source: Caselaw Access Project

author: Levine,. J.

license: Public Domain

text:
    [674 NE2d 1349, 652 NYS2d 584]
    In the Matter of Motor Vehicle Accident Indemnification Corporation, Respondent, v Aetna Casualty & Surety Company, Appellant.
    Argued October 10, 1996;
    decided November 21, 1996

      POINTS OF COUNSEL

      D’Ambrosio & DAmbrosio, P. C., Irvington (John P. D Ambrosio of counsel), for appellant.

      Bond, Schoeneck & King, LLP, Albany (John M. Freyer of counsel), and Michael L. Rappaport, New York City, for respondent.
   OPINION OF THE COURT

Levine,. J.

Two questions are presented by this appeal. First, we are called upon to determine substantively what Statute of Limitations applies to a cause of action to recover payments of first-party benefits by respondent Motor Vehicle Accident Indemnification Corporation (MVAIC), against the insurer of a vehicle who denied no-fault coverage, and when the applicable period of limitations begins to run. Second, we are asked to determine the effect of the decision of appellant Aetna Casualty and Surety Company (Aetna) to initially raise its Statute of Limitations defense in an arbitral forum, rather than moving to stay the arbitration proceeding and obtain preliminary judicial review of that defense (see, CPLR 7502, 7503 [b]), upon its application to vacate arbitration awards in which the Statute of Limitations may have been erroneously applied.

On February 10, 1989, following a two-car collision in New York City, two passengers riding in one of those vehicles sustained personal injuries. Prior to the date of the accident, the owner of the host vehicle had obtained insurance under an automobile liability policy provided by Aetna. The two passengers claimed no-fault benefits (see, Insurance Law § 5103) and Aetna denied coverage, asserting that its policy with the vehicle’s owner had been canceled on September 26, 1988.

As a result of Aetna’s denial of coverage, the passengers each served notice of intention to make claim for no-fault benefits upon MVAIC, on March 17, 1989 and April 20, 1989 respectively. MVAIC made a series of payments to one claimant totalling $22,817.53 from August 11, 1989 through November 11, 1991 and to the other claimant totalling $17,798.64 from August 11, 1989 through November 19, 1990.

On October 20, 1992, MVAIC commenced compulsory arbitration proceedings against Aetna pursuant to 11 NYCRR 65.10 (see, Insurance Law § 5105 [b]; § 5221 [b] [6]) seeking reimbursement in the amount of $50,257.20 for allocated expenses and no-fault benefits paid to the claimants. Aetna appeared in the arbitration proceeding and submitted "Amended Contentions” which raised for the first time the defense that MV AIC’s demand for arbitration was untimely because it was made more than three years from the date of the accident. The arbitrator rendered written awards which resolved all issues in favor of MVAIC, ordering full reimbursement of the payments to both passengers in the insured vehicle. When MVAIC did not receive payment within 30 days, it commenced a proceeding in Supreme Court to confirm the awards pursuant to CPLR 7510. Aetna opposed the application to confirm and sought a vacatur of the arbitrator’s awards pursuant to CPLR 7511 (b) on the ground that MV AIC’s claims were time-barred, having been made more than three years after the date of the accident.

Supreme Court confirmed the arbitrator’s awards, concluding that the arbitrator necessarily rejected Aetna’s contention that MV AIC’s claims were untimely. Supreme Court determined that the three-year limitations period in CPLR 214 (2) for statute-based causes of action applied to the instant action and that MV AIC’s claims accrued when it made no-fault benefit payments to the claimants. The court reasoned that because MV AIC’s demand was served on Aetna within three years from the date it completed payment to each of the claimants, arbitration was timely commenced pursuant to CPLR 214 (2). The Appellate Division unanimously affirmed (222 AD2d 292), and we granted leave.

I. The Applicable Statute of Limitations and the Date of Its Commencement

The no-fault scheme embodied in article 51 and the rights given MVAIC under article 52 of the Insurance Law to avail itself of the no-fault carrier responsibility-shifting features of sections 5105 and 5221 (b) (6), as implemented by the Insurance Department regulations {see, 11 NYCRR 65.10, 65.15), statutorily set forth the basis of its right to recover against an insurer who wrongfully denies coverage or is found primarily obligated to pay first-party benefits to the injured party. Section 5105 provides that,

"[a]ny insurer liable for the payment of first-party benefits to or on behalf of a covered person * * * which another insurer would otherwise be obligated to pay pursuant to [sections 5103 (a) or 5221] of this chapter has the right to recover the amount paid from the insurer of any other covered person to the extent that such other covered person would have been liable * * * to pay damages in an action at law” (Insurance Law § 5105 [a] [emphasis supplied]).

{See also, Insurance Law § 5105 [b]; § 5221 [b] [6] [directing compulsory arbitration where a dispute arises between insurers as to which of them is responsible for providing no-fault benefits]; § 5221 [b] [1] [stating that MVAIC "shall also provide for the payment of first party benefits to a qualified person for basic economic loss arising out of the use or operation in this state of an uninsured motor vehicle”]; § 5221 [b] [3] [specifically equating MVAIC to an "insurer” for purposes of article 51 of the Insurance Law].)

MVAIC contends that, despite the statutory basis for its obligations and remedies under the no-fault system, the six-year contract action Statute of Limitations (CPLR 213 [2]) is applicable to this action because MVAIC has stepped in to fulfill Aetna’s obligations under its contract of insurance covering the accident vehicle, i.e., payment of first-party benefits to the injured passengers in that vehicle. MVAIC also argues that CPLR 213 (2) governs because its rights against Aetna are grounded in quasi-contract indemnification. There are precedents for applying the six-year breach of contract Statute of Limitations under both rationales (see, Hanover Ins. Co. v Fleisher, 96 AD2d 881; Aetna Cas. & Sur. Co. v Merchants Mut. Ins. Co., 78 AD2d 176).

Aetna contends that the applicable Statute of Limitations is set forth under either CPLR 214 (2) (three-year limitations period arising out of liabilities created or imposed by statute) or CPLR 214 (5) (three-year limitations period for actions to recover damages for a personal injury). In either case, Aetna maintains that MV AIC’s right to recover its payments of no-fault benefits is in the nature of subrogation, and MVAIC may only assert the rights each injured party is entitled to assert against the primary insurer. Thus, since the covered parties’ claims arose as a result of the injuries they sustained in the accident, Aetna’s position is that MV AIC’s cause of action accrued upon the date of the accident. Precedent also exists to support this reasoning (see, Matter of Nationwide Mut. Ins. Co. v Motor Vehicle Acc. Indem. Corp., 198 AD2d 358; Transamerica Ins. Co. v Lumbermen’s Cas. Ins. Co., 77 AD2d 5, lv denied 53 NY2d 602).

The issue of the applicable Statute of Limitations here is largely governed by the rationale of our decision in Aetna Life & Cas. Co. v Nelson (67 NY2d 169). Aetna Life & Cas. Co. involved an insurer’s assertion of the right to recover payment of no-fault benefits as a lien upon the proceeds of its insured’s recovery in a personal injury action against the third-party tortfeasor. Such a lien was one of the statutory recoupment remedies provided in former Insurance Law § 673 (2). In Aetna Life & Cas. Co., we contrasted: (1) claims which, although provided for in a statute, merely codify or implement an existing common-law liability, which are not governed by CPLR 214 (2) but by the Statute of Limitations applicable to their common-law sources; with (2) claims which, although akin to common-law causes, would not exist but for the statute (67 NY2d, at 174, supra), in which case CPLR 214 (2) applies.

We held in Aetna Life & Cas. Co. that the no-fault insurance carrier’s statutory lien fell into the latter category, so that the three-year Statute of Limitations of CPLR 214 (2) applied (67 NY2d, at 173-175, supra). Even though the no-fault insurer’s means of recoupment in that case bore aspects of a restitution rationale, we reasoned that "the No-Fault Law does not codify common-law principles; it creates new and independent statutory rights and obligations in order to provide a more efficient means for adjusting financial responsibilities arising out of automobile accidents” (id., at 175).

So too here. MV AIC’s obligation to pay no-fault benefits to an injured party where the accident vehicle’s insurer denies such coverage is purely statutory, established under the no-fault scheme. MVAIC itself is a statutory creation (see, Insurance Law § 5203 [a]-[c]) and the rights conferred upon it under articles 51 and 52 of the Insurance Law to avail itself of the loss-transfer and responsibility-shifting provisions of the No-Fault Law arise only by statutory enactment or departmental regulations (see, Insurance Law §§ 5105, 5221 [b] [6]; 11 NYCRR 65.10, 65.15). MV AIC’s ability to recover benefit payments and its duty to pay the same rests on "predicates independent of the fault or negligence of the injured party” (see, Aetna Life & Cas. Co. v Nelson, supra, at 175). Thus, MV AIC’s obligation to pay the claimants’ first-party benefits and its entitlement to reimbursement from Aetna were both created or imposed by statute, but for which they would not exist. Hence, the three-year Statute of Limitations (CPLR 214 [2]) applies.

We also conclude that, when as here, MVAIC is entitled to recover payments of no-fault benefits from the primary insurer, the three-year limitations period in CPLR 214 (2) begins to run upon the initial payment to the claimants. Generally, the applicable Statute of Limitations is triggered once a cause of action accrues (CPLR 203 [a]; see also, 1 Weinstein-Korn-Miller, NY Civ Prac 203.01, at 2-83). A cause of action accrues, for the purpose of measuring the period of limitations, "when all of the facts necessary to the cause of action have occurred so that the party would be entitled to obtain relief in court” (Aetna Life & Cas. Co. v Nelson, supra, at 175). Moreover, an action to recover for a liability created or imposed by statute is "required to be instituted according to the language of the statute generating the liability” (Safeco Ins. Co. v Jamaica Water Supply Co., 83 AD2d 427, 432, affd 57 NY2d 994).

