author: Bellacosa, J.

text:
    [650 NE2d 401, 626 NYS2d 743]
    Burton Aufrichtig, Individually and as Conservator for Janette Aufrichtig, Appellants, v Bruce K. Lowell, Respondent.
    Argued March 22, 1995;
    decided May 4, 1995

      POINTS OF COUNSEL

      Bickford Hahn & Haley, New York City (Richard E. Hahn of counsel), for appellants.

      DuBois, Billig, Loughlin, Conaty & Weisman, Great Neck (Kenneth Mauro and Ellen F. Weisman of counsel), for respondent.
   OPINION OF THE COURT

Bellacosa, J.

The issue is whether the defendant treating physician is entitled to summary judgment dismissing plaintiffs-appellants’ cause of action for breach of the physician’s duty to provide truthful information to the patient’s insurance company. We hold that factual issues exist that preclude the grant of summary judgment to defendant physician, who was sued by his former patient. The allegations and record in this case pose issues of fact as to whether the doctor placed the patient in a position of having no reasonable alternative but to settle with the patient’s insurance carrier when he provided false deposition and affidavit testimony regarding the patient’s medical condition in a Federal lawsuit involving medical insurance coverage.

Plaintiff Burton Aufrichtig is married to Janette Aufrichtig and serves as the conservator of her property. Janette Aufrichtig suffers from multiple sclerosis and is in a severe stage of the disease, bedridden and, for some time, unable to speak or otherwise communicate. Defendant Dr. Bruce K. Lowell, her primary care physician, had prescribed for her "skilled nursing care around the clock.” He held this professional assessment of her case and condition from May 1984 through February 1990. Dr. Lowell’s medical evaluation of Mrs. Aufrichtig was confirmed by a neurologist retained by plaintiffs’ insurance carrier, Hartford Insurance Company. In June 1988, the carrier’s first neurologist stated that Mrs. Aufrichtig was "totally dependent” on others, and "in view of her poor medical condition, her case should be in the hands of a licensed practicing nurse.”

In satisfaction of a comprehensive health plan, the insurer provided, for a period of time, reimbursement for up to 24 hours per day of skilled nursing care for Mrs. Aufrichtig. In August 1989, however, the carrier began a reevaluation of the patient’s nursing care needs. In February 1990, Hartford formally notified plaintiffs that, based on a recommendation from another neurologist chosen by the company, it was reducing authorized skilled nursing care policy benefits for Mrs. Aufrichtig from 24 hours a day to 6 hours per day.

On March 9, 1990, plaintiffs sued their insurance company in Supreme Court, New York County. The defendant Hartford had the case removed to the United States District Court, Southern District of New York. The complaint alleged that Mrs. Aufrichtig was completely and severely disabled with multiple sclerosis, and the Aufrichtigs sought to enjoin the reduction in skilled nursing benefits. Specifically, plaintiffs alleged that Mrs. Aufrichtig could not eat without assistance, and because of her weakened physical and mental condition, she required around-the-clock skilled nursing care.

In the course of discovery of the removed Federal action, Hartford subpoenaed Dr. Lowell as treating physician, for a nonparty deposition. In August 1990, Dr. Lowell admittedly gave false deposition testimony concerning Mrs. Aufrichtig’s condition, medical history and need for skilled nursing care. Specifically, he swore that his patient required skilled nursing care only at meal time. Dr. Lowell averred that at all other times a home health aide would be sufficient. On October 2, 1990, shortly before trial, the physician signed an affidavit prepared and unilaterally presented to him by Hartford’s attorneys, without notice to plaintiffs. In that document, treated as the equivalent of testimony under Federal court practice, he stated that Mrs. Aufrichtig required only "a home health aide, rather than a licensed nurse,” that she never suffered from a grand mal seizure, and that she required skilled nursing care only at meal time for a total of six hours per day.

On the eve of the Federal trial, however, Dr. Lowell executed an about-face. He signed a new affidavit, this one prepared by plaintiffs’ counsel, recanting his earlier deposition testimony as follows:

"[M]y deposition testimony makes no sense at all, and in the context of the actual facts of Mrs. Aufrichtig’s critical condition, does not reflect my opinion, then or now, concerning her need for skilled nursing care nor what I believe would be the opinion of any medical doctor who examined Mrs. Aufrichtig and had cared for her as I have.
"There is no question but that Mrs. Aufrichtig requires nursing care at all times.”

Dr. Lowell also recanted the affidavit he gave to the insurance company lawyers, claiming that he signed it to avoid having to testify at the trial of that case.

As the bench trial was about to commence, the Federal District Court Judge held a meeting with all counsel and, according to the affidavit in the summary judgment motion in the instant action, the Judge urged plaintiffs and their counsel to consider settling in view of the treating physician’s conflicting sworn statements. The Trial Judge allegedly informed the lawyers that the court could not see how plaintiffs could succeed in the claim against the carrier in the face of medical proof developments. TSTo record was made of the Judge’s statements. Plaintiffs allege, however, that the Judge stated, in sum, substance and effect, "that in view of the position taken by the primary care physician, Dr. Lowell, in his October 2, 1990 affidavit, the prospect of Janette Aufrichtig being able to prevail on her injunction claims was de minimis.” After negotiations under the court’s supervision, Hartford agreed to provide skilled nursing benefits for 10 hours a day, 6 days a week, with 6 additional hours per week to be used as needed and as desired. Plaintiffs acquiesced and settled the Federal nonjury lawsuit with Hartford.

The Aufrichtigs then commenced the instant State action against defendant Dr. Lowell to recover damages caused by his having provided Hartford with "an admittedly perjurious affidavit.” Plaintiffs aver that the treating physician’s wrongful conduct left them with no reasonable alternative except to settle the Federal case with Hartford for far less in nursing benefits than Mrs. Aufrichtig was entitled to under her insurance plan. Defendant physician moved to dismiss the complaint pursuant to CPLR 3211 (a) (7) and 3212 (b). Plaintiffs cross-moved for partial summary judgment on the issue of liability.

Supreme Court granted defendant’s motion dismissing the complaint and denied plaintiffs’ cross motion. The Appellate Division unanimously affirmed, stating that although the treating physician allegedly provided careless and contradictory testimony, "no action lies against him for breach of plaintiff patient’s confidentiality * * * plaintiffs having waived confidentiality by affirmatively placing the insured patient’s medical condition in issue in seeking to enjoin the reduction of insurance benefits” (202 AD2d 326). This Court granted leave to appeal to plaintiffs.

We view the gravamen of plaintiffs’ complaint in the instant action as defendant’s transgression of his duty to his patient to refrain from providing false statements regarding Mrs. Aufrichtig’s medical condition. Plaintiffs argue that defendant Lowell owed Mrs. Aufrichtig a duty not to make false reports to her insurance company and that defendant breached this duty by falsely testifying and providing a false affidavit. Plaintiffs acknowledge that, as a general rule, New York does not recognize a cause of action for fraudulent or perjured testimony (see, Newin Corp. v Hartford Acc. & Indent. Co., 37 NY2d 211, 217). Plaintiffs assert in the particular, however, that the duty owed by a treating physician to the patient to provide truthful medical information arises as part of the existing physician-patient confidential relationship.

Liability may arise where a duty obtains, if one speaks at all, to provide truthful information. Thus, we conclude that because the defendant treating physician stands in a relationship of confidence and trust to his patient, he owed plaintiffs in this case a duty to speak the truth about her medical condition.

While no issue of breach of confidentiality of the physician-patient privilege remains in this case, some context is still relevant. In New York, the special relationship akin to a fiduciary bond, which exists between the physician and patient, is reflected in CPLR 4504. The basis of the evidentiary privilege is that patients will be forthcoming and encouraged to provide complete data to assist a medical provider in diagnosis and treatment (see, Williams v Roosevelt Hosp., 66 NY2d 391, 395-396). An additional motivation for the existence of the privilege is the avoidance of a Hobson’s choice for physicians: choosing between honoring their professional obligation with respect to their patients’ confidences or their legal duty to testify truthfully. By law and by oath, a physician warrants that any confidential medical information obtained through the relationship will not be released without the patient’s permission. The physician-patient relationship thus operates and flourishes in an atmosphere of transcendent trust and confidence and is infused with fiduciary obligations (see, Hammonds v Aetna Cas. & Sur. Co., 243 F Supp 793, 802 [and cases cited]).

