author: Kaye, J.

text:
    In the Matter of William S. Sutka, Respondent, v Margaret Conners, as Chairman of the Board of Fire Commissioners of the Fairview Fire District, et al., Appellants.
    Argued March 29, 1989;
    decided May 2, 1989

      POINTS OF COUNSEL

      Valentino T. Sammarco for appellants.
    The presumption contained in Retirement and Social Security Law former § 363-a as a matter of law is not to be applied to the application of a firefighter employed by a governmental entity outside the City of New York for General Municipal Law § 207-a (1) nonretirement heart-related disability benefits and entitlements. (McCluskey v Cromwell, 11 NY 593; New York State Bankers Assn. v Albright, 38 NY2d 430; Matter of Bunnell v New York State Policemen’s & Firemen’s Retirement Sys., 50 AD2d 244; Matter of Weiss v Levitt, 55 AD2d 724, 42 NY2d 802; Matter of De Leon v Levitt, 65 AD2d 646; Matter of D’Alessandro v Levitt, 59 AD2d 967; Matter of Daly v Regan, 97 AD3d 575; Matter of Acciavatti v Levitt, 57 AD2d 131; Matter of Croshier v Levitt, 5 NY2d 259; Matter of Sansone v Levitt, 67 AD2d 1044.)

      Arthur F. Andrews for respondent.
    I. The presumption contained in Retirement and Social Security Law former § 363-a (1) correctly applies to claims under section 207-a (1) of the General Municipal Law. (Uniformed Firefighters Assn. v Beekman, 52 NY2d 463; Matter of Barton v Lavine, 38 NY2d 785; Matter of Roosevelt Raceway v Monaghan, 9 NY2d 293; Matter of Shirvell v Regan, 69 NY2d 774; Matter of Daly v Regan, 97 AD2d 575; Matter of Hoyt v Regan, 93 AD2d 937; Matter of Park v Regan, 88 AD2d 1018; Matter of Mashnouk v Miles, 55 NY2d 80; Matter of Klonowski v Department of Fire, 58 NY2d 398.) II. Absent the presumptions of section 363-a (1) of the Retirement and Social Security Law, Mr. Sutka remains entitled to benefits under section 207-a (1) of the General Municipal Law.

      John F. O’Reilly and Orbein Dearmas for the City of Yonkers, amicus curiae.

    I. The interpretation that the presumption contained in Retirement and Social Security Law former § 363-a applies for purposes of General Municipal Law § 207-a renders the statute unconstitutional and is therefore an incorrect construction of the statute. (King v City of Newburgh, 84 AD2d 388; People v Dozier, 72 AD2d 478; Poggi v City of New York, 109 AD2d 265; Matter of Arnold v Reed, 57 AD2d 1043; Dandridge v Williams, 397 US 471; McGowan v Maryland, 366 US 420.) II. The legislative history of section 363-a (1) of the Retirement and Social Security Law demonstrates that its terms were not intended by the Legislature to apply for purposes of General Municipal Law § 207-a.

      George F. Harris and Jessica R. Murray for the Association of Fire Districts of the State of New York, Inc., amicus curiae.

    I. The decision in the Tracer case was based on a misapplication of the presumption. (Tracer v City of Poughkeepsie, 108 AD2d 18; Uniformed Firefighters Assn. v Beekman, 52 NY2d 463; Matter of Hoyt v Regan, 93 AD2d 937; Matter of Daly v Regan, 97 AD2d 575.) II. The legislative history of Retirement and Social Security Law former § 363-a clearly shows it is intended to be applied only to the New York State and Local Police and Fire Retirement System. (Matter of Recreation Lines v Public Serv. Commn., 7 AD2d 20, 952; Smull v Delaney, 175 Misc 795; Bright Homes v Wright, 8 NY2d 157.) III. It is clear that the presumption only applies to the New York State and Local Police and Fire Retirement System from the language of Retirement and Social Security Law former § 363-a and Retirement and Social Security Law § 480.

      Donna M. C. Giliberto for the New York State Conference of Mayors and Other Municipal Officials, amicus curiae.

    I. The presumption contained in the former section 363-a (1) of the Retirement and Social Security Law that a heart disability is job related is not applicable to an individual seeking the benefits of section 207-a of the General Municipal Law. (New York State Bankers Assn. v Albright, 38 NY2d 430; Matter of Callas v City of Elmira, 88 AD2d 1015; King v City of Newburgh, 84 AD2d 388; Matter of Behan v Lecitt, 52 AD2d 963; Matter of Pastor v Lecitt, 58 AD2d 669, 42 NY2d 808; Matter of Fischer v Lecitt, 65 AD2d 858; Matter of Hoyt v Regan, 93 AD2d 937; Matter of Daly v Regan, 97 AD2d 575, 61 NY2d 602; Matter of Wilson v Regan, 98 AD2d 929; Matter of Huether v Regan, 134 AD2d 686.) II. That chapter 967 of the Laws of 1974 contained a fiscal note underscores the clear legislative intention that its presumption affect only retirement systems.

      Richard P. Walsh, Jr., and Thomas J. Jordan for New York State Professional Fire Fighters Association, Inc., amicus curiae.

    I. The rules of statutory construction and interpretation reveal the Legislature’s intent that a disabled firefighter applying for section 207-a entitlements receive the benefit of the heart disease presumption. (King v City of Newburgh, 84 AD2d 388; Local 589 v City of Newburgh, 116 AD2d 396; Matter of Callas v City of Elmira, 88 AD2d 1015; Legg v Fitzmaurice, 112 Misc 2d 283; Traver v City of Poughkeepsie, 108 AD2d 18; Matter of Driscoll v Department of Fire, 112 AD2d 751; Matter of Kieper v Fitzgibbons, 91 Misc 2d 1067; Matter of Sutka v Conners, 139 AD2d 242; Matter of Gregory v Board of Appeals, 57 NY2d 865; Schillawski v State of New York, 9 NY2d 235; City of Buffalo v Roadway Tr. Co., 303 NY 453.) II. In interpreting the scope of section 363-a (1) and section 207-a (1), the court should be mindful of the mischief to be remedied. (Lincoln First Bank v Rupert, 60 AD2d 193; Childs v Childs, 69 AD2d 406.) III. Appellants’ submissions of communications and messages sent to the Governor about section 363-a (1) are inconclusive. (Recreation Lines v Public Serv. Commn., 7 AD2d 20.)
   OPINION OF THE COURT

Kaye, J.

In this statutory interpretation case, the question is whether the line-of-duty presumption for firefighters’ heart-related retirement disability benefits (Retirement and Social Security Law § 363-a [1]) should be read into General Municipal Law § 207-a, which generally governs firefighters’ sick leave benefits. We conclude that it should not, and therefore reverse the order of the Appellate Division and dismiss the petition.

I.

After passing a physical examination, in January 1971 petitioner commenced employment as a firefighter for the Board of Fire Commissioners of the Fairview Fire District. He served until May 1984, when he was suspended on charges of misconduct. While under suspension, on June 8, 1984 petitioner was in his backyard after boating with his son, and experienced discomfort in his chest and right arm which required hospitalization. The episode was diagnosed as a nontransmural myocardial infarction; further examination revealed that petitioner was suffering from coronary artery disease and angina. As a result, petitioner has been physically unable to perform the duties of a firefighter.

Petitioner applied to the Board of Fire Commissioners for full salary and medical expenses under General Municipal Law § 207-a. The Board after a hearing denied his application, concluding that the June 8 incident did not occur as a result of petitioner’s employment or in the performance of his official duties for the Fire District, but rather as a result of an underlying heart problem that had developed over a long period of time.

Petitioner commenced this article 78 proceeding to annul respondents’ determination and allow him benefits under General Municipal Law § 207-a. Supreme Court transferred the proceeding to the Appellate Division, which granted the petition and remitted the matter to respondents for a calculation of back pay due petitioner. The Appellate Division, relying on Traver v City of Poughkeepsie (108 AD2d 18), found that the statutory presumption contained in Retirement and Social Security Law § 363-a (1) applied to firefighters seeking disability benefits under General Municipal Law § 207-a, and that the Board had failed to rebut the presumption that petitioner’s heart condition arose in the line of duty.

We granted respondents’ motion for leave to appeal (CPLR 5602 [a] [2]), and now reverse.

II.

Recognizing the extraordinary personal risk inherent in firefighting, the Legislature has long provided special benefits for firefighters injured in connection with their employment (see, General Municipal Law art 10; Retirement and Social Security Law art 8). For decades, however, firefighters’ heart-related disabilities have been a subject of intense controversy —employee associations insisting that it is wholly unrealistic to require each firefighter applying for benefits to establish a causal nexus between a heart condition and the work, public officials and others opposing any diminution in the firefighters’ burden of proof on causation (see, Uniformed Firefighters Assn. v Beekman, 52 NY2d 463). While the Legislature has responded to the issue by establishing certain presumptions, there is no single comprehensive statute clearly delineating the various benefits and burdens of proof. Rather, several pertinent provisions have been separately adopted, extended, amended and reamended over the years. These provisions, often couched in "indirect and obtuse language” (Traver v City of Poughkeepsie, 108 AD2d 18, 20, supra), erect different requirements depending on the status and location of the persons involved, the benefits sought, and the entity responsible for payment.