Contrary to the apparent determination of the arbitrator, explicitly adopted by the courts below, we conclude that MVA-IC’s right to recover from Aetna accrued not when MVAIC rendered the last of its payments to the claimants but, rather, when the first payment was made. By its terms, the No-Fault Law grants MVAIC a statutory right to recover the amount paid from the insurer of another covered person to the extent that such other covered person would have been liable to pay damages (see, Insurance Law § 5105 [a]). Here, when MVAIC made its first payment to the claimants, all of the facts necessary to afford MVAIC a right to recovery were in existence (see, Aetna Life & Cas. Co. v Nelson, supra). Thus, when MVAIC undertook its statutory obligation to provide compensation and thereafter made the first payment of no-fault benefits to each of the claimants as a result of Aetna’s wrongful disclaimer, its cause of action accrued at that point, and with it the period of limitations commenced (see, Safeco Ins. Co. v Jamaica Water Supply Co., 83 AD2d, at 432, supra).

Our determination that MVAIC’s cause of action accrued when it made the first payment to the claimants is consistent with the legislative policy reflected in the numerous provisions of the No-Fault Law which provide for the prompt disposition of claims and the swift resolution of priority of payment issues (see, Insurance Law § 5208 [a]; 11 NYCRR 65.12, 65.10 [d] [1] [authorizing insurer seeking reimbursement of first-party benefits from another insurer under sections 5105 or 5221 (b) to "make such request as soon as reasonably practicable”]; see also, 12A Couch, Insurance 2d § 45:673, at 300-301 [rev ed]; 70 NY Jur 2d, Insurance, § 1556). Therefore, since MVAIC made the first payment to each claimant on August 11, 1989, and did not make its demand for compulsory arbitration until October 20, 1992, the three-year Statute of Limitations had actually run as to that payment and as to all other payments made more than three years before the date of the demand.

II. Effect of Aetna’s Submission of the Statute of Limitations Issue for Resolution in the Compulsory Arbitration Proceeding

In asserting its Statute of Limitations defense, Aetna failed to avail itself of its opportunity to have the issue of timeliness decided judicially pursuant to CPLR 7503 (b), which permits an application to stay arbitration on the grounds that the claim sought to be arbitrated is time-barred (see, CPLR 7502 [b]). CPLR 7502 (b) further provides that the failure to assert the limitations bar "shall not preclude its assertion before the arbitrators” and, "[e]xcept as provided in subdivision (b) of section 7511, such exercise of discretion by the arbitrators shall not be subject to review by a court on an application to confirm, vacate or modify the award.” Thus, while CPLR 7502 (b) states that the arbitrators’ decision to apply the Statute of Limitations is generally insulated from judicial review, the phrase "[ejxcept as provided in subdivision (b) of section 7511” makes it clear that our review is not completely foreclosed (emphasis supplied).

In this action, Aetna submitted the Statute of Limitations issue to the arbitrator and now seeks to invoke the defense absolutely in its motion to vacate the award (CPLR 7511 [b]). Aetna’s attempt to, in effect, obtain two de novo unqualified considerations of its Statute of Limitations defense must fail. CPLR 7511 (b), setting forth the grounds for vacatur of an arbitrator’s award, does not contain a counterpart to CPLR 7503 (b)’s authorization to stay arbitration because the Statute of Limitations has run on the claim. The Statute of Limitations may be an independent, per se ground to vacate an award only when asserted by a party who neither participated in the arbitration nor was served with a notice of intention to arbitrate (see, CPLR 7511 [b] [2] [iv]).

An arbitration award made after all parties have participated, however, will not be overturned merely because the arbitrator committed an error of fact or of law (see, Matter of Silverman [Benmor Coats], 61 NY2d 299, 308, rearg denied sub nom. Norris v Cooper, 62 NY2d 803). Moreover, where the arbitration is pursuant to the voluntary agreement of the parties, in the absence of proof of fraud, corruption, or other misconduct, the arbitrator’s determination on issues of law, such as the application of the Statute of Limitations, as well as fact, is conclusive (see, Sherrill v Grayco Bldrs., 64 NY2d 261).

Here, however, the obligation to arbitrate arises not through voluntary agreement, but through statutory mandate (see, Insurance Law § 5105 [b]; § 5221 [b] [6]). Where arbitration is compulsory, our decisional law imposes closer judicial scrutiny of the arbitrator’s determination under CPLR 7511 (b) (see, Mount St. Mary’s Hosp. v Catherwood, 26 NY2d 493; Matter of Furstenberg [Aetna Cas. & Sur. Co. — Allstate Ins. Co.], 49 NY2d 757). To be upheld, an award in a compulsory arbitration proceeding must have evidentiary support and cannot be arbitrary and capricious (Matter of Furstenberg [Aetna Cas. & Sur. Co.], supra; Matter of Central Gen. Hosp. v Hanover Ins. Co., 49 NY2d 950; Matter of Garcia v Federal Ins. Co., 46 NY2d 1040, revg 61 AD2d 236).

Thus, in the matter before us, the arbitrator’s rejection of Aetna’s Statute of Limitations defense, and its implicit determination of the applicable limitations period and accrual date, are subject to judicial review under an arbitrary and capricious standard.

As we have shown, the limitations period and the time of commencement applicable to a demand for compulsory arbitration pursuant to Insurance Law § 5105 were unsettled and subject to conflicting court decisions. In addition to the judicial decisions previously cited herein as support for the parties’ respective arguments, still other examples reflect the inconsistent limitations periods and accrual dates that have been applied in related actions (see generally, Matter of Nationwide Mut. Ins. Co. v Motor Vehicle Acc. Indent. Corp., 190 AD2d 798, lv denied 82 NY2d 651; Matter of Pacific Ins. Co. v State Farm Mut. Auto. Ins. Co., 150 AD2d 455; Micha v Merchants Mut. Ins. Co., 94 AD2d 835). Indeed, in this very case the courts below agreed that the limitations period did not commence until the benefits payments to the claimants were complete. Consequently, we cannot say, as a matter of law, that the arbitrator’s decision was arbitrary and capricious or unsupported by any reasonable hypothesis and, thus, the awards cannot be overturned in the courts even though under this decision, it entailed an erroneous application of the Statute of Limitations.

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: Titone, J.

text:
    [674 NE2d 1354, 652 NYS2d 589]
    In the Matter of the Claim of David Gruber, Respondent. New York City Department of Personnel, Appellant; John E. Sweeney, as Commissioner of Labor, Respondent. In the Matter of the Claim of Kent A. Greene, Respondent. New York City Department of Personnel, Appellant; John E. Sweeney, as Commissioner of Labor, Respondent.
    Argued October 9, 1996;
    decided November 26, 1996

      POINTS OF COUNSEL

      Paul A. Crotty, Corporation Counsel of New York City (Ellen Ravitch and Stephen J. McGrath of counsel), for appellant in the first and second above-entitled proceedings.

      Francis J. Smith, Jr., Albany, for David Gruber, respondent in the first above-entitled proceeding.

      McNamee, Lochner, Titus & Williams, P. C, Albany (David J. Wukitsch of counsel), for Kent A. Greene, respondent in the second above-entitled proceeding.

      Dennis C. Vacco, Attorney-General, Brooklyn (Steven Segall, Barbara G. Billet, Peter H. Schiff Daniel F. De Vita and Steven Koton of counsel), for John E. Sweeney, respondent in the first and second above-entitled proceedings.
   OPINION OF THE COURT

Titone, J.

Labor Law § 593 (1) provides that claimants will be disqualified from receiving unemployment insurance benefits if they voluntarily separate without good cause from their "last employment” prior to the filing of an unemployment claim. In each of these two cases, the Unemployment Insurance Appeal Board determined that the words "last employment” as used in that section did not refer to the last covered "employment” as that term is defined in Labor Law § 511, but referred to the claimant’s last actual employment, regardless of whether that employment was covered by the Unemployment Insurance Law. Under the circumstances presented, the question of statutory interpretation presented is one of law. for this Court, requiring no deference to the agency determinations below. Having performed that function, we conclude that the term "last employment” refers to covered employment, and that these claimants were disqualified from receiving benefits because they voluntarily separated from their last covered employment without good cause (see, Labor Law § 593 [1]). Thus, we reverse the determinations below that these claimants are entitled to unemployment benefits.

I.

Matter of Gruber

Claimant Gruber graduated from Mount Sinai Medical School in May 1983 and received a medical degree. He was employed as a research assistant for the New York City Department of Health from July 15, 1983 through June 13, 1984. He resigned from the City post to accept a position in a medical residency program at St. Luke’s, which is a teaching hospital accredited by the AMA.

Gruber’s contract with St. Luke’s was executed on March 22, 1984 and covered a one-year term to commence on July 1,1984. However, claimant received permission to begin rendering his services for the hospital at an earlier date, and began making rounds on June 18, 1984. After only several days at the hospital, claimant became emotionally ill and was hospitalized. He never returned to the residency program.

Gruber filed a claim for unemployment insurance benefits. By initial determination, the local unemployment office concluded that Gruber’s "last employment” within the meaning of Labor Law § 593 (1) was with St. Luke’s, that he lost such employment because of illness — a nondisqualifying condition — and thus that he was eligible to receive unemployment insurance. The office determined that claimant’s employment with St. Luke’s was not "covered” employment, and thus charged the City of New York for claimant’s benefits under Labor Law § 581 (1) (e) as claimant’s "last employer.”

Respondent City of New York objected to the ruling, contending that either (1) St. Luke’s should be liable if claimant’s employment with the hospital does not fall within the exclusion to the definition of "employment” under Labor Law § 511 (15), or (2) if claimant’s employment with St. Luke’s is deemed to be "student services” excluded from the definition of covered employment, then the City Department of Health should be deemed claimant’s "last employer,” but claimant should be deemed ineligible to receive benefits because he left that employment with the City to pursue his education — a disqualifying condition. The Labor Commissioner determined that claimant was eligible for benefits. However, after concluding that claimant’s employment at St. Luke’s Hospital was not covered employment, the Commissioner charged the City Department of Health for claimant’s benefits.