The physician in this case would limit his duty to the provision of competent medical treatment to his patient. Defendant, however, has ignored the central thrust of this case and confused simple and ordinary medical malpractice with the distinct yet related duty, when required, of providing truthful information about the patient. Unassailably, part of a physician’s duty to the patient, when authorized to supply otherwise confidential information to others — either as a result of a patient’s express consent or waiver by the condition having been placed in issue — includes truthful utterances, particularly, as here, when delivered under oath and with awareness that a false statement will be relied upon to the detriment of the patient. Notably, doctors who provide false information may open themselves to a charge of professional misconduct. Section 6509 of the Education Law provides: "Each of the following is professional misconduct * * * (9) Committing unprofessional conduct, as defined by the board of regents in its rules.” 8 NYCRR 29.1 (b) (6) specifies as unprofessional conduct "willfully making or filing a false report”.

We therefore reach the question whether the defendant physician was entitled to summary judgment in the face of the particular record concerning his alleged breach of duty in this case. At defendant’s deposition, he testified that Mrs. Aufrichtig required skilled nursing care only at feeding and medication times; that suctioning Mrs. Aufrichtig, other than at meal times, could be performed by a home health aide, and that an intermittent catheter could be administered by a home health care worker. In conformity with this testimony, defendant executed an affidavit prepared by Hartford’s attorneys in which he affirmed that a skilled nurse was required only during "the administration of meals and medication and that the service of the home health aide or companion is sufficient for the balance of the day.” In direct contradiction to these statements, defendant later provided an affidavit prepared by plaintiffs’ counsel in which he affirmed that "Mrs. Aufrichtig require[d] nursing care at all times to be available to aspirate her, give her medication, catheterize her and provide all of the other nursing services which she continually requires.”

The defendant treating physician here was the crucial link and indispensable source of knowledge and pertinent facts about Mrs. Aufrichtig’s case and condition for the provision of her insurance medical benefits. Others would ordinarily be expected to rely on this unique source and did so, in the most formal and official setting, according to this record. His assertion was not a casual expression of belief, but was a voluntary and willful affirmation of the crucial false facts and professional opinion. Plaintiffs had engaged his services rightfully expecting not only reasonable medical care and competence, but also truthful, continuing, necessary supply of medical information, when required.

By defendant’s own admission, the initial sworn statements communicated to the Federal court were false. Defendant knew that his testimony was desired for a serious purpose by persons who intended to rely and act decisively on his sworn assertions. The cause of action was properly and sufficiently pleaded in this case and is not subject to summary judgment resolution on this record, particularly in light of the settlement of a nonjury lawsuit, allegedly spurred by the trier-of-fact Federal Trial Judge’s blunt assessment of plaintiffs’ poor chances for success in the case against the insurance company in light of the doctor’s mixed sworn signals.

In sum, defendant Lowell owed plaintiffs a duty of care not to impart false information in his formal sworn submissions, advanced for the serious and crucial litigation purpose then at issue. The facts pleaded and the record in this case do not support the grant of summary judgment to defendant in the action for breach of the doctor’s attendant duty to his patient.

We have reviewed all other issues and conclude that they are without merit.

Accordingly, the order of the Appellate Division should be modified, with costs to plaintiffs, to the extent of denying defendant’s motion for summary judgment, and reinstating plaintiffs’ complaint, and, as so modified, affirmed.

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

Order modified, with costs to plaintiffs, by denying defendant’s motion for summary judgment and, as so modified, affirmed.


source: Caselaw Access Project

author: Titone, J.

license: Public Domain

text:
    [650 NE2d 829, 626 NYS2d 982]
    Donald A. Benjamin, Respondent, v Adolph Koeppel, Defendant, and Koeppel, Del Casino & Martone, P. C., et al., Appellants.
    Argued March 21, 1995;
    decided May 2, 1995

      POINTS OF COUNSEL

      Reisman, Peirez, Reisman & Calica, Garden City (Robert M. Calica and E. Christopher Murray of counsel), for appellants.

      Field, Lomenzo & Turret, P. C., New York City (Ira A. Turret of counsel), for respondent.
   OPINION OF THE COURT

Titone, J.

Can an attorney who has not complied with Judiciary Law § 468-o’s registration requirements nonetheless recover payment for professional legal services rendered during the period of noncompliance? Concluding that the public policies underlying the State’s attorney-registration system do not furnish a reason to nullify otherwise valid contractual obligations, we hold that the failure to register does not preclude an attorney’s recovery of professional fees.

Plaintiff was admitted to the Bar in 1958 after complying with the applicable educational, examination and character requirements. However, he did not register with the Office of Court Administration (OCA) when the mandatory registration rules were enacted in 1981 (L 1981, ch 714). Plaintiff, who apparently had not maintained a law office during the intervening 10 years, registered for the first time in April 1991, after the present action was commenced. At that time, he paid all of his delinquent fees.

The present action arose out of an incident in which plaintiff referred a potential client with a real property tax matter to defendant law firm, Koeppel, Del Casino & Martone, P. C. The firm, in turn, agreed to pay plaintiff one third of any fees it earned. According to the submissions before the court, plaintiff’s participation included interviewing the client, evaluating the case, discussing the matter with firm attorneys and attending a meeting between the client and a firm partner. The firm successfully completed the real estate matter for the client. Thereafter, plaintiff requested that the successor firm, defendant Koeppel, Martone & Leistman, pay him the agreed-upon share of the firm’s fee. When his request was refused, plaintiff brought the present action.

On cross motions for summary judgment, the Supreme Court granted plaintiff the relief he sought and awarded him damages against the law-firm defendants. In so ruling, the court rejected defendants’ contention that plaintiff should not be permitted to recover a fee because of his failure to register as required by Judiciary Law § 468-a. The court also rejected defendant’s effort to avoid payment on the ground that plaintiff had not earned a one-third fee, noting that papers prepared in connection with the client’s real estate matter showed that plaintiff had performed at least "some services.” The Appellate Division agreed with Supreme Court’s analysis and affirmed the judgment. Defendants then took a further appeal by leave of this Court.

Defendants do not dispute the facial validity of their agreement to pay plaintiff a third of any fee they obtained in connection with the real estate matter that plaintiff had referred. Instead, they argue that the agreement is unenforceable because it involves compensation for professional services and because payment for such services to plaintiff, as an unregistered attorney, would violate public policy. In support, defendants rely heavily on Galbreath-Ruffin Corp. u 40th & 3rd Corp. (19 NY2d 354, 364), in which this Court stated that noncompliance with a regulatory statute could " 'affect the legality of [a] business.’ ” For the reasons that follow, we reject defendants’ effort to apply that principle to this situation.

"Illegal contracts are, as a general rule, unenforceable” (Lloyd Capital Corp. v Pat Henehar, Inc. (80 NY2d 124, 127). However, the violation of a statute that is merely malum prohibitum will not necessarily render a contract illegal and unenforceable (id.). "If the statute does not provide expressly that its violation will deprive the parties of their right to sue on the contract, and the denial of relief is wholly out of proportion to the requirements of public policy * * * the right to recover will not be denied” (Rosasco Creameries v Cohen, 276 NY 274, 278).

Fee disputes involving persons who have failed to comply with licensing or registration requirements have spawned their own body of case law (see, e.g., Lloyd Capital Corp. v Pat Henehar, Inc., supra; Richards Conditioning Corp. v Oleet, 21 NY2d 895; Rosasco Creameries v Cohen, supra; Johnston v Dahlgren, 166 NY 354; People ex rel. Nechamcus v Warden, 144 NY 529; see also, B & F Bldg. Corp. v Liebig, 76 NY2d 689; Charlebois v Weller Assocs., 72 NY2d 587). Galbreath-Ruffln (supra, at 363-364, quoting Silinsky v Lustig, 118 Misc 298, 299) established one of the key controlling principles in this area: " '[W]here the procuring of a license is merely for the purpose of raising revenue it would seem that acts performed without securing a license would be valid. But where the statute looks beyond the question of revenue and has for its purpose the protection of public health or morals or the prevention of fraud, a non-compliance with its terms would affect the legality of the business’ ” (accord, Richards Conditioning Corp. v Oleet, supra; see, e.g., Charlebois v Weller Assocs., supra, at 592). Two other important tenets that have emerged from the case law are that fee forfeitures are disfavored and that such forfeitures may be particularly inappropriate where there are other regulatory sanctions for noncompliance (Lloyd Capital Corp. v Pat Henehar, Inc., supra, at 128; Charlebois v Weller Assocs., supra, at 595; see also, Rosasco Creameries v Cohen, supra, at 279-280). As this Court stated in Charlebois v Weller Assocs. (supra, at 595), the courts are especially skeptical of efforts by clients or customers to use public policy "as a sword for personal gain rather than a shield for the public good.”