In that the question raised by this appeal requires consideration of the interrelationship among the relevant statutory sections, we begin our analysis by briefly describing the provisions in order of their enactment.

General Municipal Law § 207-a. Petitioner’s claim for benefits was lodged under General Municipal Law § 207-a, originally adopted more than 50 years ago (L 1938, ch 562). In its present incarnation, section 207-a provides for sick leave benefits for any paid firefighter who belongs to "an organized fire company or fire department of a city of less than one million population, or town, village or fire district, who is injured in the performance of his duties or who is taken sick as a result of the performance of his duties so as to necessitate medical or other lawful remedial treatment.” (General Municipal Law § 207-a [1].) No presumption regarding causation is set forth in the section. The benefits provided by section 207-a consist of full salary until the disability ceases as well as medical and hospital expenses; some portion of those benefits may continue even after retirement (General Municipal Law § 207-a [4]). The cost of section 207-a benefits is directly borne by the municipality or fire district that employs the disabled firefighter.

Retirement and Social Security Law § 363. This section governs accidental disability retirement for retirement system members. In 1969, the Legislature adopted section 363-a — the "New York State Heart Bill” — for one year (L 1969, ch 1103). While section 363-a required proof that the injury was incurred in the line of duty (see, Matter of Bunnell v New York State Policemen’s & Firemen’s Retirement Sys., 50 AD2d 244, 245-246, appeal dismissed 39 NY2d 742), it established a presumption that injury to or impairment of the heart was the natural and proximate result of an accident, unless any substantial evidence to the contrary could be shown (L 1969, ch 1103, § 1; see also, Uniformed Firefighters Assn. v Beekman, supra, at 472, n 2; Note, New York Heart Bills: Presumptions Governing Police and Firefighters’ Cardiac Disabilities, 10 Fordham Urban LJ 247, 259-262 [1982]). The section was expressly limited to claims under the New York State Policemen’s and Firemen’s Retirement System (renamed the New York State and Local Police and Fire Retirement System [L 1987, ch 506]) "or any general, special or local law relating to the operation and qualification for benefits under any municipal pension or retirement plan or system.” (L 1969, ch 1103, §§ 1, 2.) Subdivision (2), moreover, restricted availability of the presumption to firefighters who were "members” of the State retirement system (see, Retirement and Social Security Law § 302 [11]; § 340 [c], [e] and [g]).

General Municipal Law § 207-k. In 1970 the Legislature enacted the "New York City Heart Bill,” General Municipal Law § 207-k (L 1970, ch 805; see also, Note, op. cit., 10 Fordham Urban LJ, at 253-25S). Section 207-k, which expressly excludes section 207-a from its coverage, created for New York City paid firefighters a rebuttable "line-of-duty” presumption. The section specifies that impairment of health caused by diseases of the heart and the resulting disability or death are presumptive evidence that the impairment is service-connected, unless proven otherwise (see also, Uniformed Firefighters Assn. v Beekman, 52 NY2d 463, supra). Also pertinent to a consideration of the New York City Heart Bill and its relation with other analogous sections is the fact that New York City supports its own pension and retirement system, overseen by the Board of Trustees of the Fire Department Pension Fund (see, Administrative Code of City of New York § 13-301 et seq.).

Amended Retirement and Social Security Law § 363-a. Weeks after modifying and extending General Municipal Law § 207-k, the Legislature amended section 363-a of the Retirement and Social Security Law by adding to that section, in haec verba, the line-of-duty presumption of section 207-k (see, L 1973, ch 1046, § 30). When the words of section 207-k were superimposed on section 363-a, the section also lost its concluding clauses ("for the purposes of this article, or any general, special or local law relating to the operation and qualification for benefits under any municipal pension or retirement plan or system”). Since 1973, section 363-a has for present purposes remained essentially unchanged, and has been extended periodically to the present.

III.

Against this backdrop we turn to petitioner’s claim that the line-of-duty presumption of section 363-a (1) must be read into his application for sick leave benefits under General Municipal Law § 207-a. Without such a presumption, petitioner cannot satisfy the requirement of injury or illness in the performance of his duties.

The Appellate Division read the line-of-duty presumption into General Municipal Law § 207-a (1), relying on its own 1985 decision, Traver v City of Poughkeepsie (108 AD2d 18, supra; see also, Matter of Driscoll v Department of Fire, 112 AD2d 751). Respondents urge that Traver was wrong; they say the presumptions of section 363-a must be limited to applications for accidental disability retirement benefits under Retirement and Social Security Law § 363. Petitioner responds that the Appellate Division decisions are consistent with the plain language of section 363-a (1), as amended in 1973, which neither limits its applicability to retirement claims nor suggests that New York City firefighters should be treated differently from any others. Petitioner also asserts that the Legislature implicitly adopted Traver when it thereafter reenacted section 363-a (see, L 1987, ch 203, § 2).

In this claim for statutory benefits the court’s objective is, of course, to discern and apply the will of the Legislature, not the court’s own perception of what might be equitable. We are, moreover, mindful of the competing concerns that surrounded legislative enactment of the presumptions at issue. In matters of statutory interpretation generally, and particularly here, legislative intent is "the great and controlling principle.” (People v Ryan, 274 NY 149, 152.) Legislative intent may be discerned from the face of a statute, but an apparent lack of ambiguity is rarely, if ever, conclusive (New York State Bankers Assn. v Albright, 38 NY2d 430, 436-437). Generally, inquiry must be made of the spirit and purpose of the legislation, which requires examination of the statutory context of the provision as well as its legislative history (see, Ferres v City of New Rochelle, 68 NY2d 446, 451; Matter of Albano v Kirby, 36 NY2d 526, 529-530; Matter of Petterson v Daystrom Corp., 17 NY2d 32, 38).

These principles of statutory construction assume particular significance where, as here, the Legislature has spoken to an issue simultaneously in separate laws, sometimes cross-referencing them, and has repeatedly adopted and amended pertinent provisions piecemeal throughout decades. While petitioner would have us limit our analysis to a seemingly unambiguous pronouncement in section 363-a of the Retirement and Social Security Law, no one clause isolated from its statutory setting could be determinative of a lack of ambiguity or of legislative intent as to the issue presented.

We conclude that the 1973 amendment to Retirement and Social Security Law § 363-a was neither unambiguous as petitioner suggests nor, viewed in its statutory context and history, did it implicitly amend General Municipal Law § 207-a.

Section 363-a, as originally enacted, was plainly limited to retirement matters. It so provided and was so applied (see, e.g., Matter of Pastor v Levitt, 58 AD2d 669, lv denied 42 NY2d 808; Matter of Conn v Levitt, 52 AD2d 1021; Matter of Bunnell v New York State Policemen’s & Firemen’s Retirement Sys., supra). While the 1973 amendment dropped the section’s concluding clauses expressly limiting it to retirement matters, this revision did not effect the sweeping change petitioner urges.

Unlike the General Municipal Law, article 8 of the Retirement and Social Security Law (containing § 363-a) — entitled "New York State Policemen’s and Firemen’s Retirement System” — specifically governs retirement matters. If the Legislature had wished to add a line-of-duty presumption to section 207-a of the General Municipal Law, it could readily have amended that section, or even amended section 207-k, which expressly excludes firefighters covered by section 207-a. We cannot assume that the Legislature made a significant addition to General Municipal Law § 207-a (1) by amending the Retirement and Social Security Law without acknowledging it somewhere.

Sections 207-a and 363-a in fact represent separate disability systems with differing coverage and consequences (see, Matter of Klonowski v Department of Fire, 58 NY2d 398; Matter of Mashnouk v Miles, 55 NY2d 80). Section 207-a (1) applies to firefighters who belong to "an organized fire company or fire department”; section 363-a applies to "members” of a retirement system as defined by the Retirement and Social Security Law. Under section 207-a (1) a disabled firefighter is paid by the municipality or fire district; under section 363 benefits are paid by the retirement system — a significant distinction, as respondents point out, for fire districts having to compensate both a disabled employee and a substitute. The differences are further underscored by the distinctions in subdivisions (2) through (4-a) of section 207-a between sick leave benefits available under subdivision (1) and various "retirement” benefits available under the Retirement and Social Security Law. In short, from the face of the statutes, the 1973 amendment to section 363-a was not intended to increase the scope of coverage under section 207-a; it surely did not do so unambiguously.