Respondent City objected to the Commissioner’s determination. A hearing was then held before an Administrative Law Judge (ALJ) of the New York State Department of Labor. The ALJ concluded that claimant was eligible for benefits and that claimant’s employment with St. Luke’s did not fall under the exception created by Labor Law § 511 (15) because claimant’s service as a medical resident did not constitute "services rendered for an educational institution by a person who is enrolled and is in regular attendance as a student in such an institution.” Thus, the ALJ sustained the City’s objection, and overruled the Labor Commissioner’s determination that claimant’s employment with St. Luke’s was not covered employment. St. Luke’s was thus charged for Gruber’s benefits.

On appeal taken by the Commissioner of Labor and St. Luke’s, the Unemployment Insurance Appeal Board determined that claimant’s services at St. Luke’s did fall within the section 511 (15) exception to the definition of employment, and St. Luke’s was not liable for claimant’s benefits. However, the Appeal Board determined that for purposes of Labor Law § 593 (1), "claimant’s last employment was with St. Luke’s and he left this employment with good cause and under nondisqualifying conditions.” The Board reasoned that the term "employment” as used in section 593 (1) meant any employment, not only covered employment as defined in Labor Law § 511. Thus, the Board concluded that the City Department of Health was primarily chargeable for claimant’s benefits because that employment was "covered.” The Appellate Division affirmed. We granted the City’s motion for leave to appeal, and now reverse.

Matter of Greene

Claimant Greene was simultaneously employed by the City of New York Department of Health and by the College of Staten Island as a teacher while enrolled in a Master’s degree program at the latter institution. He voluntarily terminated his employment with the City Department of Health on May 24, 1991 to pursue his education. Greene’s last day of teaching was May 30, 1991, although he remained on the payroll through August 1, 1991.

Greene filed an application for benefits, and the local office ruled that he was eligible. The City of New York objected and a hearing was held before a State Department of Labor ALJ. The ALJ found that claimant was eligible for benefits, concluding that "although claimant’s last employment was not in covered employment pursuant to Section 511 (15), it is nevertheless employment which should be considered to adjust the issue of who the last employ[er] [szc] was and under which circumstances the last employment came to an end”. The ALJ concluded that claimant’s employment with the college was his last employment "and although that was not covered employment it is not self-employment and it may be counted to break the disqualification that is apparent for voluntarily] [szc] leaving the municipal employment.”

The City appealed. The Appeal Board adopted the findings of fact and opinion of the ALJ and confirmed the ALJ’s determination. The Appeal Board concluded that Greene’s work as a teacher was not covered employment and should not be considered in computing his benefit rate or experience charges. Nonetheless, the Appeal Board concluded that claimant was eligible for benefits because his "last employment was at school and * * * it ended under nondisqualifying conditions.”

The Appellate Division affirmed. The Court reasoned that "[although claimant’s employment with the College was not 'covered’ employment * * * it was nevertheless sufficient to break claimant’s prior disqualification which resulted when he left his job with the City.” (221 AD2d 789, 790.) The Court noted that "Labor Law § 593 (1) (a) does not specify that a claimant’s 'last’ employment must be 'covered’ employment for purposes of disqualification” {id., at 790.) The Court concluded that since claimant left his actual last employment with the college under nondisqualifying conditions, the Appeal Board’s decision that claimant was eligible for benefits was supported by "substantial evidence.” This Court granted the City’s motion for leave to appeal, and we now reverse.

II.

1. Standard of Review

Judicial review of the determinations of the Unemployment Insurance Appeal Board is limited by statute to questions of law (Labor Law § 623; Matter of Fisher [Levine], 36 NY2d 146, 149-150). Although the proper interpretation of a statute ordinarily presents an issue of law reserved for the courts, this Court has recognized that "[a]n administrative agency’s interpretation of the statute it is charged with implementing is entitled to varying degrees of judicial deference depending upon the extent to which the interpretation relies upon the special competence the agency is presumed to have developed in its administration of the statute” (Matter of Rosen v Public Empl. Relations Bd., 72 NY2d 42, 47). "Where the interpretation of a statute or its application involves knowledge and understanding of underlying operational practices or entails an evaluation of factual data and inferences to be drawn therefrom, the courts regularly defer to the governmental agency charged with the responsibility for administration of the statute” (Kurcsics v Merchants Mut. Ins. Co., 49 NY2d 451, 459; see also, Matter of Industrial Liaison Comm, of Niagara Falls Area Chamber of Commerce v Williams, 72 NY2d 137, 144). When such deference is appropriate, the courts will not disturb the Appeal Board’s interpretation of the provision if it is supported by a rational basis (Matter of Fisher [Levine], 36 NY2d, at 150, supra; Matter of Van Teslaar [Levine], 35 NY2d 311, 318).

By contrast, where "the question is one of pure statutory reading and analysis, dependent only on accurate apprehension of legislative intent, there is little basis to rely on any special competence or expertise of the administrative agency” (Kurcsics v Merchants Mut. Ins. Co., 49 NY2d, at 459, supra). In such circumstances, the judiciary need not accord any deference to the agency’s determination, and is free to ascertain the proper interpretation from the statutory language and legislative intent (Matter of Van Teslaar [Levine], 35 NY2d, at 318, supra; see also Matter of Ferrara [Catherwood], 10 NY2d 1, 7).

In this case, the question of law is whether the words "last employment” contained in Labor Law § 593 (1) refer to the last covered "employment” as that term is defined in Labor Law § 511, or whether in this context the phrase refers to any employment, including those not covered by the article. The Legislature has defined with precision both the underlying purpose of the legislative scheme (Labor Law § 501) and the term "employment” in the Unemployment Insurance Law (Labor Law § 511), and has directed that statutory definitions are to be applied to interpret the article unless the context shows otherwise (Labor Law § 510).

By defining the specific classes of employment that the Law is designed to cover and by directing the manner in which the definitional provisions are to be applied, the Legislature has withdrawn that policy-laden determination from the agency (cf., Chevron U.S.A. v Natural Resources Defense Council, 467 US 837, 843-844). Further, the question of what "employment” means in Labor Law § 593 (1) may be resolved by considering the relevant statutory language, design and purpose (see, e.g., Matter of Ferrara [Catherwood], 10 NY2d, at 7-8, supra). Any "specialized knowledge” or expertise that the Appeal Board may have is thus irrelevant (see, Matter of Heimbach v Metropolitan Transp. Auth., 75 NY2d 387, 390; cf., Matter of Industrial Indem. Co. v Cooper, 81 NY2d 50, 54). Accordingly, contrary to the position of the dissent, there is no "interpretative gap” left to be filled by the agency (see, dissenting opn, at 243), and deference to the agency determinations below is unnecessary (see, e.g., Matter of Ferrara [Catherwood], 10 NY2d 1, 7-9, supra; Matter of Van Teslaar [Levine], 35 NY2d 311, 318, supra; see also, Matter of Board of Educ. v New York State Pub. Empl. Relations Bd., 75 NY2d 660, 666).

2. Construction of Labor Law § 593 (1)

Labor Law § 593 sets forth four circumstances in which a claimant, who has otherwise complied with all eligibility criteria (see, e.g., Labor Law §§ 527, 591 [1], [2]), will be disqualified from receiving unemployment insurance benefits. One such disqualification is voluntary separation from a claimant’s "last employment” without good cause (Labor Law § 593 [1] [a]). Here, we are concerned with the construction of the term "last employment” as used in that section. The question arises in these appeals because the claimants’ separation from their last "covered” employment occurred under Labor Law § 593 (l)’s disqualifying circumstances, but their separation from the "noncovered” employment that they held immediately before filing for benefits did not. Accordingly, whether section 593 (l)’s reference to last employment means last "covered” employment or last employment of any type is critical to determining claimants’ entitlement.

Labor Law § 510 provides that "[w]henever used in this article, the terms defined in this title have the respective meanings set forth herein except where the context shows otherwise” (emphasis supplied). Thus, the statutory definition of "employment” and its exceptions will govern our interpretation of the words "last employment” in section 593 (1) unless the context shows that a different meaning was intended.

Labor Law § 511 (1) (a) defines the term "employment” generally to include any service under any contract of employment for hire, express or implied, written, or oral.” However, the statute goes on to exclude from the definition of "employment” certain specific categories of services or laborers, such as agricultural labor (Labor Law § 511 [6]), golf caddies (Labor Law § 511 [8]), freelance shorthand reporters (Labor Law § 511 [18]), and services for an educational institution by an enrolled student who is in regular attendance (Labor Law § 511 [15]). Employers of persons who provide services in the categories that are excluded from the statutory definition of employment are not obligated to make contributions to the unemployment insurance fund for those services (see, Labor Law § 517 [2] [i]; see also, Matter of Hollis Hills Jewish Ctr. [Roberts], 92 AD2d 1039). Thus, under section 511, the term "employment” is specifically made synonymous with "covered” employment.

Neither the language nor the context of section 593 (1) shows that the Legislature intended to depart from the statutory definition of the term "employment”. The absence of any such indication is especially significant because the Legislature has revealed its intention to include in the term "employment” work not covered by the article by expressly so providing in the text of the particular statutory sections (see, e.g., Labor Law §§ 518, 522, 593 [2]). For example, in Labor Law § 522, the Legislature defined the eligibility requirement of "total unemployment,” as "the total lack of any employment on any day” and expressly provided within the context of that section that "[t]he term 'employment’ as used in this section means any employment including that not defined in this title” (emphasis supplied). Similarly, subdivision (2) of section 593, the provision that concerns disqualification for refusal to accept employment without good cause and that immediately follows the provision at issue here, expressly provides that disqualification of an otherwise eligible claimant would result where the claimant "refuses to accept an offer of employment for which he is reasonably fitted by training and experience, including employments not subject to this article” (Labor Law § 593 [2] [emphasis supplied]). Given that the Legislature used distinct language in subdivision (2) when it intended to include employments other than those included in the statutory definition of the term "employment” (Labor Law § 510), the absence of similar language in the text of the immediately preceding subdivision of the same section indicates that no departure from the statutory definition of that term was intended or implied (see, McKinney’s Cons Laws of NY, Book 1, Statutes §§ 74, 97), as the dissent suggests (see, dissenting opn, at 237).

