coverage from exclusion of risks. This Court has cautioned that we "may not disregard clear provisions which the insurers inserted in the policies and the insured accepted,” and that "their construction is solely a question of law for the court” (Caporino v Travelers Ins. Co., 62 NY2d 234, 239).

Merchants offered and entered into a carefully circumscribed and tailored business policy to cover and to exclude defined risks associated with Schutt’s trucking activities. An important guidepost when interpreting a business policy is to examine "the 'reasonable expectation and purpose of the ordinary business [person] when making an ordinary business contract’ ” (Michaels v City of Buffalo, 85 NY2d 754, 757, citing Bird v St. Paul Fire & Mar. Ins. Co., 224 NY 47, 51). The language of the exclusion makes plain that Schutt’s and Merchants’ reasonable expectations, which are binding on plaintiffs, were that the policy should suffer those risks exclusively associated with Schutt’s business enterprise. They did not agree to underwrite or pay premiums for private risks put in play by others who were not parties to the contract of insurance or otherwise introduced by uncovered activities unless specific conditions were satisfied. The use of the word "exclusively” twice in the exclusion clause is not only highly probative, but also cogently supportive of the outcome we reach for this phase of this dispute.

The term "en route,” however, contained in the key, narrowly drawn exclusion clause must also be addressed. It is tailored to the particular type of transportation functions which the parties reasonably expected would occur in the customary course of the covered business. This phrase plainly extends coverage to situations where a vehicle is dispatched at Schutt’s direction, but has not yet entered service carrying goods on Schutt’s behalf. That is not this case.

Arguably, a "directed” or "dispatched” trip "en route” could be within an exclusive "scope of employment” definition for some purposes. Merchants and Schutt decided, however, to resolve ambiguity in that regard by mutually agreeing to language in advance in the policy clause by restricting coverage for the truck only if it was being operated "exclusively in the business.” The phrase "en route” in the exclusion clause is consistent with and buttresses the strictly limiting phrase "used exclusively in the business,” and surely does not operate in this case to undermine the unqualified exclusion. Indeed, the key words of this clause are as definite as one would require.

Plaintiffs, nevertheless, also suggest that the term "en route,” as used in this context, is so open-ended that its incorporation encompasses the type of personal, end-of-business-trip detour which Landwehr set out on in this case. The facts, without contradiction, do not support such a forced construct. Landwehr went in the opposite direction of any work-related function after the work day and duties were fully completed, and he did so for an exclusively personal purpose. Plaintiffs’ argument in this regard is unpersuasive and ascribing uncertainty or ambiguity to the "en route” portion of this clause on such facts would be hypothetical sophistry.

The principal purpose of this policy is to insure against those risks associated with Schutt’s business. Chief Judge Cardozo provides the lesson that coverage in this situation depends on "whether it is the employment or something else that has sent the traveler forth upon the journey or brought exposure to its perils” (Matter of Marks v Gray, 251 NY 90, 93). In evaluating the scope of the risks the parties reasonably expected would be encountered in the operation of the truck, useful guidance may also be gleaned from analogous principles found in other related case law, though this appeal is not strictly governed by such workers’ compensation principles.

This Court has held that regular commuting trips are generally not within the scope of employment for purposes of workers’ compensation claims (Matter of Fine v S.M.C. Microsystems Corp., 75 NY2d 912, 914). When travel is undertaken, however, at the direction of or in furtherance of the employer’s purpose, such trips are considered as within the scope of the worker’s employment (Matter of Neacosia v New York Power Auth., 85 NY2d 471, 475; see also, Matter of Callanan v Town of Clarkstown, 191 AD2d 861, 862). Where a journey is made with both a business purpose as well as a personal one, Chief Judge Cardozo added in Matter of Marks v Gray that the test whether the trip occurs within the scope of employment is "[i]f the work of the employee creates the necessity for travel, [the employee] is in the course of his employment, though [the employee] is serving at the same time some [personal] purpose” (251 NY, at 93-94, supra).