Application of these precepts leads to a favorable conclusion for this plaintiff. Initially, there is sound reason to doubt the assumption that Judiciary Law § 468-a’s registration requirements constitute a licensing scheme analogous to the licensing scheme for engineers that was considered in Charlebois v Weller Assocs. (supra), the licensing scheme for real estate brokers that was considered in Galbreath-Ruffin Corp. v 40th & 3rd Corp. (supra) and the licensing scheme for milk dealers that was considered in Rosasco Creameries v Cohen (supra). One working definition of a "license” is "[a] permit, granted by an appropriate governmental body * * * to a person, firm, or corporation to pursue some occupation or to carry on some business subject to regulation” (Black’s Law Dictionary 829 [5th ed]). In this State, a person is authorized to practice law if that person has been admitted to practice and has taken the requisite oath (see, Judiciary Law § 478; see also, §§ 466, 476-a [1] [b]). Admission is governed by Judiciary Law §90, which refers only to certification by the State Board of Law Examiners, consideration by the Appellate Division of the applicant’s general fitness and. character and compliance with the Court of Appeals and Appellate Division rules "relating to the admission of attorneys.” Importantly, neither section 90 nor the statute authorizing admitted attorneys to practice law mentions section 468-o’s registration requirement. Moreover, the responsibility for regulating and disciplining admitted attorneys is vested in the Departments of the Appellate Division, not OCA, the entity that administers the registration system (see, Judiciary Law §90 [2]). Thus, the registration system does not have the critical earmarks of a licensing or regulatory scheme.

In any event, even if treated as an ancillary licensing or regulatory mechanism, the attorney registration system more closely resembles a revenue-raising measure than a program for "the protection of public health or morals or the prevention of fraud” (Galbreath-Ruffin Corp. v 40th & 3rd Corp. (supra, at 364). When section 468-a was first enacted, its stated purpose was to "generate $1,750,000 in estimated [annual] fee revenues,” which were to be used in part to defer certain of OCA’s administrative costs and in part to fund the new Lawyers’ Fund for Client Protection that was created to compensate clients injured by attorney misconduct (Mem in Support of S6709-C and A8709-C, Bill Jacket, L 1981, ch 714). In approving the measure, then Governor Hugh L. Carey stressed that the statute was necessary because New York was "the only state which does not require payment of a statutory license fee” and because attorneys were the only profession not "subject to some fee requirement” (Governor’s Approval Mem, 1981 NY Legis Ann, at 378). According to its sponsor, the legislation requiring the filing of a registration statement and the payment of a fee "simply and adequately compensates State government for processing the regulation of the profession” (Mem of Senator W. T. Smith, 1981 NY Legis Ann, at 377).

The subsequent amendments to the statute only serve to underscore Judiciary Law § 468-o’s essential purpose as a revenue-raising mechanism. The 1985 amendments were aimed at clarifying the registration obligations of out-of-State attorneys, increasing the registration fee, reducing delinquency in compliance and aiding enforcement (L 1985, ch 730; see, Mem in Support of S5650A, Bill Jacket, L 1985, ch 730; Mem of OCA, July 10, 1985, 1985 McKinney’s Session Laws of NY, at 3541). The 1990 amendments tripled the $100 biannual fee and provided for the allocation of the resulting revenues (L 1990, ch 190).

To be sure, the biannual registration requirement plays some role in the protection of the public, in that it facilitates the maintenance of the official register of attorneys (see, Judiciary Law § 468), which, in turn, is helpful in "providing] legal consumers, public officers and members of the bar with a central and readily accessible source of public information concerning the professional standing of persons who are licensed to practice law in this state” (L 1988, ch 67, § 1 [amending Judiciary Law § 468]). However, as Judiciary Law § 468-a’s sponsor observed at the time of the statute’s enactment, "the New York Court of Appeals and Office of Court Administration [have] already provided for a comprehensive, accurate and up-to-date method of listing attorneys who practice in New York” (Mem of Senator W. T. Smith, op. cit, at 377). Thus, the new provision’s potential value as a mechanism for tracking attorneys and facilitating their regulation was not considered a particularly important feature of the legislation.

Finally, the existence of a legislatively prescribed sanction for noncompliance militates against imposing a civil forfeiture by nullifying bargained-for contractual obligations. Judiciary Law § 468-a (5) provides that noncompliance with the registration requirement and accompanying rules "shall be referred to the appropriate appellate division.” Further, the Appellate Divisions have not hesitated to impose disciplinary sanctions tailored to the particular case (see, e.g., Matter of Bridge, 196 AD2d 43; Matter of Relyea, 175 AD2d 949; see also, Matter of Larson, 177 AD2d 852; Matter of Gersman, 171 AD2d 37; Matter of Taylor, 164 AD2d 699). Thus, there already exists an effective remedy to spur compliance and punish disobedience, and the additional sanction that defendants seek is unnecessary.

This is not to suggest that attorneys’ noncompliance with the registration requirements is to be regarded as inconsequential. To the contrary, we recognize that, as the Legislature has expressly provided, noncompliance is "conduct prejudicial to the administration of justice” that may be disciplined (Judiciary Law § 468-a [5]). We hold only that precluding plaintiff from recovering on his contract with defendants is a remedy that is "wholly out of proportion to the requirements of public policy” (Rosasco Creameries v Cohen, supra, at 278).

In closing, we also note our rejection of defendants’ contention that the fee-sharing agreement plaintiff seeks to enforce is invalid as a matter of professional ethics (see, Code of Professional Responsibility DR 2-107). It has long been understood that in disputes among attorneys over the enforcement of fee-sharing agreements the courts will not inquire into the precise worth of the services performed by the parties as long as each party actually contributed to the legal work and there is no claim that either "refused to contribute more substantially” (Sterling v Miller, 2 AD2d 900, affd 3 NY2d 778; see, Witt v Cohen, 192 AD2d 528; Oberman v Reilly, 66 AD2d 686; Rozales v Pegalis & Wachsman, 127 AD2d 577; Jontow v Jontow, 34 AD2d 744, 745; Fried v Cahn, 239 App Div 213; Carter v Katz, Shandell, Katz & Erasmous, 120 Misc 2d 1009, 1018-1019; see also, Stissi v Interstate & Ocean Transp. Co., 814 F2d 848, 852). Moreover, it ill becomes defendants, who are also bound by the Code of Professional Responsibility, to seek to avoid on "ethical” grounds the obligations of an agreement to which they freely assented and from which they reaped the benefits (ABA Comm on Professional Ethics, Informal Opn No. 870).

Here, there were undisputed statements that plaintiff had "worked up” the case and had played a significant role in working with a "difficult” client. There were no allegations that plaintiff had been asked to do additional work and had refused. Hence, he was entitled to his share of the fee as allocated in the parties’ agreement.

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

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

Order affirmed, with costs.


author: Levine, J.

text:
    [650 NE2d 833, 626 NYS2d 986]
    The People of the State of New York, Respondent, v Porter F. Banks, Appellant.
    Argued March 21, 1995;
    decided May 4, 1995

      POINTS OF COUNSEL

      Michael H. Sussman, Goshen, and Scott A. Thornton for appellant.

      Sol Greenberg, District Attorney of Albany County, Albany (Paul A. Clyne and Risa L. Viglucci of counsel), for respondent.
   OPINION OF THE COURT

Levine, J.

Defendant and codefendant Robert Jones were indicted for criminal possession of a controlled substance in the first degree arising out of the seizure of a large quantity of cocaine from an automobile defendant had rented. At the suppression hearing in the case, Trooper Cuprill of the State Police, the sole People’s witness, testified as follows. About 1:00 p.m. September 14, 1991, while parked in a marked patrol car in the median of the Thruway located in the Town of Bethlehem, Albany County, the Trooper observed a northbound blue Chevrolet pass by at a speed clocked by radar of 54 miles per hour. Trooper Cuprill observed that the driver was not wearing his seat belt. The Trooper pursued and stopped the vehicle about two miles beyond the point of initial observation. Upon pulling off the highway behind the Chevrolet, Cuprill observed defendant sit up from a reclining position in the passenger front seat, apparently also not wearing a seat belt.

Trooper Cuprill asked the driver, codefendant Jones, to exit the Chevrolet with his operator’s license and vehicle registration and accompany him to the rear of the vehicle. Jones produced a nonpicture New York operator’s license issued to a "Thomas Cooper”. He also produced a rental agreement for the Chevrolet naming defendant as lessee. Cuprill informed Jones that he was stopped for a seat belt violation and then asked Jones where he came from and where he was going. Jones replied that he was returning to Buffalo from New York City after dropping off his niece at college, in a one-day round trip. The Trooper instructed Jones to return to his vehicle but retained his license and the rental document.