Notwithstanding the dissent’s assertions to the contrary, interpreting section 593 (1) to refer only to last "covered” employment does serve to advance the over-all purpose of the legislation, which is to protect certain classes of workers who are involuntarily unemployed "through no fault of their own” (Labor Law § 501; see also, Matter of Ferrara [Catherwood], 10 NY2d 1, 8, supra), and "who, though unemployed, are genuinely in the labor market” (Colin, Unemployment Insurance in New York, at 202 [NYU Inst of Labor Relations and Social Security 1950] [emphasis supplied]). In defining the reach of the system, the Legislature chose to exclude from the recognized labor market certain categories of "workers in specific industries” and "employees who are deemed only casually attached to the labor market” {id., at 135), such as students employed by their educational institutions who are considered to have chosen education rather than employment as their prime objective {Matter of Mitromaras [Roberts], 122 AD2d 368, 369). Where an individual has voluntarily "opted out” of employment in the recognized labor market — as defined by Labor Law § 511 — it makes sense to conclude that the individual is disqualified from recovering benefits, notwithstanding that individual’s subsequent acceptance of work in a sector of the economy that is outside that market. In a statutory scheme that depends upon participation in the legislatively defined labor market, only events occurring within that market are relevant, at least absent a clear indication to the contrary. That a worker who has departed from noncovered employment may be as economically needy as a worker who departs from covered employment is not pertinent because "the unemployment program is an insurance type plan” for dislocated workers in the recognized labor market, "not a 'public relief type plan” for all workers who become unemployed (Matter of Van Teslaar [Levine], 35 NY2d, at 316, supra).

Under Labor Law § 593, eligible status may be restored when the previously disqualified claimant "subsequently work[s] in employment on not less than three days in each of five weeks and earn[s] remuneration at least equal to five times his weekly benefit rate” (Labor Law § 593 [l]-[3] [emphasis added]). Again, nothing in the context of this section indicates that the italicized term "employment” should be given any other meaning than that defined by the Legislature. Thus, for example, a claimant’s eligibility for unemployment benefits may be revived after loss of earlier covered employment without good cause when the claimant is involuntarily removed from subsequent "covered” employment (see, e.g., Matter of Finkel, Nadler & Goldstein [Levine], 46 AD2d 196, supra; Matter of Mittleman [Corsi], 282 App Div 587, supra).

Here, by contrast, claimants never obtained subsequent "employment” after leaving their covered employment and thus, under the scheme devised by the Legislature, did not revive their status as eligible beneficiaries of the unemployment insurance program. Sympathetic as the cases of these claimants may be, they were disqualified from receiving benefits upon their voluntary departure from covered employment, and their eligibility for benefits was not revived because they left their school-related posts without fault.

Accordingly, the order of the Appellate Division in each case should be reversed, without costs, and the matters remitted to the Appellate Division, Third Department, with directions to remand to the Unemployment Insurance Appeal Board for further proceedings in accordance with the opinion herein.

Levine, J. (dissenting). I respectfully dissent. The Unemployment Insurance Appeal Board and the Appellate Division were entirely correct in interpreting the statutory disqualification from entitlement to unemployment insurance benefits for a claimant’s "voluntary separation without good cause from his last employment” (Labor Law § 593 [1] [a] [emphasis supplied]), as not incorporating the student bursary work exclusion from the definition of employment contained in Labor Law § 511 (15).

The New York Unemployment Insurance Law (Labor Law, art 18) was a pioneering social welfare program enacted (by L 1935, ch 468) in response to the hardships of pervasive unemployment during the Great Depression (see, W.H.H. Chamberlin, Inc. v Andrews, 271 NY 1, 8-9, affd 299 US 515). The majority’s overliteral application of all of the statutory definitional exclusions from employment to the disqualification-for-benefits provisions of the Unemployment Insurance Law conflicts with the central statutory purpose of the law to alleviate "[e]conomic insecurity * * * for the benefit of persons unemployed through no fault of their own” (Labor Law § 501 [emphasis supplied]), which the Legislature expressly prescribed as "a guide to the interpretation and application of this article” (id.). Moreover, application of the majority’s interpretation will create anomalies, incongruous results and unnecessary inconsistencies in the administration of the unemployment insurance system.

A.

The key interpretive issue on this appeal is whether the 12 statutory exclusions from the definition of employment contained in Labor Law § 511, plus the several additional exclusions from that definition set forth elsewhere in the statute, apply to the usage of "employment” or "last employment” in Labor Law § 593, the disqualification section of the statute. There is no principled way to pick and choose among definitional exclusions in interpreting employment or last employment under section 593, and the majority has not attempted to do so.

In addition to the strongly worded direction that the essential protective purpose of the Unemployment Insurance Law shall be the overriding basis of construction of its provisions, the Legislature took the further precautionary measure against formalistic interpretation of the law by providing that "the terms defined in this title have the respective meanings set forth herein except where the context shows otherwise” (Labor Law § 510 [emphasis supplied]). Thus, the drafters of the Unemployment Insurance Law explicitly conveyed their anticipation and approval of implied deviations from and exceptions to the definition of employment, as shown by the context in which that term may be used in the statute.

Examination of the various statutory exclusions from the definition of employment in section 511 and in other provisions of the unemployment insurance article shows (and the majority agrees [see, majority opn, at 233]) that their primary purpose is, through designating excluded categories of employment service, to restrict coverage. That is, these exclusions eliminate classes of employers from liability for unemployment insurance tax contributions, and correspondingly restrict the eligibility of their employees for benefits. Thus, while employment is broadly defined in its general common-law meaning of "any service under any contract of employment for hire, express or implied” (Labor Law § 511 [1] [a]), the statute goes on to provide that the term "employment” does not include such employee services as agricultural labor (Labor Law § 511 [6]); a golf caddy (Labor Law § 511 [8]); a babysitter if a minor (Labor Law § 511 [12]); a freelance shorthand reporter (Labor Law § 511 [18]); a qualified real estate agent (Labor Law § 511 [19]); a duly ordained minister serving a nonprofit organization (Labor Law § 563 [2] [a]); a caretaker at a place of religious worship (Labor Law § 563 [2] [c]); or an elected official of a governmental entity (Labor Law § 565 [2] [a]). The effect of these exclusions from the statutory definition of employment is that persons providing the services in those categories are ineligible for benefits based on that employment, even when they lose their jobs for nondisqualifying reasons, and their employers are not required to make unemployment insurance contributions (see, Matter of Hollis Hills Jewish Ctr. [Roberts], 92 AD2d 1039; cf., Matter of Wildcat Serv. Corp. [Ross], 78 AD2d 710).

Contrary to the suggestion of the majority (majority opn, at 234-235), there is a virtually complete absence of coherence between the statutory coverage exclusions and the over-all protective and ameliorative purpose of the Unemployment Insurance Law. Coverage issues generally reflect political, burden/benefit-weighing policy decisions by legislatures, having little if anything to do with the needs of the unemployed. Thus, the agricultural labor exclusion (Labor Law § 511 [6]), found in even the earliest Federal and most State unemployment insurance compensation laws, was attributable to the belief that exemption from additional forms of taxation was necessary to protect, preserve and encourage a fragile and already depressed vital industry (see, Carmichael v Southern Coal Co., 301 US 495, 512). Employment in family businesses was excluded (see, Labor Law § 511 [7]) for reasons of excessive administrative expense (Carmichael v Southern Coal Co., supra, 301 US, at 513).

Still other exclusions (including that contained in Labor Law § 511 [15] at issue here) were incorporated (see, L 1971, ch 1027, § 1) when it was necessary to expand State coverage (in that instance to most nonprofit employers) in conformity with Federal law, in order to avoid loss of credits to New York employers on their Federal payroll taxes for their State contributions, and loss of Federal grants for the administration of the State unemployment insurance system (see, Mem of Dept of Labor, Bill Jacket, L 1971, ch 1Q27, at 19-20). Subsequent Federal mandates were also responsible for the creation of statutory exceptions to certain definitionally excluded services when the employer is a nonprofit organization or governmental entity (see, L 1977, ch 675, § 3 [amending Labor Law § 511 (16)]; preamble to L 1977, ch 675). Moreover, certain exclusions from the definition of employment become statutorily converted to covered employment when an employer elects, with the approval of the Commissioner of Labor, to participate in the unemployment insurance system and pays contributions (see, Labor Law § 561 [2] [a], [b], [c]).

The foregoing patchwork delineations of covered and non-covered employment hardly suggest the existence of some deliberately created, coherent "protected labor market” system, which is the underpinning upon which the majority bases its conclusion that coverage and disqualification issues are actually within the same "context” (see, majority opn, at 235).

Moreover, as the foregoing discussion shows, it is similarly impossible to find any coherent, consistent relationship between the coverage provisions and the purpose and guiding spirit of the law as outlined in Labor Law § 501. Thus, the common issue in these appeals has nothing to do with coverage, it is the unrelated question of the meaning of the phrase "last employment” in the disqualification for benefits section (Labor Law § 593). Unlike the coverage provisions, Labor Law § 593 manifestly has as its underlying rationale and context, the singularly expressed purpose of the unemployment insurance legislation to protect workers who have lost their jobs "through no fault of their own” (Labor Law § 501). Thus, an unemployed worker is disqualified from receiving benefits for "voluntary separation without good cause from his last employment prior to the filing of his claim” (Labor Law § 593 [1] [a] [emphasis supplied]); "los[ing] his last employment prior to the filing of his claim through misconduct in connection with his employment (Labor Law § 593 [3] [emphasis supplied]); and "los[ing] employment as a result of an act constituting a felony in connection with such employment” (Labor Law § 593 [4] [emphasis supplied]). Additionally, an unemployed worker is disqualified from receiving benefits for refusing an offer of reemployment "without good cause * * * including employments not subject to this article” (Labor Law § 593 [2]).