We are cognizant of the fact that the "scope of employment” standard set forth in the Workers’ Compensation Law ordinarily casts a wider net than the phrase "used exclusively in the business” set forth in the policy at issue. Moreover, plaintiffs acknowledge that Landwehr at the time of the accident was not driving in the direction of his home, which arguably could have continued some business purpose. Rather, he was, all agree, on a purely personal mission. His side trip had nothing whatsoever to do with Schutt’s business, was undeniably not expressly or impliedly "at its direction,” and can in no way be deemed to be within the reasonable contemplation of the insurance-contracting parties’ expectations for the coverage of this policy. This is not a case where an employee, while on the way home with an employer’s approval or direction, proceeded "en route” or made some incidental stop or side trip. Rather, Landwehr’s trip was beyond any reasonable interpretation of the breadth of Schutt’s expectations, direction or permission.

The Appellate Division reasoned that the plaintiffs in this civil action are bound by the finding of the New York Workers’ Compensation Board under Workers’ Compensation Law § 10 (1) that employee Landwehr was not acting within the "course of his employment” at the time of the accident for purposes of the Workers’ Compensation Law. Plaintiffs acknowledge that they are bound by the findings of the Board in a technical sense (see, Liss v Trans Auto Sys., 68 NY2d 15, 21), but they argue nevertheless that the Board’s finding does not resolve the interpretation of the policy exclusion clause. We agree that a straightforward interpretation of the policy clause is the sole, correct analytical path to the disposition of this case. In that framework, the widest construction of the phrase "en route, at the request of the named insured” cannot be read to encompass activities which are so unquestionably and unequivocally repugnant to the scope of a worker’s employment authorizations. The reasonable and founded interpretation of the policy clause supports our conclusion that Landwehr’s private-use gambol with the tractor-trailer removed the plaintiffs owners from any contemplated or contracted-for coverage. Their appeal should fail.

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

Chief Judge Kaye and Judges Simons, Titone, Smith, Levine and Ciparick concur.

Order affirmed, with costs.


text:
    [663 NE2d 901, 640 NYS2d 860]
    George Healey, Jr., Respondent, v Firestone Tire & Rubber Company et al., Appellants, et al., Defendant.
    Argued January 11, 1996;
    decided February 15, 1996

      POINTS OF COUNSEL

      Herrick, Feinstein LLP, New York City (Susan T. Dwyer, Mara B. Levin and Harvey M. Grossman, of the California Bar, admitted pro hac vice, of counsel), for appellants.
    I. By replacing the traditional bright-line fact standard for establishing manufacturer identity with an "expert satisfaction” substitute, the Court below has wrongly eviscerated this key requirement in "lost product” cases. (Morrissey v Conservative Gas Corp., 285 App Div 825; Hymowitz v Lilly & Co., 73 NY2d 487, 493 US 944; Long v Krueger, Inc., .686 F Supp 514; Franov v Exxon Co., 178 AD2d 327, 80 NY2d 822; D’Amico v Manufacturers Hanover Trust Co., 173 AD2d 263; Sosa v Joyce Beverages, 159 AD2d 335; Assing v United Rubber Supply Co., 126 AD2d 590; Campagno v Ipco Corp., 138 Misc 2d 44; Morrison v Flintosh, 163 AD2d 646.) II. This Court should require lost product plaintiffs to make the traditional factual showing of causation and product condition, and reject the speculative approach sanctioned by the Court below. (Voss v Black & Decker Mfg. Co., 59 NY2d 102; Scott v Fruehauf Corp., 602 F Supp 207; Davis v Firestone Tire & Rubber Co., 196 F Supp 407.) III. The Court below committed serious doctrinal error in failing to recognize that the fairness concerns precluding pursuit of negligence and strict liability claims necessarily foreclose a design defect claim. (Voss v Black & Decker Mfg. Co., 59 NY2d 102; Robinson v Reed-Prentice Div., 49 NY2d 471.) IV. Plaintiffs failure to preserve the candidate rims selected by his expert should foreclose his pursuit of a design defect claim premised on those candidates. (Matter of Spraggins v Current Cab Corp., 127 Misc 2d 774; Strelov v Hertz Corp., 171 AD2d 420; Corona v A-B-C Packaging Mach. Corp., 129 AD2d 762; Unigard Sec. Ins. Co. v Lakewood Eng’g & Mfg. Corp., 982 F2d 363; Long v Krueger, Inc., 686 F Supp 514.) V. In permitting pursuit of a design defect claim where loss of the accident product deprives the alleged manufacturer of any meaningful opportunity to defend, the Court below has violated the Federal and State constitutional guarantees of due process. (Mathews v Eldridge, 424 US 319; Matter of Aftuck v Aftuck, 100 AD2d 672; Broughton v Chrysler Corp., 992 F2d 319; Svendsen v Smith’s Moving & Trucking Co., 76 AD2d 504, 54 NY2d 865.)