Trooper Cuprill then instructed defendant to exit from the front passenger seat and come to the rear of the Chevrolet. Defendant produced a valid New York driver’s license in his name. Cuprill observed that defendant appeared to be very nervous and agitated, staring at the Trooper’s sidearm. Asked about the origin and destination of their trip, defendant indicated they were en route from the New York/New Jersey area, had spent a couple of days in New York City and were returning to the Buffalo area. The Trooper told defendant to return to his vehicle, but also retained defendant’s operator’s license. Cuprill went back to the troop car, and ran a license suspension revocation check on the licenses presented by defendant and Jones and on the status of the vehicle, all of which came back negative. He then started to write up two tickets for seat belt violations. Instead of issuing them, however, he decided that he “wanted to go through the vehicle” and radioed for a backup officer in order to perform a possible vehicle search.

Defendant and Jones waited in the Chevrolet without being told the reason for the delay. When a backup Trooper arrived, Trooper Cuprill used his public address system to order Jones to return to the troop car. Cuprill handed Jones the two traffic tickets and asked him whether his car contained weapons or drugs. Jones replied no, but that they could go ahead and look. Cuprill then filled out a State Police Consent to Search form and handed it to Jones, who signed it. The search that followed disclosed a bag under the driver’s seat containing 1/2 of a kilogram of cocaine.

Supreme Court denied defendant’s motion to suppress the cocaine seized by the State Police. It held that the initial stop of the vehicle occupied by defendant was justified by Trooper Cuprill’s observation of the seat belt violation. The court further held that the inconsistencies in defendant’s and Jones’ responses to questions on the origin, length and destination of their trip and defendant’s nervousness during questioning raised a reasonable suspicion of criminality on their part, justifying continued detention. Finally, Supreme Court upheld the validity of Jones’ consent, concluding that Jones had authority to give consent to the search of the vehicle and did so voluntarily. The Appellate Division affirmed (202 AD2d 902), with two Justices dissenting. The case is before us by leave of a Justice of that Court.

We now reverse. The search in this case was the product of an inseparable illegal detention of defendant and Jones. Defendant, as the lessee of the automobile searched, had a possessory interest in, dominion and control over and the right to exclude others from the vehicle. Hence, defendant clearly had a legitimate expectation of privacy with respect to the interior of the vehicle and its contents sufficient to give him standing to challenge the search and seizure (Rakas v Illinois, 439 US 128,149; People v Wesley, 73 NY2d 351, 357).

A traffic stop constitutes a limited seizure of the person of each occupant (People v May, 81 NY2d 725, 727; People v Harrison, 57 NY2d 470, 476). For a traffic stop to pass constitutional muster, the officer’s action in stopping the vehicle must be justified at its inception and the seizure must be reasonably related in scope, including its length, to the circumstances which justified the detention in the first instance (United States v Sharpe, 470 US 675, 682; see also, Florida v Royer, 460 US 491, 500 [plurality opn]). While the stop was justified in the instant case, the length and circumstances of the detention were not. Consequently, the evidence ultimately seized must be suppressed (compare, People v Milaski, 62 NY2d 147).

Trooper Cuprill’s observations of Jones’ seat belt violation justified the initial stop of Jones and defendant in the vehicle. However, once Cuprill’s license and stolen vehicle radio check came back negative and he prepared the traffic tickets for the seat belt violations, the initial justification for seizing and detaining defendant and Jones was exhausted (see, People v Milaski, 62 NY2d, at 156, supra). The Trooper nevertheless retained their licenses, effectively forcing them to remain at the scene while he awaited the appearance of the backup Trooper he had requested. This continued involuntary detention of defendant and Jones and their vehicle constituted a seizure in violation of their constitutional rights, unless circumstances coming to Cuprill’s attention following the initial stop furnished him with reasonable suspicion that they were engaged in criminal activity (People v Milaski, 62 NY2d, at 156, supra; see also, People v May, 81 NY2d 725, 727, supra). Contrary to the holdings of the courts below, defendant’s nervousness and the innocuous discrepancies in his and Jones’ answers to the Trooper’s questions regarding the origin, destination and timing of their trip did not alone, as a matter of law, provide a basis for reasonable suspicion of criminality (People v Milaski, 62 NY2d, at 156, supra).

The illegal detention of defendant and Jones in this case requires suppression of the evidence seized in the search of their vehicle. Trooper Cuprill readily admitted that he delayed issuing the traffic tickets and returning the licenses and rental agreement to defendant and Jones for the specific purpose of effecting a search of the automobile. The consent to search was obtained during or immediately after that extended detention and without any intervening circumstances. Thus, under no rational view of the evidence at the suppression hearing can it be concluded that Jones’ consent was acquired by means sufficiently distinguishable from the taint of illegal detention (see, Florida v Royer, 460 US 491, 507-508, supra; see also, People v Hollman, 79 NY2d 181, 194; People v Gonzalez, 39 NY2d 122, 128; cf., People v Borges, 69 NY2d 1031; United States v Ramos, 42 F3d 1160,1164 [8th Cir]).

Accordingly, the order of the Appellate Division should be reversed, defendant’s motion to suppress granted and the indictment dismissed.

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

Order reversed, etc.

       Jones’ true identity was not discovered until after he and defendant were arrested.


text:
    [650 NE2d 836, 626 NYS2d 989]
    David R. White, Appellant, v Robert Long, Respondent.
    Argued March 22, 1995;
    decided May 4, 1995

      POINTS OF COUNSEL

      Ronald H. Sinzheimer, P. C., Albany (Ronald H. Sinzheimer and Peter J. Molinaro of counsel), for appellant.

      Donohue, Sabo, Varley & Armstrong, P. C., Albany (Kathleen L. Werther of counsel), for respondent.
   OPINION OF THE COURT

Chief Judge Kaye.

Environmental liability is not at the heart of this appeal. Who pays is. In this case, we are asked to determine if a property owner, deemed a pollutant-discharger under the Navigation Law, has a cause of action against a previous owner-discharger for the cost of cleaning up a contaminated site.

The undisputed facts are as follows. From around 1984 to 1987, defendant Long operated a gas station at 274 Delaware Avenue in Albany, which had been the site of a gas station for more than 20 years. In 1987, Midstate Enterprises contracted with Long to buy the property, ultimately assigning that contract of sale to plaintiff White, who intended to establish a Kentucky Fried Chicken franchise there.

The contract of sale conditioned the closing on a clean environmental report. In that connection, plaintiff hired Groundwater Technology to test soil samples at places indicated by defendant, who disclosed the location of six underground storage tanks. Groundwater reported the detection of a low level of aromatic hydrocarbons to the Department of Environmental Conservation, which did not require remediation of the land. Plaintiff then waived the contract conditions and closed on the property. During excavation for the restaurant, plaintiff discovered a seventh underground petroleum storage tank, which had leaked. DEC ordered remediation of the property. Plaintiff removed the tank and cleaned up the land at a cost of more than $100,000.

Plaintiff applied for reimbursement to the New York State Environmental Protection and Spill Compensation Fund. The Fund rejected plaintiffs claim because, under the Navigation Law, plaintiff as owner of the contaminated property is considered a "discharger’’ — absolutely liable for clean-up costs and precluded from recovering from the Fund. Plaintiff then brought a CPLR article 78 petition, which was dismissed by the trial court and affirmed by the Appellate Division (Matter of White v Regan, 171 AD2d 197). This Court denied leave (79 NY2d 754).

Plaintiff next instituted the present action against the prior owner, defendant Long, to recover the cost of the cleanup, alleging strict liability under the Navigation Law as well as common-law claims of negligence and breach of the covenant of quiet enjoyment. Supreme Court dismissed the negligence and breach of covenant claims but denied defendant summary judgment on the Navigation Law claim. The Appellate Division dismissed all of plaintiffs claims. We now reinstate plaintiffs Navigation Law claim but uphold the Appellate Division’s dismissal of the remaining claims before us (see, 84 NY2d 905). There was no evidence of constructive eviction necessary to establish plaintiffs claim for breach of the covenant of quiet enjoyment, and insufficient evidence of defendant’s knowledge of the leaking tank or any statutory or regulatory violation necessary to establish plaintiffs negligence claims.

Our analysis begins with an examination of Navigation Law § 181, where the key provisions read:

"1. Any person who has discharged petroleum shall be strictly liable, without regard to fault, for all cleanup and removal costs and all direct and indirect damages, no matter by whom sustained
* * *
"5. Any claim by any injured person for the costs of cleanup and removal and direct and indirect damages based on the strict liability imposed by this section may be brought directly against the person who has discharged the petroleum, provided, however, that damages recoverable by any injured person in such a direct claim based on the strict liability imposed by this section shall be limited to the damages authorized by this section”.