It has long been settled law that where the statutory disqualification expressly relates to a termination of the last employment before filing a claim for benefits, as in the case of a voluntary separation or a claimant’s misconduct (see, Labor Law § 593 [1] [a]; [3]), the focus is exclusively on the circumstances of the ending of the last employment, irrespective of any disqualifying reason for the loss of some prior employment. Thus, in Matter of Mittleman (Corsi) (282 App Div 587), a worker who left one job under a disqualifying condition (voluntary separation without good cause), was nevertheless ruled eligible for benefits after involuntarily being laid off from a temporary position she took shortly thereafter (see also, Matter of Cowan [Catherwood], 17 AD2d 232). And the experience-rated account of the prior employer may constitutionally be charged for that loss of subsequent "last employment,” although the employee voluntarily quit the earlier position (see, Matter of Finkel, Nadler & Goldstein [Levine], 46 AD2d 196, mot to dismiss appeal granted 37 NY2d 740).

Moreover, contrary to the position of the majority, disqualification does not automatically follow when "an individual has voluntarily 'opted out’ of employment in the recognized labor market — as defined by Labor Law § 511” (majority opn, at 235). Leaving one employment for other work generally constitutes "good cause,” and thereby avoids disqualification (see, Matter of Curran [Levine], 50 AD2d 681 [Sweeney, J., dissenting], revd on dissenting mem below 41 NY2d 856). That rule applies even when the new position is not covered employment. Thus, in Matter of Dank (Ross) (80 AD2d 717), the Court held that a psychologist’s voluntary termination of covered employment in this State to take a similar full-time position at a hospital in Israel (clearly not covered employment (see, Labor Law § 511 (5)]), did not require disqualification (see also, Colin, Employment Insurance in New York, at 244 [leaving a job to start a business constitutes good cause]).

Since disqualification issues ordinarily focus on the reasons for the claimant’s loss of last employment and not previous employments, and since a voluntary transfer from covered to noncovered employment is not a ground for disqualification, it was entirely appropriate for the Appeal Board to focus on the reasons these claimants left their last actual employment (even if it was not covered employment), in the context of the disqualification provisions of the statute. Having found that good cause existed for their loss of those last actual employments, the Appeal Board quite properly awarded them the benefits for which they earned eligibility through prior service in covered employment.

Thus, in my view, the Appeal Board’s decisions here are consistent with the general symmetry and purpose of the Unemployment Insurance Law, and certainly, the context of the statutory disqualification provisions. On the other hand, the majority’s interpretation conflicts with the overriding purpose of the law and creates needless anomalies and incongruities in the administration of the unemployment insurance system. To briefly illustrate, under the majority’s interpretation of "last employment,” a worker whose covered employment terminated for nondisqualifying reasons and who then took a job in non-covered employment — such as an excluded position with a nonprofit organization or government entity — would be eligible for benefits even if that last actual employment ended because of the employee’s misconduct or commission of a felony in connection with the job (e.g., a minister embezzling from the congregation, or an official accepting a bribe). Moreover, under the majority’s holding, two workers similarly situated in that (1) they were both terminated from covered employment for disqualifying reasons; (2) they both obtained work in a section 511 definitionally excluded category of employment service; and (3) they were both laid off involuntarily, will receive different disqualification determinations dependent on whether their actual last employment was with a nonprofit organization (see, Labor Law § 511 [16]), or with an employer who elected to provide unemployment insurance coverage (see, Labor Law § 561). Surely, we should avoid, if at all possible, construction of the statute which produces such anomalous and inconsistent results, which have no practical or logical relationship to the stated policy of the unemployment insurance article or the underlying basis of the disqualification-for-benefits section.

B.

Whether one agrees with the majority or the dissent here on the key interpretive issue, I think it is unassailable that, at the least, the Unemployment Insurance Appeal Board could rationally conclude that in the disqualification context, "last employment” is not limited by the statutory exclusions to the definition of employment which are primarily designed to provide standards for coverage. The agreement with the Appeal Board’s interpretation by the Appellate Division — a Court with a long tradition and wide experience in judicial review of the administration of the Unemployment Insurance Lav/— supports the rationality of the Appeal Board’s decision. In my view, the reasonableness of the Appeal Board’s interpretation of last employment under Labor Law § 593 should be sufficient to require affirmance here. Thus, I disagree with the majority’s conclusion that these cases present a question of "pure” statutory interpretation, where a court is as competent as the administrative agency to construe the provisions at issue.

Our decisions regarding judicial deference to the Appeal Board’s interpretations of the provisions of the Unemployment Insurance Law have not been entirely consistent. As the majority has noted (majority opn, at 231-232) in Matter of Van Teslaar (Levine) (35 NY2d 311, 318), we held that deference was inappropriate because the issues presented were "interpretation of the overall policy of the Unemployment Insurance Law and general construction of statutory language”, which were "not materially aided by administrative expertise[,] and there [was] no other reason appearing for the courts to defer to the agency.” We have since recognized, however, that deference to the Appeal Board’s rational interpretation is appropriate when "the question, involving policy considerations relating to the intended scope of the statute, 'is [thus] one to the determination of which the Appeal Board may bring to bear its own special competence in carrying out the supervisory authority conferred on it by the Legislature’ ” (Matter of La Mountain [Westport Cent. School Dist. — Ross], 51 NY2d 318, 330 [quoting Matter of Fisher (Levine), 36 NY2d 146, 150]). As the Third Department aptly held in Matter of Wildcat Serv. Corp. (Ross) (supra), a court should defer to the special competence of the Appeal Board when "the evidentiary facts * * * are undisputed and the issue involves policy considerations relating to the intended scope of the statute” (78 AD2d, at 710).

More recently, not only courts but distinguished administrative law commentators have come to recognize the validity of both the explicit and implicit rationales of La Mountain, Fisher and Wildcat Serv. Corp., that statutory interpretation often involves subsets of policy choices which, upon a fair reading of the statute and its legislative history, the legislative body delegated to the agency charged with implementing the overall legislative goals, and that in such cases deference is required. Judicial deference to the agency’s interpretation under these circumstances accords with a rightful

"sensitivity to the proper roles of the political and judicial branches. * * * As Chevron [U.S.A. v Natural Resources Defense Council (467 US 837, 866)] itself illustrates, the resolution of ambiguity in a statutory text is often more a question of policy than of law. * * * When Congress, through express delegation or the introduction of an interpretive gap in the statutory structure, has delegated policymaking authority to an administrative agency, the extent of judicial review of the agency’s policy determinations is limited” (Pauley v Beth Energy Mines, 501 US 680, 696; see also, 1 Davis and Pierce, Administrative Law Treatise § 3.3, at 112-116 [3d ed]).

Deference in those circumstances will also result in a more coherent, consistent body of interpretation of the statutory provisions than will be accomplished by permitting the courts of this State to make their own policy-based independent interpretations of the statute (see, 1 Davis and Pierce, Administrative Law Treatise § 3.4, at 116-119 [3d ed]).

In my view, the instant cases readily fall within the class of cases where judicial deference to the agency’s statutory construction is warranted. As we have shown, by statutory self-description, the Unemployment Insurance Law is a strongly policy-based body of legislation. We have already recognized that in the Unemployment Insurance Law the Legislature gave the Appeal Board "quasi-legislative” authority (Matter of Fisher [Levine], 36 NY2d, at 150, supra) and policy-choice discretion (Matter of La Mountain [Westport Cent. School Dist. — Ross], supra).

Moreover, here the Legislature deliberately left an "interpretative gap” (Pauley v BethEnergy Mines, supra) in stipulating that statutory definitions are not to be followed "where the context shows otherwise” (Labor Law § 510). Indubitably, determining whether the context shows otherwise here involves policy choices, among which are whether a voluntary transfer to noncovered employment should place an employee at risk of forfeiture of eligibility for benefits previously earned through covered employment, and whether, in light of the central purpose of the legislation, it is appropriate to take into account the circumstances of the faultless loss of noncovered, last actual employment in administering the statute’s disqualification provisions. The Unemployment Insurance Appeal Board, not this Court, should make those choices, so long as in doing so its interpretation is rational and not in conflict with express statutory provisions or definitive legislative history. Since no such conflict has been demonstrated here and the Appeal Board’s interpretation is a rational one, we should affirm.

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

In each case: Order reversed, etc.

      . Specifically, section 593 (1) (a) provides that "[n]o days of total unemployment shall be deemed to occur after a claimant’s voluntary separation without good cause from his last employment prior to the filing of his claim until he has subsequently worked in employment on not less than three days in each of five weeks and earned remuneration at least equal to five times his weekly benefit rate” (emphasis supplied).

      . Thus, any employment, even in an industry that is not covered by the Law, excludes the condition of total unemployment. For example, an unemployed person who has obtained a temporary job on a farm is considered to be employed for purposes of assessing "total unemployment” even though farm work is not "covered” employment (Colin, Unemployment Insurance in New York, at 164 [NYU Inst of Labor Relations and Social Security 1950]).

      . The dissent cites both Matter of Mittleman (Corsi) (282 App Div 587) and Matter of Finkel, Nadler & Goldstein (Levine) (46 AD2d 196) for the proposition that in determining whether an employee is disqualified from receiving unemployment insurance benefits, the courts should focus "exclusively on the circumstances of the ending of the last employment, irrespective of any disqualifying reason for the loss of some prior employment.” (Dissenting opn, at 239.) In both Mittleman and Finkel, however, the last employment was covered employment, and thus those cases do not support the dissent’s position that the employment that is last in time — whether or not covered under the Unemployment Insurance Law — is the only employment that is relevant to the determination under section 593 (1).