      Weisfuse & Weisfuse, New York City (Martin H. Weisfuse and Maureen A. Sockett of counsel), for respondent.
    I. Plaintiff properly established prima facie in the Court below that Firestone designed and manufactured the rim involved in this accident. (Prunty v Keltie’s Bum Steer, 163 AD2d 595; Mickelson v Babcock, 190 AD2d 1037; Treston v Allegretta, 181 AD2d 470; Taylor v General Battery Corp., 183 AD2d 990; Herbert v Rodriguez, 191 AD2d 887; Corsetti v Coppers Co., 196 AD2d 780; Ambers v C.T. Indus., 170 AD2d 349; Otis v Bausch & Lomb, 143 AD2d 649; Yaeger v Arlen Realty & Dev. Corp., 95 AD2d 853; Franov v Exxon Co., 178 AD2d 327, 80 NY2d 822.) II. Plaintiff properly established prima facie in the Court below that Firestone’s design of the accident rim was defective. (Martin v City of Albany, 42 NY2d 13; Pantote Big Alpha Foods v Schefman, 121 AD2d 295; Coley v Michelin Tire Corp., 99 AD2d 795; Narciso v Ford Motor Co., 137 AD2d 508; Wecht v Dial Chevrolet, 173 AD2d 328, 78 NY2d 862; Voss v Black & Decker Mfg. Co., 59 NY2d 102; Sheppard v Smith Well Drilling & Water Sys., 93 AD2d 474; Robinson v Reed-Prentice Div., 49 NY2d 471; Amatulli v Delhi Constr. Corp., 77 NY2d 525.) III. This Court lacks jurisdiction to review the lower courts’ factual determination that plaintiff was not guilty of spoliation. (Little Joseph Realty v Town of Babylon, 41 NY2d 738; Van Valkenburgh, Nooger & Neville v Hayden Publ. Co., 30 NY2d 34, 409 US 875.) IV. All-Inn’s loss of the potential accident rims is not a basis for dismissing plaintiff’s claim against defendant Fire-stone. (Sawh v Bridges, 120 AD2d 74; Hughes v Atlantic Oldsmobile, 202 AD2d 392; Strelov v Hertz Corp., 171 AD2d 420; Corona v A-B-C Packaging Mach. Corp., 129 AD2d 762; Tedesco v Dry-Vac Sales, 203 AD2d 873; Beauchamp v Riverbay Corp., 156 AD2d 172; Rosario v General Motors Corp., 148 AD2d 108; Ferraro v Koncal Assocs., 97 AD2d 429; Horowitz v Camp Cedarhurst, 119 AD2d 548; Anteri v NRS Constr. Corp., 117 AD2d 696.) V. The Court below correctly permitted this case to proceed on plaintiff’s defective design claim. (Sage v Fairchild-Swearingen Corp., 70 NY2d 579.)