The statutory scheme includes as well the establishment of the Fund, which can seek, and from which persons who remediate contaminated property can seek, reimbursement for clean-up costs (Navigation Law § 179). This appeal involves only claims between dischargers, not claims by or against the Fund.

The Navigation Law defines "claim” as "any claim of the fund or any claim by an injured person, who is not responsible for the discharge, seeking compensation for cleanup and removal costs incurred or damages sustained as a result of a petroleum discharge” (Navigation Law § 172 [3]). Although the Navigation Law defines "discharge” as "any intentional or unintentional action or omission resulting in the releasing * * * of petroleum into waters of the state or onto lands” (Navigation Law § 172 [8]), it does not specify who can be liable.

While we have yet to pass on the issue, courts have construed Navigation Law § 181 (1) so as to impose liability on the owner of property on which a discharge occurred, whether or not that owner caused or contributed to the discharge (Matter of White v Regan, 171 AD2d, at 199-200). But even if we were to agree that property owners should be deemed "dischargers” for purposes of section 181 (1), and thus themselves strictly liable irrespective of fault — a question not before us on this appeal — that would not necessarily bar their recovery under section 181 (5) against persons who actually caused the discharge.

The Navigation Law provides for a private cause of action without denying standing to a property owner deemed a discharger to sue another discharger in strict liability for clean-up costs. The plain language of section 181 (1) imposes liability on any discharger for clean-up costs "no matter by whom sustained,” and subdivision (5) permits "any injured person” to bring a claim against a discharger for clean-up costs and damages. In fact, subdivision (5) was added by amendment in 1991 specifically to establish a private right of action under the statute in response to an Appellate Division decision (Snyder v Jessie, 164 AD2d 405) which rejected such lawsuits.

In that same year, the Legislature added the definition of "claim” with the limitation that persons "responsible for the discharge” could not bring a claim. Although even faultless owners of contaminated lands have been deemed "dischargers” for purposes of their own section 181 (1) liability, where they have not caused or contributed to (and thus are not "responsible for”) the discharge, they should not be precluded from suing those who have actually caused or contributed to such damage. To preclude reimbursement in that situation would significantly diminish the reach of section 181 (5).

Interpreting the statute to allow reimbursement is, moreover, consistent with the purpose of the Navigation Law, which is to ensure prompt and effective cleanup of environmental pollutants. With the assurance that a cause of action is available against other potentially liable parties, the current owner of contaminated property will have the best incentive to effect cleanup as soon as possible, in order to use the property. Absent such incentive, the owner might neglect the environmental hazard, thereby forcing the State to perform the cleanup and then seek reimbursement. Such a delayed, circuitous manner of accomplishing the desired result is surely not what was intended or enacted by the Legislature.

This case is distinguishable from State of New York v King Serv. (167 AD2d 777). In that action commenced by the State to recover for the Fund, the court properly dismissed claims brought by defendant discharger against a prior owner-dis-charger holding that the primary defendant could not escape its own liability by claiming against other parties. That holding was later misapplied in Busy Bee Food Stores v WCC Tank Lining Technology (202 AD2d 898, lv dismissed 83 NY2d 953), to deny a discharger’s claims against other responsible parties. Permitting a discharger, who has either itself paid for remediation or has been held liable to the Fund, to assert a cause of action against other responsible dischargers does not negate its own liability, or burden the State with additional litigation against other parties for reimbursement.

Defendant’s argument that a party who cannot bring a claim against the Fund should not be able to bring private claims against other responsible parties lacks merit. Indeed, the Legislature amended the definition of "claim” in 1991 to make clear that a party bringing suit against a private party need not first seek recovery from the Fund (Navigation Law § 172 [3], as amended by L 1992, ch 162, § 1). A current owner may be liable for clean-up costs as against the Fund (State of New York v Stewart’s Ice Cream Co., 64 NY2d 83), but that does not preclude the owner’s suit against the party who actually caused the discharge. Section 181 (5) provides sufficient authority for reimbursement against the person who discharged the pollutant. Thus, we conclude that plaintiff has asserted a valid cause of action against defendant under the Navigation Law.

Accordingly, the Appellate Division order should be modified, without costs, by reinstating the cause of action based on Navigation Law § 181, and, as so modified, affirmed.

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

Order modified, without costs, in accordance with the opinion herein, and, as so modified, affirmed.


author: Ciparick, J.

text:
    [650 NE2d 839, 626 NYS2d 992]
    In the Matter of Charles Q., Appellant, v Thomas A. Constantine, as Superintendent of the New York State Police, Respondent.
    Argued March 23, 1995;
    decided May 4, 1995

      POINTS OF COUNSEL

      Caputo, Aulisi and Skoda, Gloversville (Richard T. Aulisi of counsel) and Robert M. Cohen, Ballston Lake, for appellant.

      Dennis C. Vacco, Attorney-General, Albany (Lew A. Millenbach, Victoria A. Graffeo and Peter H. Schiff of counsel), for respondent.
   OPINION OF THE COURT

Ciparick, J.

The question presented is whether respondent’s determination dismissing petitioner from his employment as a State Trooper must be annulled because some of the evidence admitted at the disciplinary hearing was obtained through a court order which erroneously unsealed petitioner’s criminal records from the related criminal proceeding which resulted in his acquittal. We conclude that annulment is not required under the facts of this case.

In March 1991, criminal and disciplinary proceedings were commenced against petitioner, a State Trooper, based on allegations that he had engaged in sex acts with a 13-year-old girl. The parties consented to postpone the disciplinary hearing pending disposition of the criminal charges. A jury acquitted petitioner of all charges on June 30, 1992, and County Court, Fulton County, issued an order sealing petitioner’s criminal record pursuant to CPL 160.50.

Thereafter, the State Police proceeded with the disciplinary hearing. County Court granted the State Police’s application to unseal for use at the disciplinary hearing certain of petitioner’s criminal records pursuant to CPL 160.50 (1) (d). The statute delineates instances where sealed records may be released to specified persons and agencies. The evidence sought consisted of tape recordings of telephone conversations between petitioner and the complainant and between petitioner and the complainant’s foster mother, two written statements of the complainant and one of her foster mother, and the transcript of trial testimony of witnesses expected to testify at the hearing.

Petitioner simultaneously appealed and moved to stay County Court’s unsealing order. The Appellate Division declined to grant a stay. While the appeal was pending, a Hearing Board found petitioner guilty of all charges and recommended dismissal. Respondent Superintendent of State Police accepted the Board’s recommendation and dismissed petitioner.

On appeal, the Appellate Division reversed so much of County Court’s order as granted the application to unseal petitioner’s record (192 AD2d 142). The Court concluded that CPL 160.50 (1) (d) did not authorize County Court to give the State Police access to petitioner’s sealed records and indicated that its determination that County Court erred in unsealing the records would be a proper subject for a CPLR article 78 proceeding challenging petitioner’s dismissal (id., at 145-146).

Petitioner thereupon commenced this proceeding. The Appellate Division confirmed respondent’s determination and dismissed the petition. We now affirm.

Petitioner’s foremost contention on this appeal is that respondent’s determination must be annulled because the Hearing Board considered evidence that had been sealed pursuant to CPL 160.50. Implicit in his argument for annulment is the premise that the unsealed evidence was inadmissible at his hearing. Although County Court should not have granted the application to unseal petitioner’s records, we agree with the Appellate Division that this error did not necessarily render the unsealed evidence inadmissible at petitioner’s disciplinary hearing.

In People v Patterson (78 NY2d 711), we addressed the question of the appropriate remedy for a violation of CPL 160.50. There, the police obtained the defendant’s photograph from his sealed criminal file in an unrelated matter and used it in a photo array which resulted in his identification and prosecution for second degree robbery. We concluded that, despite the statutory violation, suppression of in-court identification testimony was not required (id., at 713). Although CPL 160.50 served important purposes and protected important interests, nothing in its history supported the position that a violation of the statute, without more, required the sanction of suppression (id., at 714-715).