Looking beyond the face of the statutes, the legislative history of the 1973 amendment contains no reference to General Municipal Law § 207-a. Nor can we agree with the suggestion in Traver (108 AD2d, at 22, supra) that the executive department memorandum accompanying the amendment evidenced a legislative intent to apply the job-related disability presumption of section 363-a to section 207-a. That memorandum is consistent with the conclusion that the amendment was intended simply to provide firefighters applying for retirement benefits under section 363 the same line-of-duty presumption that New York City firefighters had been allowed under General Municipal Law § 207-k (see, Uniformed Firefighters Assn. v Beekman, 52 NY2d 463, 472, n 2, supra; Division of Budget Mem, Governor’s Bill Jacket, L 1974, ch 967, § 1 [1973 amendment provided that presumption for members of the State retirement system extends to both service connection and accidental cause]).

We note in this connection that the executive department memorandum is devoid of reference to any additional cost to municipalities that would result from a new presumption under section 207-a (see, Legislative Law § 50 ["A bill which enacts or amends any provision of law relating to a retirement system or plan of the state of New York or of any of its political subdivisions shall contain a fiscal note stating the estimated annual cost to the employer affected and the source of such estimate.”]). Additionally, when section 363-a was again amended in 1974, and thereafter extended and reextended to date, the bill jackets reflect that the benefits were consistently described as retirement disability benefits, paid by the retirement system to retirement system members.

Addressing petitioner’s legislative reenactment argument, the Legislature’s extension of section 363-a after Traver was decided in 1985 is not material to the issue before us. The single writing in Traver did not constitute the sort of pervasive settled doctrine that makes legislative reenactment relevant in this respect (see, Boreali v Axelrod, 71 NY2d 1, 13; Matter of Knight-Ridder Broadcasting v Greenberg, 70 NY2d 151, 157-158).

Finally, combining all of these factors, there is a stark difference between the present record and the record in Uniformed Firefighters Assn. v Beekman (supra). In Beekman, we concluded that General Municipal Law § 207-k established a presumption that heart impairment was accidentally sustained, although the statute itself did not expressly so provide. In reaching that conclusion, we looked to the extensive legislative history of section 207-k pointing to the legislative purpose that such proof not be required, and to the contemporaneous opinion of the city’s own legal officer, the Corporation Counsel; we looked to the consistent practical application over many years by the agencies responsible for administering the statute, who had imposed no requirement of proof of accident; and we looked to the nine separate reenactments of the section by the Legislature, apprised of the controversy, including the latest enactment when the bill’s sponsor endorsed the accepted and long-standing interpretation. No such record is presented here.

Accordingly, the order of the Appellate Division should be reversed, with costs, respondents’ determination reinstated and the petition dismissed.

Chief Judge Wachtler and Judges Simons, Alexander, Titone, Hancock, Jr., and Bellacosa concur.

Order reversed, etc.

      . Section 363-a read:
      "1. Notwithstanding any provision of this chapter or of any general, special or local law to the contrary, any disability or death resulting from an injury to or impairment of the heart, caused by reason of and in the performance of duty as a fireman or policeman * * * presumptively shall be deemed to be the natural and proximate result of an accident, in the absence of substantial evidence to the contrary for the purposes of this article, or any general, special or local law relating to the operation and qualification for benefits under any municipal pension or retirement plan or system.

        "2. As used in this section, the term 'fireman’ and 'policeman’ means any member who is performing police or fire service, as the phrase police or fire service is defined in paragraphs a, b, c and d of subdivision eleven of section three hundred two of this article, and who, prior to entry into service as a fireman or policeman, successfully passed a physical examination which failed to disclose evidence of any disease or other impairment of the heart.” (L 1969, ch 1103.)

      . General Municipal Law § 207-k (a) reads: “Notwithstanding the provisions of any general, special or local law or administrative code to the contrary, but except for the purposes of sections two hundred seven-a and two hundred seven-c of this chapter, the workmen’s compensation law and the labor law, any condition of impairment of health caused by diseases of the heart, resulting in total or partial disability or death to a paid member of the uniformed force of a paid police department or fire department, where such paid policemen or firemen are drawn from competitive civil service lists, who successfully passed a physical examination on entry into the service of such respective department, which examination failed to reveal any evidence of such condition, shall be presumptive evidence that it was incurred in the performance and discharge of duty, unless the contrary be proved by competent evidence.” This section, like section 363-a, was adopted for one year only, and has been renewed periodically to the present. While not specifying New York City by name, the section excluded all firefighters covered by section 207-a, which applied to paid firefighters of a fire company or fire department of a city of less than 1,000,000 people. It followed that only New York City firefighters could claim entitlement to those benefits (see, 1973 Atty Gen [Inf Opns] 107).

      . Section 363-a, in relevant part, reads as follows:
      "1. Notwithstanding any provision of this chapter or of any general, special or local law to the contrary, any condition of impairment of health caused by diseases of the heart, resulting in disability or death to a fireman shall be presumptive evidence that it was incurred in the performance and discharge of duty and the natural and proximate result of an accident, unless the contrary be proved by competent evidence.
      * ** *
      ”3. As used in this section, the term 'fireman’ and 'policeman’ means any member who is performing police or fire service, as the phrase police or fire service is defined in paragraphs a, b, c and d of subdivision eleven of section three hundred two of this article, and who, prior to entry into service as a fireman or policeman, successfully passed a physical examination which failed to disclose evidence of any disease or other impairment of the heart.”

      . Titled "officers and employees-salary, retirement benefit increases”, the memorandum states that the 1973 amendment of section 363-a "revises the language of the section to provide for upstate police and firemen, a presumption identical to that presumption which governs New York City police and firemen, i.e., that the heart disability is service connected.” (State Executive Department Mem, 1973 McKinney’s Session Laws of NY, at 2286, 2291-2292.)


source: Caselaw Access Project

author: Bellacosa, J.

license: Public Domain

text:
    The People of the State of New York, Appellant, v John Mikuszewski and Nanco Contracting Corp., Respondents, et al., Defendant.
    Argued March 30, 1989;
    decided May 2, 1989

      POINTS OF COUNSEL

      Robert Abrams, Attorney-General (Christine Duisin, O. Peter Sherwood, John Michael Ryan, Edward D. Saslaw and Diane M. Peress of counsel), for appellant.
    The evidence before the Grand Jury was legally sufficient to support the dismissed charges. (People v Sullivan, 68 NY2d 495; People v Brewster, 63 NY2d 419; People v Oakley, 28 NY2d 309; People v Warner-Lambert Co., 51 NY2d 295; People v Lipsky, 57 NY2d 560; People v Cunningham, 64 AD2d 722, 48 NY2d 938; People v Lennon, 107 Misc 2d 329; People v Block & Kleaver, 103 Misc 2d 758; People v Kaminsky, 127 Misc 2d 497; United States v Lemire, 720 F2d 1327, 467 US 1226.)

      Judd Burstein and Jay Goldberg for respondents.
    The evidence before the Grand Jury was insufficient as a matter of law. (People v Ward, 37 AD2d 174; People v Dunleavy, 41 AD2d 717, 33 NY2d 573; People v Utley, 77 Misc 2d 86; People v Rumble, 58 AD2d 900, 45 NY2d 879; People v Kratky, 122 Misc 2d 949; People v Esposito, 121 AD2d 561; People v Lipsky, 57 NY2d 560; People v Chaitin, 94 AD2d 705, 61 NY2d 683;
      People v Altman, 83 Misc 2d 771; People v Neumann, 51 NY2d 658, 452 US 918.)
   OPINION OF THE COURT

Bellacosa, J.

The criminal charges in this case stem from allegedly fraudulent efforts to feign compliance with minority business participation requirements in two public works contracts. The People through the State Attorney-General charge defendant Naneo Contracting Corp., acting through its vice-president and codefendant Mikuszewski, with making false representations, in required documents relating to the public works contracts, regarding G.R. Trucking, a supposedly State-approved independent minority-owned subcontractor. It was actually owned by codefendant Gustave Roben, an employee of Naneo Contracting Corp. (Naneo Corp.).

The issue is whether the Grand Jury evidence is legally sufficient to support seven counts of the indictment, the only ones now before us, which havé been dismissed. We conclude that six counts should be reinstated and that the scheme to defraud charge was properly dismissed.

The 16-count indictment in this case emerged from the Attorney-General’s criminal investigation of two Federally funded public works contracts awarded to Naneo Corp. by the New York City Department of Transportation in June 1982— a $4.5 million contract to reconstruct Merrick Boulevard in Queens and a $7.1 million contract to improve a portion of Ocean Avenue in Brooklyn. Under the terms of the contracts and consistent with Federal law, Naneo Corp. was obligated to allot 10% of the work to a State-approved "Minority Business Enterprise” (MBE) and 5% to a State-approved "Women-owned Business Enterprise” (WBE). The contracts also provided that failure to fulfill the MBE/WBE requirements could result in the stoppage of government payment or loss of the contracts altogether or both.