      Herzfeld & Rubin, P. C, New York City (Michael Hoenig, David B. Hamm and Linda M. Brown of counsel), and Hugh F. Young, Jr., of the Virginia Bar, admitted pro hac vice, for Product Liability Advisory Council, Inc., amicus curiae.

    I. As a matter of law, an expert’s affidavit lacking evidentiary foundation cannot suffice as evidence of manufacturer identity, product defect or causation so as to defeat summary judgment. (Voss v Black & Decker Mfg. Co., 59 NY2d 102; Perez v New York Tel. Co., 161 AD2d 191; Sosa v Joyce Beverages, 159 AD2d 335; Cawein v Flintkote Co., 203 AD2d 105; Halloran v Virginia Chems., 41 NY2d 386; Tucker v Elimelech, 184 AD2d 636; Putrino v Buffalo Athletic Club, 82 NY2d 779; Amatulli v Delhi Constr. Corp., 77 NY2d 525; Espinosa v A & S Welding & Boiler Repair, 120 AD2d 435.) II. Where plaintiff’s failure to preserve the alleged accident product has made it impossible for the manufacturer to mount a fact-based defense, the complaint should be dismissed as against the manufacturer as a matter of fundamental fairness. (Hughes v Atlantic Oldsmobile, 202 AD2d 392; Ristenpadt v K & L Realty, 199 AD2d 312; State Univ. Constr. Fund v Turner Constr. Co., 181 AD2d 353; D’Amico v Manufacturers Hanover Trust Co., 173 AD2d 263; Strelov v Hertz Corp., 171 AD2d 420; Rosario v General Motors Corp., 148 AD2d 108; Voss v Black & Decker Mfg. Co., 59 NY2d 102; Perez v New York Tel. Co., 161 AD2d 191; Sosa v Joyce Beverages, 159 AD2d 335.)
   OPINION OF THE COURT

Levine, J.

Plaintiff was severely injured when struck in the head by a part of a multipiece truck tire rim which explosively separated when the tire which had just been inflated on it was dropped by an employee of defendant All-Inn Trucking, Inc. The accident occurred September 17, 1991. Presuit discovery orders were granted on behalf of plaintiff, as well as a temporary order requiring All-Inn to preserve all of its truck tire rims on its vehicles and at its premises. Pursuant to the discovery orders, the deposition of Joseph Biassi, president of All-Inn, was taken October 21, 1991, Carl J. Lange, plaintiff’s expert, examined and inventoried rims on All-Inn trucks and at its premises on October 26, 1991 and plaintiff’s expert O.J. Hahn examined the rims on all 10 of All-Inn’s trucks and those stored on its premises on December 7, 1991. Hahn identified three rims, all manufactured and designed by defendants Firestone Tire & Rubber Company and Bridgestone/Firestone, Inc. (collectively referred to as Firestone), as being the only rims of All-Inn that could have been involved in the accident. This theory was based on the assertion that the rims evidenced signs of substantial "chording”, i.e., being distorted and out of round, which Hahn opined was the cause of the explosive separation of the rim involved in plaintiff’s accident. According to plaintiff, the three rims were marked for identification and left in the custody of All-Inn’s expert pursuant to an understanding with the trucking company’s insurance carrier that they would be preserved.

Plaintiff commenced this action against Firestone and All-Inn in June 1992. The causes of action against Firestone were grounded in negligence and strict products liability under both manufacturing defect and design defect theories. Approximately a year later, it was disclosed that All-Inn had lost the three rims identified by plaintiff’s expert Hahn as the possible instrumentalities for the rim involved in the accident.

Firestone then moved for summary judgment, asserting that it was undisputed that the multipiece rim which plaintiff alleged caused the accident was irretrievably lost and that, therefore, plaintiff’s evidence was insufficient as a matter of law to establish the identity of the manufacturer of the offending rim or that a defect in that product caused the accident. Supreme Court denied Firestone’s motion, concluding that there was sufficient circumstantial evidence to implicate Fire-stone as the manufacturer of the accident-causing rim. The court further concluded that a triable issue of fact was presented that the rim’s defective design was the cause of its explosive separation, based upon plaintiff’s expert Hahn’s opinion excluding any other possible cause.