Having concluded that evidence obtained in violation of a CPL 160.50 sealing order need not be suppressed in a criminal proceeding, we discern no basis for excluding from a disciplinary hearing evidence obtained through an erroneous unsealing order. Accordingly, we conclude that the mere reception of erroneously unsealed evidence at petitioner’s disciplinary hearing does not, without more, require annulment of respondent’s determination. In administrative proceedings the burden of proving guilt beyond a reasonable doubt is not applicable and the judicial scope of review is limited to determining whether the agency’s finding of guilt is supported by substantial evidence in the record (see, Matter of Sowa v Looney, 23 NY2d 329, 335 [mere erroneous reception of evidence is insufficient basis for annulment of determination if it is, " 'on the entire record, supported by substantial evidence’ ”]). Respondent’s determination is supported by substantial evidence in the record, including the complainant’s own testimony, and there is no indication that the admission of the erroneously unsealed evidence operated to deprive petitioner of a fair hearing (see, People v Patterson, supra).

Petitioner’s argument that the unsealed evidence was admitted in violation of his constitutional rights is unavailing in light of Patterson, where we concluded that a violation of CPL 160.50 "does not implicate constitutional considerations” (78 NY2d, at 716; see, United States v Jakobetz, 955 F2d 786, 802, cert denied — US —, 113 S Ct 104).

We have considered petitioner’s remaining arguments and conclude that they are unpreserved or without merit.

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

Chief Judge Kaye and Judges Simons, Titone, Bellacosa and Smith concur; Judge Levine taking no part.

Judgment affirmed, with costs.


author: Simons, J.

text:
    [650 NE2d 841, 626 NYS2d 994]
    Herbert Winkelmann et al., Appellants, v Excelsior Insurance Company, Respondent.
    Argued March 29, 1995;
    decided May 9, 1995

      POINTS OF COUNSEL

      Wilkofsky, Friedman, Karel & Cummins, New York City (David B. Karel of counsel), for appellants.

      Fardella & Feldman, Smithtown (Robert Fardella and Leonard B. Feldman of counsel), for respondent.
   OPINION OF THE COURT

Simons, J.

The narrow issue presented is whether an insurer who has paid its insured the full amount due under a fire policy, but less than the insured’s loss, may proceed against the third-party tortfeasor responsible for the loss before the insured has been made whole by the tortfeasor. We conclude that it may and thus affirm the order of the Appellate Division.

Plaintiffs Herbert and Victoria Winkelmann own a building in Verplank, New York, insured by defendant Excelsior Insurance Company. In July of 1990, the building was severely damaged by a fire allegedly caused by the negligence of James Hockins, a worker engaged in repairing its roof. The parties agree that plaintiffs’ damages total $319,359.26, $296,329.26 representing damages to the building and $23,030 representing lost income. After subtracting the deductible, depreciation and reductions for coinsurance, defendant paid plaintiffs $221,882, a sum which included damages for the building and for $13,603 lost income. The payment fully satisfied defendant’s obligation under the policy.

Subsequently, plaintiffs and defendant sought recovery from Hockins and his insurer, Colonial Indemnity Insurance Company. Plaintiffs claimed Hockins owed them $97,477.26 while defendant sought to recoup the $221,882 it had paid plaintiffs under the policy. By a letter dated March 25, 1991, Colonial advised plaintiffs’ representative that it would offer no more than $188,103 in settlement of all claims. According to Colonial, that sum included $178,603 for Excelsior in satisfaction of its subrogation claim and $9,500 for plaintiffs for their uncompensated lost income. Colonial subsequently paid Excelsior $180,000 and, on April 10, 1991, Excelsior released its claims against Hockins and Colonial. Upon receipt of the funds, Excelsior paid plaintiffs their pro rata share of the $250 deductible.

Plaintiffs failed to reach agreement with Colonial, and on May 1, 1991 they commenced legal action against Hockins. The following August they instituted this action against Excelsior for $97,477.26, alleging that Excelsior acted in derogation of their rights by settling its subrogation claim with Colonial before plaintiffs had been made whole. They claim that their ability to obtain payment from Hockins or Colonial —i.e., their bargaining position — was diminished by the fact that Colonial had already paid $180,000 on Excelsior’s claim, thus making it difficult for plaintiffs to settle their claim. They contend that because prejudice to insureds inevitably results in such circumstances, insurers must be precluded as a matter of law from settling with tortfeasors (or their insurers) until the insureds’ claims for outstanding uninsured losses are resolved.

Both parties moved for summary judgment. Supreme Court denied plaintiffs’ motion and granted defendant’s cross motion. The court subsequently dismissed plaintiffs’ separate action against Hockins, concluding that it was barred by the release from Excelsior to Hockins and Colonial. On plaintiffs’ appeal, the Appellate Division affirmed the judgment dismissing the action against Excelsior, noting that "if the prejudice alleged by the plaintiffs does arise, it may be addressed at that time by an appropriate action” (204 AD2d 622, 623). It reversed the judgment in Winkelmann v Hockins (204 AD2d 623), holding that plaintiffs had subrogated their rights to Excelsior only to the extent of Excelsior’s payment; inasmuch as plaintiffs’ loss was greater than the indemnity by Excelsior, they could maintain a claim against Hockins for the difference, notwithstanding Excelsior’s release. We granted plaintiff leave to appeal in Winkelmann v Excelsior. The action against Hockins remains pending.

The short answer to plaintiffs’ claim against Excelsior, as the Appellate Division noted, is that the action is premature. Plaintiffs may yet recover the balance of their losses in the action against Hockins. There is no evidence that Hockins’ policy with Colonial has been exhausted or that his personal assets are insufficient to satisfy any additional liability to plaintiffs. Accordingly, Excelsior has not caused its insureds any damages yet. Insofar as plaintiffs allege that Excelsior’s conduct "forced” them to litigate rather than settle their claim against Hockins, that claim, even if true, does not state a cause of action against Excelsior for impairing plaintiffs’ rights.

Subrogation is the principle by which an insurer, having paid losses of its insured, is placed in the position of its insured so that it may recover from the third party legally responsible for the loss (see, 16 Couch, Insurance 2d § 61:1 [rev ed]; 23 NY Jur 2d, Contribution, Indemnity and Subrogation, §3). The principle has a dual objective. It seeks, first, to prevent the insured from recovering twice for one harm, as it might if it could recover from both the insurer and from a third person who caused the harm, and, second, to require the party who has caused the damage to reimburse the insurer for the payment the insurer has made (16 Couch, op. cit., § 61:18, at 93). The doctrine is liberally applied for the protection of those who are its natural beneficiaries — insurers that have been compelled by contract to pay the loss caused by the negligence of another (Ocean Acc. & Guar. Corp. v Hooker Electrochemical Co., 240 NY 37, 47; see, Federal Ins. Co. v Andersen & Co., 75 NY2d 366, 372; 16 Couch, op. cit., § 61:22). If, however, the sources of recovery ultimately available are inadequate to fully compensate the insured for its losses, then the insurer — who has been paid by the insured to assume the risk of loss — has no right to share in the proceeds of the insured’s recovery from the tortfeasor. Or, to state the rule another way, an insurer has no right of subrogation against its insured when the insured’s actual loss exceeds the amount it has recovered from both the insurer and the wrongdoer (16 Couch, op. cit., § 61:64, at 145-146; see, e.g., St. Paul Fire & Mar. Ins. Co. v Rose Supply Co., 19 NC App 302, 198 SE2d 482, cert denied 284 NC 254, 200 SE2d 655; see generally, Rinaldi, Apportionment of Recovery Between Insured and Insurer in a Subrogation Case, 29 Tort & Ins LJ 803, 807-811 [1994]). The question here is whether these principles preclude an insurer, who has fully satisfied its policy obligations, from pursuing its subrogation claim against the third-party tortfeasor before its insured has done so.

An insurer’s subrogation rights accrue upon payment of the loss (Federal Ins. Co. v Andersen & Co., supra, at 372; see also, Safeguard Ins. Co. v Rosen, 39 AD2d 851, affd without opn 31 NY2d 1054; Ocean Acc. & Guar. Corp. v Hooker Electrochemical Co., supra, at 44; Gibbs v Hawaiian Eugenia Corp., 966 F2d 101, 106). At that point, an insurer who has paid the policy limits possesses the derivative and limited rights of the insured and may proceed directly against the negligent third party to recoup the amount paid. This is so even though the insured’s losses are not fully covered by the proceeds of the policy (Federal Ins. Co. v Andersen & Co., supra, at 374). The claims of the insurer for amounts paid by it and the insured’s claim for uninsured losses are divisible and independent, and "[permitting the insurer to sue * * * as equitable subrogee does not affect the insured’s right to sue for the amount of the loss remaining unreimbursed” (id.).