Naneo Corp. was awarded the contracts based in part on its representations that G.R. Trucking was one of the minority-owned businesses with which Naneo Corp. intended to subcontract in satisfaction of its MBE commitment. G.R. Trucking is a one truck-two employee operation owned by Gustave Roben, a native Ecuadorian. He and his wife are the two employees. In April 1983, New York City learned that at all relevant times Roben was a Naneo Corp. employee and concluded that his G.R. Trucking was neither an independent business as required (see, 49 CFR 23.53 [a] [2]) nor a State-approved minority business enterprise. It ceased payment under the contracts.

Allegedly false representations in various officially filed documents regarding G.R. Trucking’s nonaffiliation and certification as a State-approved MBE also generated a criminal investigation and later indictments against defendants Mikuszewski, Naneo Corp. and Roben for the crimes of offering a false instrument for filing, falsifying business records, perjury, making an apparently sworn false statement, attempted grand larceny, and engaging in a scheme to defraud.

On defendants’ motions to dismiss for insufficient evidence, the trial court dismissed nine counts of the indictment against defendants Mikuszewski and Naneo Corp. and three counts against defendant Gustave Roben. After the Appellate Division affirmed the dismissals, codefendant Roben pleaded guilty to a lesser included offense in full satisfaction of his indictment. Thus, only Naneo Corp. and Mikuszewski are left before us on this People’s appeal and only as to seven of the dismissed counts.

A Grand Jury may indict only if the evidence before it is legally sufficient to establish that the accused committed the offense charged and also provides reasonable cause to believe the accused committed the offense (CPL 190.65). On a motion addressed to sufficiency of an indictment (CPL 210.20 [1] [b]), however, the defendant is entitled to a review based on whether there was competent evidence which, if accepted as true, would establish every element of an offense charged and the defendant’s commission of it (CPL 70.10 [1]; People v Jennings, 69 NY2d 103, 115). The evidence must be viewed most favorably to the People, and it need not "provide 'reasonable cause’ to believe that the defendant committed the crime charged” (see, People v Warner-Lambert Co., 51 NY2d 295, 299, citing Denzer, Practice Commentary, McKinney’s Cons Laws of NY, Book 11 A, CPL 70.10, at 348 [1971]; see also, People v Brewster, 63 NY2d 419, 422). The courts below appear to have mistakenly held the People to the higher "reasonable cause” standard and, thus, should not have dismissed counts 3, 4, 7, 8, 13 and 14. With respect to count 16, the Attorney-General failed to provide any proof with respect to an essential element of the crime of scheme to defraud first degree and, thus, the count was properly dismissed.

Scheme to Defraud

Count 16 charges the defendants with violating Penal Law § 190.65, which provides in part: "1. A person is guilty of a scheme to defraud in the first degree when he: (a) engages in a scheme constituting a systematic ongoing course of conduct with intent to defraud ten or more persons or to obtain property from ten or more persons by false or fraudulent pretenses, representations or promises, and so obtains property from one or more of such persons” (emphasis added). This count was dismissed because defendants’ conduct did not fall within the reach of this particularized scheme to defraud statute. The Attorney-General urges reinstatement, claiming that defendants’ scheme to obtain the two contracts by falsely claiming compliance with the MBE requirements constituted "a systematic ongoing course of conduct” sufficient to satisfy this statute’s language and purpose. He adds that the 10 or more victims requirement elevating the offense to a felony has been satisfied because the scheme was intended to defraud not only three governmental agencies involved in the administration of the public projects but also 10 or more other bidding contractors.

We conclude the Grand Jury evidence was legally insufficient with respect to this count because there was no proof that defendants intended to defraud or obtain property by false representations with respect to 10 or more persons within the meaning of this statute.

The scheme to defraud crime (Penal Law §§ 190.60, 190.65) was added to the Penal Law in 1976 (L 1976, ch 384). Under the relatively new theft statute, the misdemeanor offense is elevated to felony level first degree if the intent is to defraud or obtain property by false representations with respect to "ten or more persons” and property is obtained from "one or more” such persons (see also, L 1986, ch 515; Penal Law § 190.65 [1] [b] [another circumstance raised to felony level but not relevant here]; see also, L 1986, ch 833; Penal Law § 195.20 [eliminating the multiple victims requirement when the scheme to defraud is perpetrated against the government, also not charged here]).

The legislative history indicates that the applicable 1976 statute was designed to aid in the prosecution of consumer fraud schemes where many victims are bilked mainly of small amounts of money (see, Sponsor’s Mem, 1976 NY Legis Ann, at 35-36). The enhanced prosecutorial option was thought to be needed because under the then existing offense choices these types of consumer scams often escaped successful prosecution under the larceny-by-false-promise statute (Penal Law § 155.05 [2] [d]), which required that each victimization be separately pleaded and proved. The scheme to defraud concept borrowed the traditional larceny category of false pretense and false representation, but shifted the focus away from the amount of loss suffered by a particular victim and placed it instead on the nature and extent of the scam.

While the new scheme to defraud crime was derived in part from the Federal mail fraud statute (18 USC § 1341; see, Sponsor’s Mem, 1976 NY Legis Ann, at 35-36), it differs significantly from the latter by additionally requiring that property actually be obtained from at least one of the persons sought to be defrauded (see, Donnino, Practice Commentary, McKinney’s Cons Laws of NY, Book 39, Penal Law § 190.60, at 425).

In this case, while the People’s evidence before the Grand Jury may have been sufficient to establish that the one "person” from whom property was actually obtained was the government or a few units of the government, there was absolutely no evidence that defendants made false representations to other bidding contractors, or even that other bidding contractors had knowledge of the false representations made to the government or that they were in any way defrauded of property rights or interests. None of those putative bidders were involved in the defendants’ scam or victimized in any way contemplated by this special statute. Since the People failed to supply any evidence to establish defendants’ intent to defraud multiple victims, an essential element under this particular statute, the scheme to defraud count cannot stand.

The Six Other Dismissed Counts

Counts 3, 4, 13 and 14 of the indictment are predicated on a misrepresentation made on Roben’s application for MBE status which Mikuszewski, acting as vice-president of Naneo Corp., filed with the New York State Department of Transportation. The Attorney-General maintains that Roben’s affidavit filed with the application included false information; to wit, Roben denied he was "affiliated” with Naneo Corp. when, in fact, he was a Naneo Corp. employee and that Naneo Corp. through its officer Mikuszewski was aware of the falsity. Counts 3 and 4 charge the defendants with offering a false instrument (i.e., Roben’s affidavit) for filing (Penal Law § 175.35). Count 3 alleges that Roben’s affidavit had been filed with New York State Department of Transportation in April 1983 and count 4 alleges that the same document had been sent to the New York State Department of Transportation in May 1982. The same document serves as the basis for the perjury charge (Penal Law § 210.10 [count 13]), and the charge of making an apparently sworn false statement (Penal Law § 210.40 [count 14]).

The falsity of Roben’s statement is not at issue nor is he before us as a party. The courts below concluded, however, that the Attorney-General had submitted no proof connecting defendants Naneo Corp. and Mikuszewski to knowledge of Roben’s false statement and held that count 4 should be dismissed for the additional reason that there was no evidence the affidavit was in fact filed in 1982.

All four of these counts (Nos. 3, 4, 13 and 14) require proof that these two defendants knew that Roben’s affidavit was false (see, Penal Law § 175.35 [offering a false instrument for filing]; Penal Law § 210.10 [perjury]; Penal Law § 210.40 [making an apparently sworn false statement]). Even at the Grand Jury stage, the Attorney-General cannot satisfy his burden by establishing that only Roben knowingly made a false statement. The proof must additionally show that Mikuszewski and Naneo Corp. through its officer had knowledge of the falsity and acted illegally with respect to it.

Viewed favorably to the People, the evidence is sufficient for the Grand Jury to have inferred that defendant Mikuszewski as vice-president of Naneo Corp. knew of the falsity in Roben’s affidavit. The evidence before that body included testimony that defendant Mikuszewski oversaw all of Naneo Corp.’s projects in 1982 and 1983; that he directly participated in filling out various forms with respect to G.R. Trucking’s MBE status; that Mikuszewski himself volunteered to fill out Roben’s G.R. Trucking document entitled "Minority Contractor Participation Letter of Intent”, which was designed to be completed by the minority contractor; and that Mikuszewski personally forwarded Roben’s affidavit containing the false statements with an attached cover letter bearing Mikuszewski’s signature to the New York City Department of Transportation although Naneo Corp. was not even responsible for filing that affirmation.