A majority at the Appellate Division agreed with Supreme Court that plaintiff had submitted sufficient circumstantial evidence to permit the inference that Firestone made the accident rim (212 AD2d 351). The Court also held that, as to the plaintiff's design defect strict products liability cause of action, Firestone was not prejudiced by the disappearance of the suspect rims identified by plaintiff's expert, since the actual design of the product could be independently established. The Court, however, concluded that the disappearance of the rims "fatally prejudiced” Firestone’s defense against plaintiff’s negligence and manufacturing defect causes of action {id., at 352) and, therefore, modified Supreme Court’s order by dismissing those claims, leaving intact only the design defect cause of action. The Appellate Division then granted Firestone leave upon the certified question, "[w]as the order of [that] Court, which modified the order of the Supreme Court, properly made?” The parties agree that the certified question presents two issues: (1) whether there was sufficient evidence to identify Firestone as the manufacturer of the offending rim, and (2) whether the plaintiff’s inability to identify the actual rim involved in the accident fatally prejudiced Firestone in defending plaintiff’s claim that the accident was due to the design of the rim and not another cause.

We reverse and answer the certified question in the negative. This case presents no exception to the general rule that one of the necessary elements plaintiff in a strict products liability cause of action must establish by competent proof is that it was the defendant who manufactured and placed in the stream of commerce the injury-causing defective product (see, Hymowitz v Lilly & Co., 73 NY2d 487, 504, cert denied 493 US 944; Morrissey v Conservative Gas Corp., 285 App Div 825, affd 1 NY2d 741).

The identity of the manufacturer of a defective product may be established by circumstantial evidence (see, Taylor v General Battery Corp., 183 AD2d 990, 991; Otis v Bausch & Lomb, 143 AD2d 649, 650; Prata v National R. R. Passenger Corp., 70 AD2d 114, 118, appeal dismissed 48 NY2d 975; 1 Weinberger, New York Products Liability § 8:05). Moreover, circumstantial evidence may sufficiently demonstrate the maker’s identity, notwithstanding the destruction of the allegedly defective product after use (see, Taylor v General Battery Corp., supra; Otis v Bausch & Lomb, supra).

The circumstantial evidence of identity of the manufacturer of a defective product causing personal injury must establish that it is reasonably probable, not merely possible or evenly balanced, that the defendant was the source of the offending product (see, D’Amico v Manufacturers Hanover Trust Co., 173 AD2d 263, 266; see also, Vecta Contract v Lynch, 444 So 2d 1093 [Fla Ct App 4th Dist], review denied 453 So 2d 44; Naden v Celotex Corp., 190 Ill App 3d 410, 415, 546 NE2d 766, 769 [circumstantial evidence in a products liability case "must justify an inference of probability as distinguished from mere possibility”]). Speculative or conjectural evidence of the manufacturer’s identity is not enough (D’Amico v Manufacturers Hanover Trust Co., supra; Perez v New York Tel. Co., 161 AD2d 191, 192; Sosa v Joyce Beverages, 159 AD2d 335, 337).

Plaintiffs proof was insufficient to establish any reasonable probability that a Firestone rim caused plaintiffs accident. Biassi, who was on the All-Inn premises when the accident occurred, testified at his presuit deposition on October 21, 1991 that the rim that explosively separated and injured plaintiff was a three-piece rim. There was uncontested evidence that at least six companies in addition to Firestone made three-piece truck tire rims. These Firestone rims were distributed under the brand name "Accu-Ride”. In 1986, however, Firestone ceased making rims, having sold its rim manufacturing assets and rim design to an unrelated company called Accuride Corporation.