Nevertheless, plaintiffs contend that insurers’ rights as subrogees, like those of sureties, do not arise until the creditor (here, the insured) has been made whole (see, Hanlon v Union Bank, 247 NY 389; McGrath v Carnegie Trust Co., 221 NY 92). Some insurance cases do apply the suretyship analogy (see, e.g., American Sur. Co. v Gerold, 255 App Div 285), but our recent decision in Federal Ins. Co. v Andersen & Co. (supra) renders plaintiffs’ reliance on suretyship principles misplaced in this case.

In Federal Ins. we noted that the rights of sureties and insurers must be distinguished because the different obligations they assume justify different rights in subrogation (Federal Ins. Co. v Andersen & Co., supra, at 374; see also, 44 Am Jur 2d, Insurance, § 1795, at 786-787). The obligation assumed by a surety runs to the creditor and subrogation may not in any way defeat the creditor’s rights. The surety provides the creditor with a source of collateral or security for the debt of another, and the "creditor may not be required to surrender any part of his collateral till payment has been made in full” (McGrath v Carnegie Trust Co., supra, at 95). Thus, the surety acquires no subrogation rights to pursue the debtor until the creditor is required to release its collateral, i.e., when the creditor is made whole. Any rule permitting the surety to recover its losses from the defaulting debtor pro tanto would interfere with the creditor’s right to be made whole and would vitiate the value of the collateral of the surety.

By contrast, the insurer’s obligation runs to its insured, and then only to the extent of the policy limits. The insured has chosen to purchase a limited amount of insurance, as distinguished from requiring a guaranty of credit, and retains the right to pursue recovery for its outstanding losses. Moreover, the debtor in the insurer/insured dispute is the negligent third party whose ability to meet its obligation has not yet been tested, unlike the defaulting debtor in the surety/creditor dispute. Thus, an insurer’s action based on partial subrogation through its insured will not necessarily interfere with the insured’s right to be made whole by the tortfeasor and, unlike the surety, the insurer need not delay its subrogation claim against the third party to avoid impairing the insured’s rights.

Plaintiffs also rely on several out-of-State cases holding that the insurer’s rights as equitable subrogee do not arise until the insured has been made whole (see, e.g., Florida Farm Bur. Ins. Co. v Martin, 377 So 2d 827 [Fla]; St. Paul Fire & Mar. Ins. Co. v Rose Supply Co., 19 NC App 302, 198 SE2d 482, cert denied 284 NC 254, 200 SE2d 655, supra; Wimberly v American Cas. Co., 584 SW2d 200 [Tenn]; Washtenaw Mut. Fire Ins. Co. v Budd, 208 Mich 483, 175 NW 231). Those decisions all deal with the narrow situation (recognized, ante, at 581), in which the insurer seeks equitable subrogation against its own insured and the proceeds of insurance plus the insured’s recovery from the negligent third party fall short of making the insured whole. The insurer cannot share in proceeds the insured has obtained from a third party in addition to the insurance indemnity when the insured has not been made whole. Only if the insured’s recovery exceeds its loss can the insurer share in the excess proceeds (see also, 16 Couch, op. cit, § 61:64, at 145-146; Rinaldi, Apportionment of Recovery Between Insured and Insurer in a Subrogation Case, 29 Tort & Ins LJ 803, 807-811). The rule is based upon the nature of the relationship between the insurer and the insured — if the loss of one of the two must go unsatisfied, it should be the insurer who has been paid to assume the risk of loss (see, St. Paul Fire & Mar. Ins. Co. v Rose Supply Co., 19 NC App, at 304, 198 SE2d, at 484, supra; Wimberly v American Cos. Co., 584 SW2d, at 203, supra). The cited decisions do not stand for the propositian, nor has our attention been called to any case which does, that the equitable subrogee must delay seeking recovery from the tortfeasor until the insured has exhausted its efforts to collect from the third-party tortfeasor (cf., Garrity v Rural Mut. Ins. Co., 77 Wis 2d 537, 253 NW2d 512).

Finally, plaintiffs contend that as a matter of equity and public policy, the insurer’s right of subrogation should not arise until the insured has been made whole because the inherently unequal bargaining positions of the insurer and insured in negotiations with the third party’s insurer naturally prejudice the insured. We are not persuaded that such inequality exists, or that it requires a different result in this case even if it does. The tortfeasor’s insurer must always proceed with full awareness of its duty to protect its insured from claims regardless of who asserts them. Moreover, in a similar context, we noted the harm that may be suffered by an insurer if its action against the tortfeasor in equitable subrogation is delayed (see, Krause v American Guar. & Liab. Ins. Co., 22 NY2d 147, 155). If the insurer is required to forego its rights while the insured delays in asserting its claim against the third party, as plaintiffs did here, the delay may compel the insurer to litigate a stale claim, or worse, may result in its action being time barred (id.).

The reasons for plaintiffs’ failure to resolve their claims with Hockins’ insurer in this case are not clear but plaintiffs have always had, and now have, a remedy to failed negotiations; they may pursue their claims against Hockins in court, obtain a determination of the amount recoverable and a judgment compelling its payment. Plaintiffs were entitled to postpone their action for damages and attempt to resolve the matter by negotiation if they chose, but Excelsior had no legal obligation to hold its claim against Hockins in abeyance until plaintiffs resolved theirs, nor be answerable for plaintiffs’ remaining loss if plaintiffs were unable to settle with Hockins’ insurer. It will be time enough to determine plaintiffs’ rights vis-á-vis defendant’s when and if it is determined that the third-party tortfeasor is unable to pay the remainder of their loss.

We have reviewed plaintiffs’ remaining claims and find them without merit.

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.

       Our analysis of plaintiffs’ contentions is founded on the principles of equitable, not contractual, subrogation because plaintiffs’ claims rest on equitable principles, not on rights or limitations arising from a release or assignment given Excelsior by plaintiffs. Indeed, the record submitted to this Court does not contain a copy of the insurance contract or any release executed by plaintiffs upon defendant’s payment of its obligation under the policy.


author: Cipabick, J.

text:
    [650 NE2d 1293, 627 NYS2d 292]
    The People of the State of New York, Respondent, v Noel Rodriguez, Appellant.
    Argued March 30, 1995;
    decided May 9, 1995

      POINTS OF COUNSEL

      Sandra Engle, New York City, and Philip L. Weinstein for appellant.

      Robert M. Morgenthau, District Attorney of New York County, New York City (Gina M. Mignola, Phyllis A. Monroe and Joseph J. Dawson of counsel), for respondent.
   OPINION OF THE COURT

Cipabick, J.

On this appeal, we must decide whether defendant’s presence was required at a side-bar conference held outside his earshot to determine whether his direct testimony had "opened the door” to cross-examination about the underlying facts of a prior conviction. Such questioning had been precluded pursuant to a pretrial Sandoval ruling. We conclude that the side-bar conference was not a material stage of the trial requiring defendant’s presence since the only question discussed was a legal one. We thus affirm.

Defendant was arrested and charged with criminal sale of a controlled substance in the third degree after selling two vials of "crack” to an undercover police officer. Police laboratory tests revealed that the contents of one of the vials tested positive for cocaine; the other vial tested negative for the presence of any controlled substance. At the conclusion of a Sandoval hearing, wherein the defendant was present, the court ruled that the People could question him concerning his 1989 felony conviction for attempted criminal sale of a controlled substance in the third degree (1989 conviction), but precluded questioning about the underlying facts of the conviction.

At trial, defendant testified in his own behalf, describing himself as a "hustler” and "scammer” who sold "dummies” or fake drugs to tourists or other individuals unlikely "to come back looking for their money.” Defendant testified that he would make "dummies” by crushing peppermint Lifesavers in his mouth and placing the pieces in empty vials he picked up from the street. When asked why he sold "dummies”, defendant responded: "Well, like I stated before, I have a prior felony, okay, selling drugs or another felony would mean some time in jail, just to get high.”

At the conclusion of defendant’s direct testimony, the prosecutor asked to approach the Bench. During the side-bar discussion that took place on the record, the prosecutor sought permission to cross-examine defendant about the underlying facts of the 1989 conviction, which, as here, involved the sale of one fake and one authentic vial of cocaine to an undercover officer. The prosecutor argued that defendant had "opened the door” to being questioned on the facts of the prior conviction by expressly denying knowledge that what he had sold was indeed cocaine.

The court granted the People’s application to inquire into the facts of the 1989 conviction, noting that defendant’s testimony was that he lacked knowledge in this case because it was his practice to put candy, not real cocaine, in the vials he sold.