Based on this evidence, the Grand Jury under traditional standards of review at this stage of a criminal proceeding had enough to find criminal charges resting on Mikuszewski’s knowledge, which may also be imputed to Naneo Corp., of the falsity in their own employee’s affidavit that he was not "affiliated” with Naneo Corp.

Further, the evidence was legally sufficient to support count 4 charging that the Roben affidavit was also filed in 1982. Three relevant items of evidence were presented on this point. First, the Mikuszewski April 13, 1983 cover letter enclosing the Roben affidavit expressly stated that the affidavit previously had been mailed to the New York State Department of Transportation in 1982. Second, a Naneo Corp. employee testified in effect to the 1982 filing. Third, a New York City Department of Transportation official testified that the affidavit had been filed.

To be sure, count 4 may not rest solely upon Mikuszewski’s 1983 statement that the affidavit had been filed in 1982, and the Attorney-General was obliged to supply corroborative evidence that the offense charged was in fact committed (CPL 60.50). That required minimal corroborative evidence appears in the Naneo Corp. employee’s testimony that Roben swore to the affidavit on May 21, 1982 and "the document was then filed by Naneo” with the State of New York (emphasis added). This slender reed is sufficient for the CPL 60.50 requirement of " 'production of some proof, of whatever weight, that a crime was committed’ [citations omitted]” (People v Lipsky, 57 NY2d 560, 571; see also, People v Booden, 69 NY2d 185, 187).

Counts 7 and 8 of the indictment involve two documents labeled "Minority Business Enterprise Compliance Reports”. These forms were signed by defendant Mikuszewski, were filed on or about March 13, 1983, and contain the allegedly false statement that "the Contractors listed below are approved MBE/WBE Contractors” (emphasis supplied). The Attorney-General maintains that G.R. Trucking was not "an approved MBE contractor” in March of 1983 and that defendants Mikuszewski and correspondingly Naneo Corp. were aware of this falsity proffered in their compliance reports.

The courts below concluded that the Grand Jury evidence was insufficient to establish Naneo Corp.’s or Mikuszewski’s knowledge in March 1983 that G.R. Trucking was not an approved MBE. The key documentary evidence on this point was a letter from a New York City Department of Transportation official dated May 28, 1982 informing Naneo Corp. its "Schedule of Participation by Minority Business Enterprise [had been] conditionally approved” (emphasis added). The courts interpreted the portion of the letter stating the city’s "conditional approval” of the participation schedule as conferring on G.R. Trucking State approval as a MBE contractor. They are on their face two very different things. Naneo Corp. and Mikuszewski cannot be excused on that out-of-context reading from the knowledge ingredient needed for the criminal accusation based on the false representation of State-approved MBE status. Reliance and focus on the first clause of the first sentence of the city’s letter is misplaced. It states: "Your attached Schedule of Participation by Minority Business Enterprise is conditionally approved”. The rest of the sentence and the rest of the letter, all also in evidence before the Grand Jury, are unequivocal that conditional approval of the participation selection schedule does not constitute State approval of the proposed MBE contractor. The letter goes on to state that the city’s approval of the schedule is "predicated upon * * * the * * * MBE/WBE companies being certified as such by the New York State Department of Transportation” and that "[t]his conditional approval only recognizes your good faith efforts in attaining the contract goals, but in no way grants MBE/WBE status to [G.R. Trucking]” (emphasis added). Thus, the total letter, viewed favorably to the People on a sufficiency challenge, supplies the very ingredient the courts below found to have been negated by the letter, i.e., evidence sufficient to prove the knowing and intentional nature of defendants’ false submissions in the compliance reports regarding G.R. Trucking’s MBE State-"approved” status as of March 1983.

In sum, the record of the Grand Jury minutes supplies legally sufficient evidence in this case to support counts 3, 4, 7, 8, 13 and 14 of the indictment; we are likewise satisfied on that same over-all record that the People failed to present legally sufficient evidence of all the elements needed to sustain count 16, charging a scheme to defraud in the first degree.

Accordingly, the order of the Appellate Division should be modified to the extent of reinstating counts 3, 4, 7, 8, 13 and 14 of the indictment and, as so modified, it should be affirmed.

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

Order modified, etc.


text:
    Ossining Union Free School District, Appellant, v Anderson LaRocca Anderson et al., Defendants, and Thune Associates Consulting Engineers et al., Respondents.
    Argued March 28, 1989;
    decided May 4, 1989

      POINTS OF COUNSEL

      Robert F. Van der Waag, Alan E. Congdon, Morris Zweibel and Carla C. Leone for appellant.
    Plaintiff’s complaint against Thune and Geiger sets forth a valid cause of action against respondents in both negligence and malpractice and a sufficient relationship exists between the parties so as to defeat a motion to dismiss. (Alvord & Swift v Muller Constr. Co., 46 NY2d 276; Crow-Crimmins-Wolff & Munier v County of Westchester, 90 AD2d 785; Credit Alliance Corp. v Andersen & Co., 65 NY2d 536; Strauss v Belle Realty Co., 65 NY2d 399; Tobin v Grossman, 24 NY2d 609; Westpac Banking Corp. v Deschamps, 66 NY2d 16; Glanzer v Shepard, 233 NY 236; White v Guarente, 43 NY2d 356; Ultramares Corp. v Touche, 255 NY 170; Viscardi v Lerner, 125 AD2d 662.)

      Leon D. Lazer, James E. Frankel, Kenneth H. Lazaruk and Charles R. Pierce, Jr., for Thune Associates Consulting Engineers, respondent.
    I. Contractual privity is a prerequisite to maintaining an action for economic loss resulting from services rendered or products supplied. (Strauss v Belle Realty Co., 65 NY2d 399; Harder v Arthur F. McGinn, Jr., P. C., 58 NY2d 663; Schiavone Constr. Co. v Elgood Mayo Corp., 81 AD2d 221, 56 NY2d 667; Alvord & Swift v Muller Constr. Co., 46 NY2d 276; Underhill Constr. Corp. v New York Tel. Co., 44 NY2d 666; Moch Co. v Rensselaer Water Co., 247 NY 160; Calamari v Grace, 98 AD2d 74; Cayuga Harvester v AllisChalmers Corp., 95 AD2d 5; East Riv. S. S. Corp. v Transamerica Delaval, 476 US 858.) II. New York courts have consistently applied the requirement of privity in actions involving claims of economic loss against providers of services. (Harder v Arthur F. McGinn, Jr., P. G, 89 AD2d 732, 58 NY2d 663; Green v Fischbein, Olivieri, Rozenholc & Badillo, 135 AD2d 415; Viscardi v Lerner, 125 AD2d 662; Cronin v Scott, 78 AD2d 745; Calamari v Grace, 98 AD2d 74; Henry v Guastella Assocs., 113 AD2d 435; Oathout v Johnson, 88 AD2d 1010; Corporate Leasing v AFA Protective Sys., 101 AD2d 768.) III. The accountants’ liability cases do not create a generalized exception to the rule of privity. (Credit Alliance Corp. v Andersen & Co., 65 NY2d 536; Widett v United States Fid. & Guar. Co., 815 F2d 885; Iselin & Co. v Mann Judd Landau, 71 NY2d 420; Westpac Banking Corp. v Deschamps, 66 NY2d 16; Northrup Contr. v Village of Bergen, 139 Misc 2d 435, 129 AD2d 1002; Board of Educ. v Sargent, Webster, Crenshaw & Folley, 71 NY2d 21; Clark-Fitzpatrick, Inc. v Long Is. R. R. Co., 70 NY2d 382.)

      Frank L. Amoroso, David P. Franks and Rhonda S. Kahan for Geiger Associates, P. C., respondent.
    I. Given the undisputed and undisputable fact that respondent Geiger was not engaged in any way until after the school district decided to close the annex, there is no set of facts under which Geiger may be held liable. Summary judgment is thus appropriate. II. Where a school district incurs solely pecuniary loss from allegedly poor professional advice, there is no viable cause of action against a professional with whom there is no privity of contract. (East Riv. S. S. Corp. v Transamerica Delaval, 476 US 858; Widett v United States Fid. & Guar. Co., 815 F2d 885; Fitzpatrick, Jr. Constr. Corp. v County of Suffolk, 138 AD2d 446; Viscardi v Lerner, 125 AD2d 662; Credit Alliance Corp. v Andersen & Co., 65 NY2d 536; Ultramares v Touche, 255 NY 170; Calamari v Grace, 98 AD2d 74; Morse/Diesel, Inc. v Trinity Indus., 859 F2d 242; Iselin & Co. v Mann Judd Landau, 71 NY2d 420.)
   OPINION OF THE COURT

Kaye, J.

At issue is a question that has long been a subject of litigation: in negligent misrepresentation cases, which produce only economic injury, is privity of contract required in order for plaintiff to state a cause of action? Whether defendants are accountants (as in several recent cases) or not (as here), our answer continues to be that such a cause of action requires that the underlying relationship between the parties be one of contract or the bond between them so close as to be the functional equivalent of contractual privity. Such a bond having been alleged in the present action against engineers, we reverse the Appellate Division order and deny defendants’ motion to dismiss the complaint.