       For a thorough discussion of the unavoidable necessity of judicial policy making in statutory interpretation to fill gaps or resolve ambiguities, see, Kaye, State Courts at the Dawn of a New Century: Common Law Courts Reading Statutes and Constitutions, 70 NYU L Rev 1, 25-34 (1995).


author: Simons, J.

text:
    [674 NE2d 1366, 652 NYS2d 601]
    MRF Resources Ltd., Plaintiff, v Merchants Bank of New York, Defendant and Third-Party Plaintiff-Respondent; Galit Diamond, Inc., Third-Party Defendant-Appellant.
    Argued November 14, 1996;
    decided December 18, 1996

      POINTS OF COUNSEL

      Tratner & Molloy, New York City (Joan C. Waters and Louis Tratner of counsel), for third-party defendant-appellant.

      Zeichner Ellman & Krause, New York City (Stephen F. Ell-man and William A. Walsh of counsel), for third-party plaintiff-respondent.
   OPINION OF THE COURT

Simons, J.

Galit Diamond, Inc., the third-party defendant in this action, has asserted a counterclaim against defendant The Merchants Bank of New York seeking to recover damages allegedly sustained when the bank delayed execution of a funds transfer to Galit’s diamond supplier in Israel. The delay occurred when Merchants wrongfully placed a hold on Galit’s bank account. Galit does not claim that it suffered any direct damages, only consequential damages due to the supplier’s subsequent refusal to conduct further business with it because of the delay. Supreme Court considered the bank’s conduct under articles 3 and 4 of the Uniform Commercial Code and found Merchants liable under UCC 4-402. It granted Galit judgment for $531,168. The Appellate Division reversed, holding that the matter was governed solely by UCC article 4-A which regulates funds transfers and that section 4-A-305 (3) does not authorize consequential damages absent an express agreement between the parties. We granted Galit leave to appeal so that we could review the dismissal of its counterclaim.

Before this Court, Galit contends that the Appellate Division erred because it did not acknowledge that the events involved more than just a funds transfer transaction. It maintains that article 4-A does not control this case because the delay in executing the funds transfer was caused by the wrongfully placed hold on Galit’s account and that it was the hold which precipitated the delay in the funds transfer and caused damage. Under these circumstances, Galit contends the provisions of UCC article 4 may be applied and consequential damages awarded. Stated another way, Galit claims that because the bank’s wrongful conduct did, not occur within the scope of a funds transfer, article 4-A does not exclusively govern the parties’ rights even though the ultimate result of the bank’s conduct was a delay in executing the funds transfer (see, Centre Point Merchant Bank v American Express Bank, 913 F Supp 202; see also, Sheerbonnet, Ltd. v American Express Bank, 905 F Supp 127; cf., Donmar Enters. v Southern Natl. Bank, 64 F3d 944).

The underlying events and transactions occurred in 1993 at a Manhattan branch of Merchants. Plaintiff MRF Resources Limited maintained a checking account at that office, as did Galit Diamond, Inc. On May 20, 1993, the bank certified a check drawn by MRF, payable to Galit Diamond, Inc. in the amount of $58,958. Upon receipt of the check, Galit presented it to Merchants for1 payment, and the bank posted the funds to Galit’s account on that same day. Shortly thereafter, MRF’s president informed Merchants that the certified check was forged. As a result, the bank placed a hold on Galit’s account which continued from June 4 through June 8, 1993. Supreme Court found, and Merchants now concedes, that it had no legal basis for doing so.

Meanwhile, on June 1, Galit presented Merchants with a funds transfer application accompanied by a check drawn on its Merchants account in the amount of $30,030. The check was intended to cover a funds transfer for $30,000 and the bank’s fee for that service. The application directed a credit to the Israeli bank account of lian Gertler, the supplier of approximately 60% of Galit’s diamond inventory. Without rejecting the application or informing Galit that a hold had been placed on its account, Merchants held onto the funds transfer application and check. Gertler eventually received the funds, but a week later than expected. Because the late transfer tainted Galit’s creditworthiness, Gertler severed its business relationship with Galit greatly damaging Galit’s ability to conduct its business profitably.

In its counterclaim, Galit alleged that Merchants Bank was liable in damages for "wrongfully] freezing” its account and claimed at trial that Merchants’ handling of the certified check violated various provisions of article 3 of the Uniform Commercial Code giving rise to liability under article 4. It does not dispute that if article 4-A governs the transaction, it is not entitled to consequential damages flowing from a delayed transfer of funds because Merchants, the receiving bank of the payment order, did not agree to be liable for consequential damages (see, UCC 4-A-305 [3]; see generally, UCC 4-A-103). But Galit maintains that article 4-A is not exclusive when the case involves something more than a funds transfer. Specifically, it argues that articles 3 and 4 of the Uniform Commercial Code govern Merchants’ conduct with respect to the certified check and the hold on Galit’s account, and that the bank is liable to Galit for consequential damages pursuant to UCC 4-402. Assuming, without deciding, that article 4-A is not controlling in these circumstances, we address the merits of Galit’s article 4 claim.

Under UCC 4-402, "[a] payor bank is liable to its customer for damages proximately caused by the wrongful dishonor of an item.” Galit contends that since it is a customer of Merchants Bank, UCC 4-402 entitles it to consequential damages arising from the bank’s attempt to decertify the certified check, and the unjustified hold placed on Galit’s account. The claims do not withstand analysis.

Uniform Commercial Code § 4-104 (1) (e) defines a "customer” as "any person having an account with a bank.” Assuming the payee of a check is a customer within the meaning of UCC 4-402 (cf., Quistgaard v EAB European Am. Bank & Trust Co., 182 AD2d 510), UCC 4-402 does not provide a customer with an automatic basis to hold a bank liable simply because it is a customer or because there was a negotiable instrument involved somewhere in the chain of transactions; section 4-402 permits the customer to recover damages when a payor bank wrongfully dishonors an item. Accordingly, to be entitled to damages under that section Galit must establish that Merchants Bank wrongfully dishonored an item, and that the dishonored item was an "instrument for the payment of money” (UCC 4-104 [1] [g]).

The check drawn on MRF’s account was certified by Merchants, and Merchants does not now dispute that Galit was a holder in due course. That check is an instrument within the meaning of UCC articles 3 and 4 (see, UCC 3-102 [1] [e]; 4-104 [1] [g]), and it was finally paid to Galit no later than when Merchants Bank posted it to Galit’s account on May 20, 1993 (see, UCC 3-411, 3-418). Galit contends that the hold placed on its account was an attempt to decertify or dishonor the certified check. But the hold placed on Galit’s account deprived it of access to the account and all of its funds. Merchants did not dishonor nor "decertify” the certified check, and it did not attempt to debit or withdraw from Galit’s account the $58,958. Accordingly, Merchants did not "dishonor” an item within the meaning of UCC 4-402.

Galit’s contention that Merchants is liable under UCC 4-402 because it wrongfully placed a hold on the account also fails. An account is not an instrument or item within the meaning of articles 3 and 4 (see, UCC 3-102 [1] [e]; 4-104 [1] [g]), and a hold placed on an account is not a wrongful dishonor of an item within the meaning of UCC 4-402. Thus, notwithstanding Merchants wrongful conduct, Galit’s chosen course of litigation — that it is entitled to consequential damages under section 4-402 — does not provide a basis for such liability.

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

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

Order affirmed, with costs.


author: Chief Judge Kaye.

text:
    [675 NE2d 447, 652 NYS2d 712]
    In the Matter of Kenneth Wolkoff, Respondent, v Mark Chassin, as Commissioner of Health of the State of New York, Appellant.
    Argued October 8, 1996;
    decided November 14, 1996

      POINTS OF COUNSEL

      Dennis C. Vacco, Attorney-General, New York City (Terryl L. Brown, Thomas D. Hughes and Barbara Gott Billet of counsel), for appellant.

      Schneider, Harris & Harris, Woodmere (Robert H. Harris and Sondra I. Harris of counsel), for respondent.
   OPINION OF THE COURT

Chief Judge Kaye.

According to the Public Health Law, the Administrative Review Board for Professional Medical Conduct (ARB), which reviews physician disciplinary determinations, shall consist of five members — three physician and two lay members. This case challenges the validity of an ARB determination made by three physician members, without its two lay members. We conclude that action taken by a three-member quorum is valid and we therefore dismiss petitioner-doctor’s challenge.

In January 1994, the New York State Board for Professional Medical Conduct charged petitioner Kenneth A. WolkofF, a physician licensed to practice medicine in New York, with professional misconduct under Education Law § 6530 (9) (b) and (d). The charges were based on disciplinary determinations rendered against petitioner in Utah and California, in which petitioner’s license to prescribe controlled substances in Utah was suspended and his license to practice medicine in California revoked after he admitted knowingly and intentionally prescribing excessive amounts of controlled substances to drug-dependent individuals. After an expedited hearing limited to consideration of the nature and severity of the penalty to be imposed, a Hearing Committee on Professional Medical Conduct sustained the charges of misconduct, suspended petitioner’s license to practice medicine in the State of New York for three years and ordered him to complete specified retraining programs.

Both petitioner and the office of Professional Medical Conduct appealed to the ARB pursuant to Public Health Law § 230-c. After consideration by its three physician members only, the ARB sustained the Hearing Committee’s determination that petitioner was guilty of professional misconduct. The ARB, however, overruled the determination to suspend petitioner’s license to practice medicine in New York while he underwent retraining, and instead revoked his license. The two lay members of the ARB did not participate in the appeal.

Petitioner filed a CPLR article 78 proceeding seeking judicial review in the Appellate Division. That court granted the petition, annulled the ARB’s determination and remitted the matter for de novo review by the ARB. Pointing to the statutory requirement that the ARB be composed of three physicians and two lay persons, the Appellate Division concluded that any determination rendered without consideration by all five ARB members was invalid. We now reverse.

Prior to 1991, an elaborate system existed for disciplining physicians, which involved multiple levels of review and divided responsibility between the Department of Health and the Department of Education. Charges of professional misconduct were initially considered by a committee of the State Board for Professional Medical Conduct, which conducted an administrative hearing. Its findings of fact, conclusions of law and recommendations regarding disposition were reviewed by the Commissioner of Health, who made an independent determination.