Biassi also testified at his deposition that the accident rim was reassembled the day after the incident and was either installed on one of All-Inn’s trucks or placed against the wall of a shed at the trucking company’s premises. Biassi emphatically denied present knowledge of the whereabouts of the particular rim involved in the accident. He kept no records of his purchases of rims, stating that rims were usually acquired in used condition "from guys selling rims, guys coming by” or from truckers going out of business.

Notably, at his deposition, Biassi was not asked whether, nor did he confirm that, the accident rim was still in the possession of All-Inn when the deposition took place some five weeks after the accident. Indeed, in a subsequent affidavit Biassi averred that tires and rims on the All-Inn trucks were changed frequently because of severe use on equipment primarily driven to haul dirt and gravel over rough terrain, and that broken and worn-out rims were discarded without any inventory control. Thus, Biassi’s evidence raised a substantial question as to whether the actual rim that explosively separated to cause plaintiffs injuries remained in the possession of All-Inn during the subsequent inspections of the rims on its trucks and at its premises by plaintiffs experts.

The foregoing evidentiary gap was not filled by the affidavit of Lange, plaintiffs expert, who conducted an examination and inventory of rims at All-Inn’s premises and on its trucks on October 26, 1991. He examined a total of 89 rims, of which he identified 85 as "FiREsroNE-deszgnec? Accu-Ride 5° Radial Commander” (emphasis supplied). Lange gave reasons for excluding the remaining four rims as suspects in causing plaintiffs accident. Lange, however, did not examine an unspecified number of inside tandem rims on the All-Inn trucks. Moreover, as already noted, the rims Lange described as "firestonedesigned Accu-Ride” could well have included rims manufactured by Accuride Corporation after the 1986 sale of all of Firestone’s truck tire rim-making operations.

Equally unavailing to prove identity of the manufacturer was the affidavit of plaintiff’s expert Hahn regarding his December 7, 1991 examination of the rims on all 10 of All-Inn’s trucks and the spare rims on its premises. It is true that Hahn identified three specific rims as being capable of causing plaintiffs accident because of their physical condition and that he established that those rims were definitely manufactured by Firestone from the markings on them. Hahn, however, described the rims he examined on six of the 10 All-Inn trucks as being "of the Accu-Ride 5° Radial Commander three-piece type”, in contrast to the "FiRESTONE-manufactured” rims he described finding on other trucks or in storage on the premises.

The foregoing was the only evidence relevant to the identification of Firestone as the manufacturer of the actual accident rim, and it was insufficient to establish any reasonable probability that Firestone made the offending product. Of primary significance, no reasonable inference could be drawn from Biassi’s deposition and affidavit that the accident-causing rim was retained by All-Inn so as to have been available for subsequent inspection and identification by plaintiffs experts. The affidavit of those experts could not cure this defect in proof. Indeed, their averments were insufficient even to establish a definite likelihood that a significant preponderance of the rims they inspected were actually manufactured by Firestone. Consequently, plaintiff has failed to raise a triable issue of fact on the identity of Firestone as the manufacturer of the allegedly defective product in this case (see, Franov v Exxon Co., 178 AD2d 327, 328, lv dismissed 80 NY2d 822; D’Amico v Manufacturers Hanover Trust Co., 173 AD2d, at 267, supra; cf., Prata v National R. R. Passenger Corp., 70 AD2d 114, supra).

Our disposition of this issue renders discussion of the second issue unnecessary. Accordingly, the order of the Appellate Division, insofar as appealed from, should be reversed, summary judgment should be granted dismissing the complaint in its entirety as against defendants Firestone Tire & Rubber Company and Bridgestone/Firestone, Inc., and the certified question answered in the negative, with costs to those defendants.

Chief Judge Kaye and Judges Simons, Titone, Bellacosa, Smith and Ciparick concur.

Order, insofar as appealed from, reversed, with costs to defendants-appellants, summary judgment granted dismissing the complaint as against defendants Firestone Tire & Rubber Company and Bridgestone/Firestone, Inc., and certified question answered in the negative.