Viewing the facts presented in a light most favorable to plaintiff, as we must at this stage of the proceeding, plaintiff school district alleges that in 1984, it began a general study and structural evaluation of its buildings. To that end, it entered into a written agreement with an architectural firm, codefendant Anderson LaRocca Anderson, whereby Anderson was hired to provide an evaluation and feasibility study of plaintiffs buildings; the contract authorized Anderson’s retention of consultants. Anderson retained the defendants, Thune Associates Consulting Engineers and Geiger Associates, P. C., as engineering consultants to assist in various aspects of the work it had undertaken for the school district. Although the school board authorized the retention of Thune and Geiger, neither defendant had a contract with the school district.

This litigation arises from certain reports made by defendants following tests done on school district premises in order to determine the structural soundness of the high school annex. Specifically, defendant Thune and thereafter, at the school district’s request to Anderson, a second engineering firm — defendant Geiger — tested the concrete at various locations throughout the building. Both reported that there were serious weaknesses in the building, particularly the concrete slabs that formed the building’s superstructure, and Anderson informed the school district of those findings.

It is alleged that defendants were aware that plaintiff would rely on their findings and that the intended purpose of defendant’s reports was in fact to enable the school district to determine what measures should be taken to deal with structural problems in its buildings. For safety reasons, the school district closed the annex and, purportedly at substantial expense, obtained other facilities for the dislodged activities. The school district, however, later retained a third independent expert to check the results, and that expert advised plaintiff that the annex had been constructed with a lightweight concrete known as "Gritcrete” rather than the 2,500 pound per square inch cement defendants had assumed and reported. According to plaintiff, this information was available to defendants in the original building design drawings and specifications which had been furnished to them. Had defendants read these materials rather than acting on their mistaken assumption as to the type of concrete used, they would not have made the reports and rendered the advice that eventuated in the unnecessary and expensive closing of the annex.

The school district then began this lawsuit against Anderson and both engineering consultants. Claims of negligence and malpractice were asserted against all three. A claim for breach of contract was also asserted against Anderson, the only party with which plaintiff school district had a contract. Anderson, in its answer denying liability, asserted a cross claim against Thune and Geiger. Thune and Geiger moved for dismissal of the complaint as to them, asserting that absent contractual privity, neither the negligence nor the malpractice claim could be sustained. Supreme Court dismissed the complaint on that ground and the Appellate Division affirmed, citing the "long-standing general rule that recovery will not be granted to a third person for pecuniary loss arising from the negligent representations of a professional with whom he or she has had no contractual relationship.” (135 AD2d 518, 520.)

According to the Appellate Division, this general rule has only one limited exception: under certain narrowly defined circumstances, accountants may be held liable to noncontractual parties who rely to their detriment on negligently prepared financial reports. In the Appellate Division’s view, accountants are singled out from the broad rule of nonliability only because of the central role they have come to play in the modern business community. That particular policy consideration being inapplicable to other professionals, the Appellate Division declined to "extend the exception” to defendant engineers, with whom plaintiff was not in a relationship of contractual privity (id., at 521). For the reasons that follow, we conclude the Appellate Division erred.

Courts have long struggled to define the ambit of duty or limits of liability for negligence, which in theory could be endless. While much of this struggle has been couched in the rhetoric of foreseeability of harm, under some circumstances foreseeability has appeared particularly inadequate for defining the scope of potential liability. In negligent misrepresentation cases especially, what is objectively foreseeable injury may be vast and unbounded, wholly disproportionate to a defendant’s undertaking or wrongdoing (see generally, Rabin, Tort Recovery for Negligently Inflicted Economic Loss: A Reassessment, 37 Stan L Rev 1513 [1985]). In reaching the policy judgment called "duty”, courts have therefore invoked a concept of privity of contract as a means of fixing fair, manageable bounds of liability in such cases.

Contractual privity as the basis for defining the ambit of duty in negligence cases derives from the famous case of Winterbottom v Wright (10 M & W 109, 152 Eng Rep 402 [Ex 1842]), a suit by an injured coachman against the supplier of a coach whose defective wheel had caused him injury. Although the action apparently sounded in tort, Lord Abinger relied primarily on the absence of a contract in denying recovery: "There is no privity of contract between these parties; and if the plaintiff can sue, every passenger, or even any person passing along the road, who was injured by the upsetting of the coach, might bring a similar action. Unless we confine the operation of such contracts as this to the parties who entered into them, the most absurd and outrageous consequences, to which I can see no limit, would ensue” (id., at 114, 152 Eng Rep, at 405). While the privity limitation in part manifested an early preference for allocating sale of goods cases to the realm of contract rather than tort, it was plainly also informed by deep concern about the widespread liability to which a supplier would be exposed without some circumscribing principle (see, Rabin, Tort Recovery for Negligently Inflicted Economic Loss: A Reassessment, op. cit., at 1529).

Winterbottom v Wright soon became a leading case both in England and in this country. But just as rapidly, exceptions to the privity requirement developed (see, e.g., Devlin v Smith, 89 NY 470; Loop v Litchfield, 42 NY 351; Thomas v Winchester, 6 NY 397; Huset v Case Threshing Mach. Co., 120 F 865, 867-871). In the landmark case MacPherson v Buick Motor Co. (217 NY 382), this court refused to apply the privity requirement to bar recovery by the driver of an automobile for injuries caused by a defective wheel the automobile manufacturer had negligently failed to inspect (see, Llewellyn, The Common Law Tradition: Deciding Appeals, at 430-437 [I960]). Distinguishing Winterbottom, Judge Cardozo wrote there was "nothing anomalous in a rule which imposes upon A, who has contracted with B, a duty to C and D and others according as he knows or does not know that the subject-matter of the contract is intended for their use.” (Id., at 393.) Thereafter, the citadel of privity crumbled quickly in cases involving physical injury caused by defective products (see, Prosser, The Fall of the Citadel, 50 Minn L Rev 791 [1966]).

In theory, there appeared to be no reason why the privity bar should be dispensed with in cases such as MacPherson but retained in certain other types of negligence cases, and in Glanzer v Shepard (233 NY 236) we said as much. The defendants in Glanzer were public weighers hired by the sellers of beans to provide plaintiff with a certificate stating the weight of the beans. When defendants negligently misstated the weight, the buyers sued for the overpayment they had made in reliance on defendants’ inaccurate statement. Rejecting defendants’ claim that MacPherson applied only to products posing a risk of physical danger, Judge Cardozo wrote: "We do not need to state the duty in terms of contract or of privity. Growing out of a contract, it has none the less an origin not exclusively contractual. Given the contract and the relation, the duty is imposed by law”. (Id., at 239.)

In Glanzer, the particular relationship that was held to warrant imposition of a legal duty of care was found in the fact that "[t]he plaintiffs’ use of the certificates was not an indirect or collateral consequence of the action of the weighers. It was a consequence which, to the weighers’ knowledge, was the end and aim of the transaction” and that a copy of the certificate was sent to plaintiffs "for the very purpose of inducing action.” (Id., at 238-239.) While noting that the plaintiffs might be analogized to third-party beneficiaries of the contract between the bean sellers and the defendants, the opinion stressed that the result was reached more simply by analyzing the duty owed by the defendants under the circumstances: "The defendants, acting, not casually nor as mere servants, but in the pursuit of an independent calling, weighed and certified at the order of one with the very end and aim of shaping the conduct of another. Diligence was owing, not only to him who ordered, but to him also who relied.” (Id., at 242.)

The ambit of duty was not, however, determined simply by the class of persons who relied on the negligent misrepresentations. As Chief Judge Cardozo wrote in Ultramares Corp. v Touche (255 NY 170), what was determinative in Glanzer was that there was a bond between plaintiff and defendant that was "so close as to approach that of privity, if not completely one with it.” (Id., at 182-183.) In Ultramares, by contrast, the range of potential plaintiffs was "as indefinite and wide as the possibilities of the business that was mirrored in the summary.” (Id., at 174.) That distinction led Chief Judge Cardozo to observe: "If liability for negligence exists, a thoughtless slip or blunder, the failure to detect a theft or forgery beneath the cover of deceptive entries, may expose accountants to a liability in an indeterminate amount for an indeterminate time to an indeterminate class. The hazards of a business conducted on these terms are so extreme as to enkindle doubt whether a flaw may not exist in the implication of a duty that exposes to these consequences.” (Id., at 179-180.)