That decision was then forwarded to the Board of Regents, which had its own multi-tiered review process. The Regents Review Committee issued a report and recommendations following evaluation of the hearing record and oral argument by the parties’ attorneys; those recommendations were reviewed by the Regents Committee on Professional Practices; and the full Board of Regents then made a final determination, which was confirmed by the Commissioner of Education. Ultimately, the Commissioner’s order was subject to challenge by an article 78 proceeding (see, Mem of State Exec Dept, 1991 McKinney’s Session Laws of NY, at 2077).

Finding this complex system the root of undue delay and expense (see, id., at 2081), the Legislature five years ago significantly streamlined the procedure (see, L 1991, ch 606). The stated goal was "[t]o improve the efficiency of the physician disciplinary process” (Mem of State Exec Dept. 1991 McKinney’s Session Laws of NY, at 2077; see, Matter of Kabnick v Chassin, 89 NY2d 828 [decided today]).

Responsibility for resolving charges of professional medical misconduct is now consolidated within the Department of Health (see, Public Health Law §§ 230, 230-c). Under the current scheme, a hearing is conducted by a Committee on Professional Medical Conduct of the State Board for Professional Medical Conduct (see, Public Health Law § 230 [10] [e]). Either party may seek review by the ARB of the Hearing Committee’s determination (see, Public Health Law § 230-c [4] [a]). Finally, any order of the ARB is subject to judicial review in the Appellate Division, Third Department, in an article 78 proceeding (see, Public Health Law § 230-c [5]).

Central to this appeal are the statutory requirements concerning composition of the ARB. Public Health Law § 230-c (2) specifies that the ARB consist of five members and, further, that "[t]hree of the members of the review board shall be physicians from the board for professional medical conduct. Two of the members of the review board shall be lay members from the board for professional medical conduct.” The statute, moreover, requires that "[a]ll determinations shall be based upon a majority concurrence of the administrative review board” (Public Health Law § 230-c [4] [c]).

Respondent contends that because Public Health Law § 230-c contains no express requirement that all five members of the ARB, or at least one lay member, consider each case, whether a sufficient number of ARB members were present for valid action is governed by the quorum provision of General Construction Law § 41. Inasmuch as that quorum requirement was met here, respondent urges that the Appellate Division erred in annulling the ARB’s determination.

Under the common-law rule, a majority of a body constituted a quorum, and if a quorum, were in attendance a vote of a majority of those present was sufficient for valid action. Where, however, a statute conferred power to act on several persons, all were required to be present before the statutory power could be exercised (Matter of Town of Smithtown v Howell, 31 NY2d 365, 376; Morris v Cashmore, 253 App Div 657, 659, 661, affd 278 NY 730).

The Legislature adopted General Construction Law § 41 in order to "abrogate the common-law rule requiring the presence of the whole body to act” where authority is conferred by statute (Matter of Town of Smithtown v Howell, 31 NY2d at 377, supra; accord, Morris v Cashmore, 253 App Div at 661, supra). That section provides:

"Whenever three or more public officers are given any power or authority, or three or more persons are charged with any public duty to be performed or exercised by them jointly or as a board or similar body, a majority of the whole number of such persons or officers * * * shall constitute a quorum and not less than a majority of the whole number may perform and exercise such power, authority or duty” (General Construction Law § 41).

General Construction Law § 41 thus allows valid action by a body so long as there is participation by "a majority of the whole number” — -defined as the total number that the body would have were there no vacancies or disqualifications.

The quorum requirement of General Construction Law § 41 applies to action taken by the ARB, unless the general object of Public Health Law § 230-c, the context of the language construed or other provisions of law indicate that a different requirement was intended (see, General Construction Law § 110; see also, Matter of Bronson, 150 NY 1, 5).

According to petitioner, the specification that the ARB consist of three physicians and two lay persons implicitly manifests a legislative intent to impose a more demanding quorum requirement. Where, however, the Legislature has wanted to depart from General Construction Law § 41, it has done so explicitly {see, e.g., Education Law §§ 202, 205 [Board of Regents for University of the State of New York shall be comprised of not less than 15 members, but seven Regents attending shall be a quorum for the transaction of business]; ECL 57-0119 [Central Pine Barrens Joint Planning and Policy Commission shall consist of five members, but four shall constitute a quorum for the transaction of any business or the exercise of any power or function of the commission]).

This is so even where, as here, the Legislature has separately demanded that the members of the public or deliberative body represent — in specific numbers or percentages — various professions, political parties, branches of government or other segments of the population (see, e.g., Judiciary Law § 62 [1], [6] [the Commission on Judicial Nomination shall consist of 12 members, but 10 shall constitute a quorum]; ECL 5-0101, 5-0109 [3] [the State Environmental Board shall consist of 16 members, but eight shall constitute a quorum]; ECL 57-0111 [the Long Island Pine Barrens Maritime Reserve Council shall be composed of 17 voting members, but 10 shall constitute a quorum]).

Public Health Law § 230-c expressly addresses how many ARB members must concur in any disciplinary determination (see, Public Health Law § 230-c [4] [c]). Yet it is notably silent as to how many members must consider each case for valid exercise of the ARB’s review power. The plain language of the statute itself thus offers no basis for concluding that all five members must participate in every ARB determination.

The statute’s history, moreover, contains no indication that the Legislature intended such an exacting requirement. Rather, the general object of the statutory scheme was to improve the efficiency of physician disciplinary determinations by reducing expense and delay, while protecting the ability of physicians to defend against charges of misconduct (see, L 1991, ch 606; Mem of State Exec Dept, 1991 McKinney’s Session Laws of NY, at 2077).

Nor does it follow from the mandate that the ARB be composed of three physicians and two lay persons that at least one physician and one lay member must participate in every disciplinary appeal. Indeed, to infer that the Legislature intends to require participation by at least one member from each category of persons represented on a statutorily created body would unduly restrict the ability of a vast number of such bodies to perform their statutory functions. The laws of New York create scores of councils, boards, commissions and the like that have specific requirements as to make-up of their membership. In many instances, the Legislature has prescribed that the members be drawn from numerous different segments of society, that the body be composed of both elected and appointed members, that appointed members represent various public or private departments, branches of government or political parties. Consequently, the specifications are often extremely particularized and complex (see, e.g., Education Law § 504 [2]; Banking Law § 13 [2]; Public Health Law § 2904 [a]). For us to imply a requirement that the voice of each group, constituency, and appointing authority be represented in every single official act performed by the body would impose an unreasonable burden.

Given the absence of any clear indication that the Legislature intended otherwise, the quorum requirement of General Construction Law § 41 applies to decisions of the ARB. Because three of the five ARB members — "a majority of the whole number” — considered petitioner’s case, that quorum requirement was satisfied here.

Accordingly, the judgment of the Appellate Division should be reversed, with costs, and the petition dismissed.

Judges Simons, Titone, Bellacosa, Smith, Levine and Clparick concur.

Judgment reversed, etc.

       Where charges arise from disciplinary action or findings of misconduct in another State based upon conduct that would constitute professional misconduct under the laws of New York State (see, Education Law § 6530 [9] [b], Id]), Public Health Law § 230 (10) (p) provides for an expedited hearing limited to the nature and severity of the penalty to be imposed upon the licensee.


author: Smith, J.

text:
    [675 NE2d 450, 652 NYS2d 715]
    Lee H. Kimmell et al., Respondents, v Herman A. Schaefer, Appellant, et al., Defendants.
    Argued October 10, 1996;
    decided November 26, 1996

      POINTS OF COUNSEL

      Lynch Rowin Novack Burnbaum & Crystal, P. C, New York City (Thomas P. Lynch and Mark I. Silberblatt of counsel), for appellant.

      Riker, Danzig, Scherer, Hyland & Perretti (Alan E. Kraus, of the New Jersey Bar, admitted pro hac vice, of counsel), and Davis, Scott, Weber & Edwards, P. C., New York City, for respondents.
   OPINION OF THE COURT

Smith, J.

The primary issue on this appeal is whether the relationship between the parties was sufficient to render defendant liable to plaintiffs for the tort of negligent misrepresentation. We affirm the order of the Appellate Division because the record supports the finding that a special relationship existed between the parties which under the circumstances here required defendant to speak with care.

Plaintiffs invested $320,000 each in a limited partnership called Cogenic Embarcadero L/P. This partnership involved one of several projects developed by Cogenic Energy Systems, Inc. (CESI) for the purpose of providing heat and electricity to industrial and commercial energy users through on-site gas-powered "cogeneration” units. The incentive for employing co-generation to meet energy needs stemmed from the lower cost of self-generated energy as compared to the rates charged by utility companies for supplying the equivalent units of power. In return for providing and installing the cogeneration units, CESI shared a portion of the energy cost savings realized by the participating facilities.

The Embarcadero project supplied electricity and heat to the Holiday Inn in the San Diego area of California. In late 1987, CESI began seeking new buyers for the Embarcadero project. In furtherance of the renewed sales effort, CESI’s president requested an updated "feasibility study” from the San Diego office of the company so that prospective buyers could evaluate the viability of the project on more current financial information. In November 1987, CESI generated projections on the Embarcadero project. The projections assumed that electric and gas rates in 1988 would remain at 1987 levels despite a pending application by the local utility for a rate change which, if approved, would eliminate any return on the investment.

Defendant, a lawyer, certified public accountant and former chief financial officer of Pepsico for 26 years became involved with CESI in 1985 after he retired from Pepsico. Defendant had been recruited to serve on CESFs board because the company believed that his reputation would enhance its credibility with potential investors. In the fall of 1987, CESFs president asked defendant if he knew of anyone who would be interested in buying or investing in the Embarcadero project. At that time, defendant was the chairman of CESFs board. In December 1987, defendant also became CESFs chief financial officer. Defendant became the contact person at CESI for the Embarcadero project and he began seeking investors for the limited partnership.

As part of his efforts to market the Embarcadero project, defendant asked his accountant, Michael Gross, if he knew of anyone who would be interested in the investment. Gross separately approached plaintiffs about the Embarcadero project and provided them with the November 1987 projections which he had obtained from the defendant.