While plaintiffs’ reliance might have been objectively foreseeable both in Glanzer and in Ultramares, the court chose to circumscribe defendants’ liability for negligent misstatements by privity of contract or its equivalent, because of concern for the indeterminate nature of the risk. That very concern, which has echoed in the law since Winterbottom, was also at the root of our recent decisions in Credit Alliance Corp. v Andersen & Co. (65 NY2d 536, mot to amend remittitur granted 66 NY2d 812), Westpac Banking Corp. v Deschamps (66 NY2d 16) and Iselin & Co. v Mann Judd Landau (71 NY2d 420), which adhered to the rule articulated in Glanzer and Ultramares.

In none of these cases, however, has the court erected a citadel of privity for negligent misrepresentation suits. Thus, the rule is not, as erroneously stated by the Appellate Division, that "recovery will not be granted to a third person for pecuniary loss arising from the negligent representations of a professional with whom he or she has had no contractual relationship”. (135 AD2d, at 520.) The long-standing rule is that recovery may be had for pecuniary loss arising from negligent representations where there is actual privity of contract between the parties or a relationship so close as to approach that of privity.

Nor does the rule apply only to accountants. We have never drawn that categorical distinction, and see no basis for establishing such an arbitrary limitation now. It is true that in many of the cases involving claims for negligent misrepresentation, the defendants are accountants. Indeed, in attempting to fashion a rule that does not expose accountants to crippling liability, we have noted the central role played by that profession in the world of commercial credit. But while the rule has been developed in the context of cases involving accountants, it reflects our concern for fixing an appropriate ambit of duty, and there is no reason for excepting from it defendants other than accountants who fall within the narrow circumstances we have delineated. Notably, Glanzer itself did not involve a suit against accountants.

The remaining question, then, is whether under Glanzer and our subsequent cases, defendants owed a duty of care to plaintiff that was breached by their alleged negligent performance. We have defined this duty narrowly, more narrowly than other jurisdictions (see, e.g., Rosenblum, Inc. v Adler, 93 NJ 324, 461 A2d 138). We have declined to adopt a rule permitting recovery by any "foreseeable” plaintiff who relied on the negligently prepared report, and have rejected even a somewhat narrower rule that would permit recovery where the reliant party or class of parties was actually known or foreseen by the defendants (Credit Alliance Corp. v Andersen & Co., 65 NY2d, at 553, n 11). It is our belief that imposition of such broad liability is unwise as a matter of policy (see, Siliciano, Negligent Accounting and the Limits of Instrumental Tort Reform, 86 Mich L Rev 1929) or, at the least, a matter for legislative rather than judicial reform.

Instead, we have required something more, and we have articulated the requirement in various ways. In Glanzer, it was described as reliance by the plaintiff that was "the end and aim of the transaction.” (233 NY2d, at 238-239; see also, White v Guarente, 43 NY2d 356, 362 ["one of the ends and aims of the transaction.”].) In Ultramares, we spoke of a bond "so close as to approach that of privity”. (255 NY, at 182-183.) Most recently, in Credit Alliance, we spelled out the following criteria for liability: (1) awareness that the reports were to be used for a particular purpose or purposes; (2) reliance by a known party or parties in furtherance of that purpose; and (3) some conduct by the defendants linking them to the party or parties and evincing defendant’s understanding of their reliance (Credit Alliance Corp. v Andersen & Co., 65 NY2d, at 551).

For present purposes, the facts asserted in plaintiff’s submissions satisfy these prerequisites. Plaintiff alleges that through direct contact with defendants, information transmitted by Anderson, and the nature of the work, defendants were aware —indeed, could not possibly have failed to be aware — that the substance of the reports they furnished would be transmitted to and relied upon by the school district. Plaintiff asserts that that was the very purpose of defendants’ engagement.

Though under contract to Anderson, defendants allegedly undertook their work in the knowledge that it was for the school district alone, and that their findings would be reported to and relied on by the school district in ongoing project — the evaluation of the structural soundness of the school buildings. Defendants were retained to visit plaintiff’s premises, examine its buildings, and prepare reports of their findings upon which action would be taken. The engagement of consultants was provided for in the contract between the school district and Anderson; the retention of defendants specifically was authorized by the school board, and they were so informed; in seeking compensation, Geiger itself wrote "we were hired by [the school district]”, and it sent a bill directly to the school district. Plaintiff further alleges that defendants had various types of contact directly with the school district. That, as well as the contents of some of Anderson’s communications with defendants, constitutes conduct linking defendants to plaintiff and evidencing their understanding of plaintiff’s reliance.

Not unlike the bean weighers in Glanzer, defendants allegedly rendered their reports with the objective of thereby shaping this plaintiff’s conduct, and thus they owed a duty of diligence established in our law at least since Glanzer not only to Anderson who ordered but also to the school district who relied.

Accordingly, the order of the Appellate Division should be reversed, with costs, the motions to dismiss the complaint as against defendants Thune Associates Consulting Engineers and Geiger Associates, P. C. denied, and the certified question answered in the negative.

Judges Simons, Alexander, Titone, Hancock, Jr., and Bellacosa concur; Chief Judge Wachtler taking no part.

Order reversed, etc.

       Given plaintiffs factual allegations of known reliance on the findings of both engineering consultants, Geiger’s argument that it was not engaged until after the school district had decided to close the annex, and thus could not be liable for plaintiffs losses, does not at this juncture entitle it to dismissal of the complaint.


author: Bellacosa, J. Simons, J.

text:
    The People of the State of New York, Appellant, v Melvin Jones, Respondent.
    Argued March 29, 1989;
    decided May 9, 1989

      POINTS OF COUNSEL

      Robert M. Morgenthau, District Attorney (Ralph Fabrizio and Norman Barclay of counsel), for appellant.
    The Trial Judge correctly concluded that Darvocet is a controlled substance. (People v Ryan, 128 AD2d 906; People v Keough, 276 NY 141; People v Crossland, 9 NY2d 464; Tarlowe v Metropolitan Ski Slopes, 28 NY2d 410; People v Sugden, 35 NY2d 453; People v DiPiazza, 24 NY2d 342; People v Simmons, 55 AD2d 879, 43 NY2d 806; Dougherty v Milliken, 163 NY 527.)

      Beverly Van Ness and Philip L. Weinstein for respondent.
    I. The court below correctly held that the evidence was insufficient to establish respondent’s guilt, where the People failed to prove that the drug he transferred was a controlled substance pursuant to section 3306 of the Public Health Law. (Caton v Doug Urban Constr. Co., 65 NY2d 909; People v Boscia, 83 Misc 2d 501; Kravitz v Long Is. Jewish-Hillside Med. Center, 113 AD2d 577; People v Kenny, 36 AD2d 477, 30 NY2d 154; Kulak v Nationwide Mut. Ins. Co., 40 NY2d 140; People v Paschall, 91 AD2d 645; People v Samuels, 302 NY 163; People v Keough, 276 NY 141; People v Sugden, 35 NY2d 453; People v Stone, 35 NY2d 69.) II. The prosecutor’s failure to instruct the Grand Jury on the defense of entrapment, which was clearly raised by respondent’s testimony, so impaired the integrity of the Grand Jury proceeding as to mandate dismissal of the indictment. (People v Valles, 62 NY2d 36; People v Lancaster, 69 NY2d 20; People v Wilkins, 68 NY2d 269; People v Eckert, 2 NY2d 126; People v Nezaj, 139 Misc 2d 366; People v Allies Blvd. Book Store, 130 Misc 2d 556, 125 AD2d 910; Sherman v United States, 356 US 369; Sorrells v United States, 287 US 435; People v Fuller, 130 AD2d 840; People v Isaacson, 44 NY2d 511.)
   OPINION OF THE COURT

Bellacosa, J.

The People appeal from an order of the Appellate Division reversing a conviction after jury trial for criminal sale of a controlled substance in the fifth degree and dismissing the indictment. The decisional ground was insufficiency of the proof that the 10 sold Darvocet tablets were a criminally forbidden controlled substance. We agree with the Appellate Division that the People failed to provide sufficient evidence, through its expert chemist witness or otherwise, that the tablets at issue consisted of or were chemically equivalent to the controlled substance defendant was charged with selling. The People’s appeal, therefore, fails and we affirm the order of dismissal.

Defendant was arrested for the sale of 10 Darvocet tablets to an undercover police officer for $10 in a routine "buy and bust”. He was then indicted for the sale of a controlled substance alleged to be propoxyphene. At trial, an expert in chemistry and in the analysis of controlled substances testified for the People that Darvocet is propoxyphene and added, over objection, that it was a controlled substance. Her qualifications as an expert were not objected to and are not in question on this appeal. The Trial Justice later instructed the jury, based upon information he acquired from an unidentified source and from the Physician’s Desk Reference, that propoxyphene was the same as dextropropoxyphene. The latter is explicitly enumerated as a controlled substance in schedule IV of Public Health Law § 3306 (see also, Penal Law § 220.00 [5]). Defendant again took exception, arguing the jury had no evidence before it that dextropropoxyphene, the only listed controlled substance in this generic category, was the same as propoxyphene or Darvocet.

The Appellate Division’s memorandum for reversal of the conviction stated that inasmuch as there are "two varieties of propoxyphene, it was incumbent upon the People to prove that the propoxyphene defendant sold was chemically identical to the dextropropoxyphene listed in schedule IV [of Public Health Law § 3306] as a proscribed drug” and that the expert "offered no factual basis to support her opinion that propoxyphene was a controlled substance” (138 AD2d 301, 302).

Despite the expert’s excellent credentials and her ample, ordinary foundational testimony, she was not asked nor did she provide the essential element to answer the determinative question as to what controlled substance, if any, was contained in the tested tablets and, without that evidentiary base, a bald conclusion that it is a forbidden controlled substance is useless in this criminal prosecution. To suggest that the defendant can somehow attend to this deficiency as to the expert’s opinion, or the critical element upon which it is based, by cross-examination is to shift functionally the burden of proof as to the core element of the crime itself which must be proved in this case — sale of a controlled substance.

As a general rule, in order for an expert’s opinion to qualify as evidence supplying a necessary element of proof on a sufficiency review, it must rest on facts in evidence or on those personally known and testified to by the expert (People v Samuels, 302 NY 163, 171, 172; People v Keough, 276 NY 141, 145-146). A flexibility has evolved which permits expert reliance on out-of-court material "if it is of a kind accepted in the profession as reliable in forming a professional opinion” or, alternatively, if it "comes from a witness subject to full cross-examination on the trial” (People v Sugden, 35 NY2d 453, 460, 461; see, Hambsch v New York City Tr. Auth., 63 NY2d 723, 725-726; People v Stone, 35 NY2d 69, 74-76; McLaughlin, Supplementary Practice Commentaries, McKinney’s Cons Laws of NY, Book 7B, 1989 Supp Pamph, CPLR 4515). Authorized use of facts from outside the evidentiary record does not, however, alter "the basic principle that an expert’s opinion not based on facts is worthless” (Caton v Doug Urban Constr. Co., 65 NY2d 909, 911) because "[a]n expert’s opinion is only as sound as the facts upon which it is based” (People v Cronin, 60 NY2d 430, 434 [Cooke, Ch. J., concurring]).

Consequently, an expert who relies on necessary facts within personal knowledge which are not contained on the record is required to testify to those facts prior to rendering the opinion (see, Weibert v Hanan, 202 NY 328, 331). Conversely, expert opinions of the kind needing material evidentiary support for which there is none otherwise in the direct evidence or in some equivalently admissible evidentiary form have been excluded (see, People v Patrick, 182 NY 131, 172; Shore Haven Apts. v Commissioner of Fin. of City of N. Y., 93 AD2d 233, 236; Richardson, Evidence § 370 [Prince 10th ed]).

The validity of this evidentiary theorem, requiring support for the expert’s evidentiary submission of an essential element of the crime charged, may be tested by examining its functional and practical operation especially in a case of this kind. Expert opinion testimony is used in partial substitution for the jury’s otherwise exclusive province which is to draw "conclusions from the facts” (People v Cronin, 60 NY2d 430, 432, supra). It is a kind of authorized encroachment in that respect. But, to insure that the jury is not doubly displaced, it "must [at least] have the facts upon which the expert bases his opinion in order to evaluate the worth of that opinion” (People v Samuels, 302 NY 163, 172, supra), as well as to judge the reliability of extrajudicial material, if that is the plank upon which the expert’s opinion rests (see, Hambsch v New York City Tr. Auth., 63 NY2d 723, 726, supra). It is also necessary so as not to dispense with or shift the prosecutor’s absolute burden to prove every element of the crime charged beyond a reasonable doubt.

The pertinency, indeed the criticality of these evidentiary norms as applied to this case, is evident from examination of Public Health Law § 3306, which references two substances with a propoxyphene root: dextropropoxyphene, which is a controlled substance (see, schedule II [c] [5]; schedule IV [b] [2]) proscribed by Penal Law § 220.00 (5), and levopropoxyphene, which is expressly excepted from controlled substance classification (see, schedule II [c]). The People’s chemist testified that Darvocet is propoxyphene and then opined that it was a controlled substance. But that particular leap does not necessarily succeed in chemistry, logic or law because neither the jury nor we as a reviewing court governed by a record of evidence have been given anything to bridge the gap. Without admissible proof of some kind connecting Darvocet to the forbidden dextropropoxyphene, the chain is severed and incomplete. In failing to supply an evidentiary predicate for their own chemist expert’s ultimate conclusion, the People presented an insufficient case. The corpus delicti of the crime charged is lacking and this record, as far as the entire proof shows, is susceptible to the equally available and innocent inference that the sold Darvocets could just as well have been the lawful propoxyphene derivative, levopropoxyphene.

Moreover, this core deficiency could not be cured in the circumstances of this case by the trial court taking judicial notice that Darvocet may be composed of the forbidden dextropropoxyphene compound. That judicial rescue of the People’s inadequate case came too late and from unacceptable sources as well.

To be sure, a court may take judicial notice of facts " 'which are capable of immediate and accurate determination by resort to easily accessible sources of indisputable accuracy’ ” (Richardson, Evidence § 9 [Prince 10th ed]; see, Matter of Crater Club v Adirondack Park Agency, 86 AD2d 714, 716, affd 57 NY2d 990; see, e.g., Matter of Medical Malpractice Ins. Assn. v Superintendent of Ins., 72 NY2d 753, 764-765). An expert’s opinion may quite ordinarily be founded upon facts deemed proven by the judicial notice route where the opportunity for challenge and cross-examination of the expert’s opinion testimony is adequately and timely provided. However, a defendant’s protections in this regard cannot be dispensed with by a trial court which, in an effort to salvage a People’s expert’s "proof’, takes judicial notice of necessary ingredients from a hearsay source or from unidentifiable or nonindisputable sources outside the record or at a time subsequent to the close of testimony (see, People v Sugden, 35 NY2d 453, 459, supra).

The corpus delicti of the crime charged in this case was that defendant sold a controlled substance. The People failed to prove by their chemist expert witness or by subsequent judicial notice or by other evidentiary norms that the sold Darvocet tablets were indeed the forbidden dextropropoxyphene. Inasmuch as the expert’s unsubstantiated opinion to that ultimate conclusion arcs over the indispensable evidentiary nexus, the conviction was correctly overturned.

Accordingly, the Appellate Division’s order reversing the conviction and dismissing the single count indictment should be affirmed.

Simons, J.

(concurring). I agree defendant’s conviction may not stand. The reason it may not stand is because the People failed to establish that the drug obtained from defendant was proscribed by the Public Health Law. The majority’s opinion, however, by its citation of cases dealing with the foundation requirements, suggests that the error was in receiving the expert’s opinion (see, e.g., Caton v Doug Urban Constr. Co., 65 NY2d 909, 911; Hambsch v New York City Tr. Auth., 63 NY2d 723, 726; People v Sugden, 35 NY2d 453, 459-461; People v Stone, 35 NY2d 69, 74-75; People v Cronin, 60 NY2d 430; People v Samuels, 302 NY 163, 171-172; and authorities cited in majority opn, at 430-431). It should be made clear that the error related not to the admissibility of the expert’s opinion but to the insufficiency of her identification of the substance tested.

On the trial of the action, the People presented a chemist who was recognized by the court, without objection, as "an expert in the area of chemical analyses of controlled substances.” She had worked in the police laboratory for almost 10 years and had conducted several thousand analyses of controlled substances, 20% of which were performed on propoxyphene. She testified that she had tested a substance, identified as the substance obtained from defendant, by performing a color test, a thin layer chromatography and a gas chromatography on it. Based upon these facts, the witness was competent to render an opinion identifying the substance tested. She was not required to go further and detail her procedures or findings (see, People v Stone, 35 NY2d 69, 74-75, supra; People v DiPiazza, 24 NY2d 342, 351; People v Cross-land, 9 NY2d 464, 467). If counsel believed the opinion inadmissible because the foundation was inadequate, he could have requested a preliminary voir dire or he could have objected to her identifying the substance. He did neither. On this record, therefore, the witness was correctly permitted to state her opinion and the majority’s extended discussion of admissibility diverts attention from the dispositive issue before the court, the sufficiency of the People’s evidence.

On that point, I agree with the majority that the Appellate Division order of reversal should be affirmed. The witness’s opinion was not legally sufficient to establish the case against defendant and the People did not prove by any other acceptable source which substance on the controlled substance list defendant possessed (see, Penal Law § 220.00 [5]).

Chief Judge Wachtler and Judges Kaye, Alexander and Titone concur with Judge Bellacosa; Judge Simons concurs in result in a separate opinion in which Judge Hancock, Jr., concurs.

Order affirmed.