In mid-December, defendant met with plaintiff Katzenbach at Marine Midland Bank in order to discuss financing for plaintiff’s potential investment in the Embarcadero project. During this meeting, defendant told Katzenbach that the Embarcadero project was a good investment and that he should look at the numbers provided in the projections. After the meeting at Marine Midland, defendant learned that plaintiff Kimmell was also considering investing in the Embarcadero project.

Defendant’s efforts to solicit investors occurred in a climate which was rapidly becoming unfavorable for the San Diego co-generation industry. After widely publicized hearings on proposed utility rate changes, a settlement was reached and on December 22, 1987, the California Public Utilities Commission approved a new rate structure. Effective January 1, 1988, the new rates rendered any cost savings from cogeneration in the San Diego area minimal at best and doomed any investment in the Embarcadero project to failure.

In early January 1988, based on the revenues received from the Embarcadero project in November and December 1987, a new set of projections predicting an even higher rate of return from the project was issued at defendant’s behest. The new projections estimated a 10% increase in energy savings over the November 1987 projections. Defendant sent the revised projections to Gross with a cover memo which stated, in relevant part, "[a]fter a thorough discussion with our West Coast administrator to assure ourselves that the first two months are not an aberration, it is reasonable to assume that we are and will exceed our original projection, done sometime ago, by at least 10%.” Defendant intended the memo and the revised projections, dated January 6, 1988, to reach plaintiffs and assumed that Gross would deliver the documents to them. Plaintiffs received and reviewed the revised projections.

Unfortunately, defendant and the revised projections failed to account for the recent and substantial change in local utility rates. Since the January 6, 1988 projections were not based on the current and actual utility rates in effect, they misrepresented the potential rate of return ori the Embarcadero project. As of January 1, 1988, the Embarcadero project was unlikely to generate any returns for its investors.

On January 8, 1988, defendant, who did not know of the widely publicized April 1987 application for a change, in utility rates, or the devastating nature of the rate change which went into effect on January 1, met with Kimmell and told him that the Embarcadero project was a good investment with earnings better than anticipated. Defendant also sent a letter to Kimmell, dated January 8, 1988, stating, "If you have any questions [about the Embarcadero project] please give me a call as I am confident I can give you 'hot comfort’ on this one.”

Defendant’s efforts at soliciting plaintiffs’ participation in the limited partnership were successful. After the meeting at Marine Midland in mid-December 1987, plaintiff Katzenbach decided to take a half interest in the Embarcadero project for $320,000. Katzenbach signed the limited partnership agreement in March 1988. Kimmell made his investment decision shortly after his January 8 meeting with the defendant. He also invested $320,000 in the project. Defendant and Gross received a commission of $40,000 for bringing plaintiffs to the Embarcadero project which they split evenly between them. The $640,000 obtained from plaintiffs represented approximately one third of CESI’s total revenues for the fiscal year ending January 1, 1988. CESI, which had a negative net worth of $3.4 million on January 31, 1988, subsequently filed for bankruptcy in 1989, and was later liquidated.

Plaintiffs commenced this action seeking damages arising out of their failed investment in the Embarcadero project. After a nonjury trial, Supreme Court found that defendant had negligently misrepresented, both directly and by encouraging plaintiffs to rely on the projections generated by CESI, that the Embarcadero project would earn income, and that plaintiffs relied on this misrepresentation to their detriment. Supreme Court also found the existence of a special relationship sufficiently resembling privity to justify holding defendant liable for negligent misrepresentation. The Appellate Division affirmed Supreme Court’s findings of fact, determined that there was ample support for the trial court’s conclusions and held that defendant was liable for negligent misrepresentation. We granted defendant leave to appeal.

Defendant contends that he was not in privity or in a relationship sufficiently resembling privity with plaintiffs to render him liable for negligent misrepresentation. Defendant also argues that he did not owe plaintiffs a duty to speak with care. In the alternative, defendant contends that he cannot be held liable for negligent misrepresentation because the Business Corporation Law provides that corporate officers and directors may rely on "information, opinions, reports or statements” of corporate employees (see, Business Corporation Law § 715 [h]; §717 [a]).

Liability for negligence may result only from the breach of a duty running between a tortfeasor and the injured party. Although the existence of a duty is an issue of law for the courts (see, Eiseman v State of New York, 70 NY2d 175, 187), once the nature of the duty has been determined as a matter of law, whether a particular defendant owes a duty to a particular plaintiff is a question of fact. We turn first to the nature of the duty which may give rise to liability for negligent misrepresentation.

In the commercial context, a duty to speak with care exists when "the relationship of the parties, arising out of contract or otherwise, [is] such that in morals and good conscience the one has the right to rely upon the other for information” (International Prods. Co. v Erie R. R. Co., 244 NY 331, 338). This reliance must be justifiable, as a "casual response given informally does not stand on the same legal footing as a deliberate representation for purposes of determining whether an action in negligence has been established” (Heard v City of New York, 82 NY2d 66, 74-75).

Since a vast majority of commercial transactions are comprised of such "casual” statements and contacts, we have recognized that not all representations made by a seller of goods or provider of services will give rise to a duty to speak with care (see, International Prods. Co., supra, at 338). Rather, liability for negligent misrepresentation has been imposed only on those persons who possess unique or specialized expertise, or who are in a special position of confidence and trust with the injured party such that reliance on the negligent misrepresentation is justified. Professionals, such as lawyers and engineers, by virtue of their training and expertise, may have special relationships of confidence and trust with their clients, and in certain situations we have imposed liability for negligent misrepresentation when they have failed to speak with care (see, e.g., Ossining Union Free School Dist. v Anderson LaRocca Anderson, 73 NY2d 417 [engineering consultants]; White v Guarente, 43 NY2d 356 [accountants]; Ultramares Corp. v Touche, 255 NY 170 [accountants]; Glanzer v Shepard, 233 NY 236 [public weighers]).

The analysis in a commercial case such as this one is necessarily different from those cases because of the absence of obligations arising from the speaker’s professional status. In order to impose tort liability here, there must be some identifiable source of a special duty of care. The existence of such a special relationship may give rise to an exceptional duty regarding commercial speech and justifiable reliance on such speech.

Whether the nature and caliber of the relationship between the parties is such that the injured party’s reliance on a negligent misrepresentation is justified generally raises an issue of fact. In determining whether justifiable reliance exists in a particular case, a fact finder should consider whether the person making the representation held or appeared to hold unique or special expertise; whether a special relationship of trust or confidence existed between the parties; and whether the speaker was aware of the use to which the information would be put and supplied it for that purpose. The record here contains ample support for the finding that defendant’s relationship with plaintiffs gave rise to a duty to speak with care.

As CESI’s chief financial officer and chairman, defendant was uniquely situated to evaluate the economics of the Embarcadero project in December 1987 and January 1988. Moreover, as the general partner of Cogeneration Partners, a limited partnership involving six CESI cogeneration installations, defendant was experienced with the sale of CESI projects to investors through the limited partnership form and the business aspects of cogeneration. Plaintiffs, who knew of defendant’s involvement with Cogeneration Projects, justifiably assumed that defendant possessed expertise in this area and relied on his apparently unique knowledge of CESI and its operations.

Defendant’s efforts sought to induce plaintiffs to invest in the project. The record indicates that the Embarcadero projections were generated for the express purpose of providing investors with current information about potential returns on the project. As the CESI representative responsible for marketing the Embarcadero limited partnership, defendant provided Gross with projections to distribute to potential investors generally, and to plaintiffs in particular. Defendant testified at trial that he expected plaintiffs to rely on these projections. Defendant also met with each plaintiff, and personally represented that the Embarcadero project would generate some income. Defendant further urged plaintiffs to review and rely on the projections. Indeed, defendant informed Kimmell that he could provide "hot comfort” should plaintiff entertain any reservations about investing.

Most tellingly, defendant personally requested "updated” projections, which he represented were reasonable and generated after a "thorough discussion with out West Coast administrator,” even though they were not based on the utility rate structure in effect at the time. The revised projections were sent to Gross with the expectation that they would be routed to plaintiffs. Plaintiffs duly received and reviewed these projections. Finally, defendant personally received a $20,000 commission for his efforts on behalf of the Embarcadero project. We conclude that under these circumstances, the record contains an adequate basis for the finding that defendant owed a duty of care to plaintiffs here.

Defendant’s attempt to escape liability for negligent misrepresentation by relying on the Business Corporation Law is unpersuasive. Although sections 715 and 717 of the Business Corporation Law provide that corporate officers and directors may rely on information and opinions provided by corporate employees, they further provide that such reliance is justified only when the officer or director believes those employees to be reliable and competent in the matters presented.

Supreme Court found that the employees in CESI’s San Diego office were "woefully negligent and abysmally uninformed.” Given the widespread publicity surrounding the local utility’s application for a rate change in 1987, and the failure to use current rate structures in the January 1988 projections, the record contains support for this factual finding. Supreme Court further found that defendant had little or no personal dealings with the staff in the San Diego office, had no basis for assessing their competence, and failed to make any inquiry into the basis or methodology of the projections. As chief financial officer and chairman of CESI, Supreme Court concluded that defendant’s failure to make any inquiry as to these matters constituted negligence. As these findings are supported by the record, defendant was properly held liable for negligent misrepresentation.

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

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

Order affirmed, with costs.

       An article published in the San Diego Tribune on March 12, 1987 proclaimed that the sought after rate changes "might doom cogeneration” and quoted the statement of a cogeneration industry representative that "[t]his rate will kill cogeneration.” Another article in the March 13,1987 issue of the Los Angeles Times printed the opinion of another cogeneration industry representative that "[t]he proposal would be ’disastrous’ for most co-generation systems.” A headliné on a March 13, 1987 article in the San Diego Tribune read, "Plan could cause cogeneration operations to close.” Public hearings on the proposed rate changes occurred throughout 1987. Various representatives of the cogeneration industry participated in these hearings. CESI was a member of one of the alliances which arrayed itself against the proposed rate changes.