On appeal, the Appellate Division reduced defendant’s sentence, but otherwise affirmed the judgment of conviction. The Court rejected defendant’s argument that he was denied the right to be present at a material stage of the trial when the court conducted the side-bar conference in his absence, or rather out of earshot as this was done quietly at the Bench while the defendant was on the witness stand and the jury in the courtroom. The Court held that "defendant’s presence was not mandated at a sidebar conference at which the attorneys merely argued, and the court determined, the legal issue of whether defendant’s testimony had 'opened the door’ to cross-examination about a prior crime” (203 AD2d 92).

Defendant argues that he was excluded when the People made an application, pursuant to People v Molineux (168 NY 264), to question him about the facts of a prior conviction and that the conference that ensued was essentially a hearing pursuant to People v Ventimiglia (52 NY2d 350) at which his presence was required. Defendant’s argument lacks merit, as the record indicates that the only issue discussed during the sidebar was the legal question of whether defendant had, by virtue of his direct testimony, "opened the door” to cross-examination about the facts of the 1989 conviction which had been precluded at the Sandoval hearing and involved the sale of real and fake cocaine. Defendant had been present at the Sandoval hearing where the facts underlying the prior conviction had been fully discussed.

A defendant has a statutory right to be present during the trial of his indictment, including the impanelling of the jury, the introduction of evidence, the summations of counsel, and the court’s charge to the jury (CPL 260.20; see, People v Spotford, 85 NY2d 593 [decided today]; People v Dokes, 79 NY2d 656, 659). Apart from this statutory right to be present at core segments of the trial, considerations of due process require a defendant’s presence at an ancillary proceeding whenever it would have " 'a relation, reasonably substantial, to the fullness of his opportunity to defend against the charge’ ” (Dokes, supra, at 659 [quoting Snyder v Massachusetts, 291 US 97, 105-106]; see, Spotford, supra [Ventimiglia hearing]; Dokes, supra [Sandoval hearing]; People v Sloan, 79 NY2d 386 [voir dire of prospective jurors]; People v Turaine, 78 NY2d 871 [hearing on admissibility of defendant’s alleged threats against a witness]; People v Anderson, 16 NY2d 282 [pretrial motion to suppress]; see also, People v Morales, 80 NY2d 450, 456 ["where defendant has something valuable to contribute, presence is generally required”]; compare, People v Williams, 85 NY2d 945).

We have observed that an important factor in determining whether a defendant has a right to be present is the extent to which the particular proceeding "involved factual matters about which defendant might have peculiar knowledge that would be useful in advancing the defendant’s or countering the People’s position” (Dokes, supra, at 660). However, a defendant’s presence is not required where the proceeding at issue involves only questions of law or procedure (see, Williams, supra [hearing on motion to withdraw prior motion to controvert findings of competency]; Morales, supra, at 457 [hearing on competency of child-witness which did not involve testimony or issues about which defendant had special knowledge]; People v Velasco, 77 NY2d 469, 472 [precharge conference involving motions to dismiss, stipulation concerning the contents of a medical record, scheduling of the rest of the trial, and court’s concluding instructions to jury]; People v Rodriguez, 76 NY2d 918, 921 [colloquy regarding sufficiency of a readback]).

Here, the brief side-bar conference involved a purely legal discussion and, unlike the Ventimiglia hearing in Spotford (supra) and the Sandoval hearing in Dokes (supra), it neither implicated defendant’s peculiar factual knowledge nor otherwise presented the potential for his meaningful participation. Since the side-bar discussion did not stray beyond the legal issue of whether defendant "opened the door”, defendant’s presence at the side-bar conference would have been "useless” (Snyder, supra, at 106; see, Morales, supra, at 455).

Defendant’s contention that he did not "open the door” to the introduction of the 1989 conviction is unavailing. Defendant attempted to convince the jury that the presence of cocaine in one of the two vials he sold to the undercover officer was purely fortuitous or occurred without his knowledge; while he may have been a "hustler” and "con-artist” who passed off candy as crack, he was not a crack dealer.

Where, as here, a defendant testifies to facts that are in conflict with evidence precluded by a Sandoval ruling, he or she "opens the door” on the issue in question, and "is properly subject to impeachment by the prosecution’s use of the otherwise precluded evidence” (People v Fardan, 82 NY2d 638, 646). Defendant’s testimony that it was his practice to sell only fake crack was at odds with the facts underlying his prior conviction, which involved the sale of authentic crack. Once defendant testified that he could not have sold vials containing real crack here, the jury was entitled to know of the existence of evidence which refuted or cast doubt on that testimony (id.). Finally, the court gave proper limiting instructions in this case, cautioning the jury that the evidence of prior convictions could not provide a basis for evaluating defendant’s guilt (id., at 646-647).

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

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

Order affirmed.


text:
    [650 NE2d 1296, 627 NYS2d 295]
    The People of the State of New York, Appellant, v Curtis Spotford, Respondent.
    Argued March 30, 1995;
    decided May 9, 1995

      POINTS OF COUNSEL

      Howard R. Relin, District Attorney of Monroe County, Rochester (Wendy Evans Lehmann of counsel), for appellant.

      Edward J. Nowak, Public Defender of Monroe County, Rochester (Stephen J. Bird of counsel), for respondent.
   OPINION OF THE COURT

Levine, J.

Defendant was charged with two counts of assault in the first degree as a result of an attack with a baseball bat on his girlfriend and her mother. Prior to trial, the People filed a notice of intent to use four prior bad acts of the defendant as part of their direct case to prove his commission of the offenses charged. The defense moved to preclude such evidence and in the presence of defendant and his attorney, the court set a Ventimiglia (People v Ventimiglia, 52 NY2d 350) hearing date to resolve the issues. At that time, the court granted the request of defendant’s attorney to waive defendant’s appearance at the hearing. The hearing was postponed several times, but it eventually took place in defendant’s absence. Following the hearing, the court ruled that the People could not present evidence of defendant’s uncharged bad acts in its direct case, but could offer them in rebuttal on the issues of mistake, accident, justification or intent.

At the conclusion of a bench trial, defendant was convicted of assault in the second degree. He appealed the conviction, arguing that he was entitled to a new trial because he was not present at the Ventimiglia hearing. The Appellate Division agreed and reversed the conviction (196 AD2d 179). Although we agree that defendant had a right to be present at the hearing, we conclude that he waived that right and accordingly reverse the order of the Appellate Division.

Criminal defendants have a statutory and constitutional right to be present at all material stages of trial (see, CPL 260.20; People v Turaine, 78 NY2d 871; People v Velasco, 77 NY2d 469; People v Mullen, 44 NY2d 1). In addition, defendants have the right to be present at ancillary proceedings when they may have "something valuable to contribute” (People v Morales, 80 NY2d 450, 456) and when their presence would have a "substantial effect on their ability to defend against the charges” (People v Sloan, 79 NY2d 386, 392). A key factor in determining whether a defendant has a right to be present during a particular proceeding is "whether the proceeding involved factual matters about which defendant might have peculiar knowledge that would be useful in advancing the defendant’s or countering the People’s position. If so * * * then the defendant has a right to be present” (People v Dokes, 79 NY2d 656, 660).

For example, in Pokes we held that Sandoval hearings are such proceedings (id.; see also, People v Sloan, 79 NY2d 386, supra [voir dire of prospective jurors]; People v Turaine, 78 NY2d 871, supra [hearing on admissibility of defendant’s alleged threats against a witness]; People v Anderson, 16 NY2d 282 [hearing on a motion to suppress]). The purpose of Sandoval hearings, we reasoned, "is to determine the extent to which the defendant, if he testifies, will be subject to impeachment by cross-examination about prior bad acts” (id., 79 NY2d, at 660). Thus, the court must consider the defendant’s criminal history to determine if the probative value of the evidence of past bad acts outweighs its prejudicial impact. Of course, this determination involves consideration of numerous factors (see, id., at 661). The potential for defendant’s meaningful participation during determination on the merits of the Sandoval motion becomes apparent when considering these factors: "the defendant is in the best position to point out errors in the [criminal record], to controvert assertions by the prosecutor with respect to uncharged acts and to provide counsel with details about the underlying facts of both charged and uncharged acts” (id.).

Just as is the case with respect to Sandoval hearings, the prospective use of prior bad acts of the defendant at his or her trial on new charges is also at issue in hearings held pursuant to People v Ventimiglia (52 NY2d 350, supra). The purpose of the Ventimiglia hearing is to determine whether alleged prior bad acts of the defendant can be used by the prosecution as direct evidence of defendant’s guilt. The court is charged with weighing the probative value of the uncharged crimes against their potential for prejudice (id., at 359-360). As part of this discretionary balancing process, the court must consider " 'the degree to which the evidence persuades the trier of fact that the particular fact exists and the [logical] distance of the particular fact from the ultimate issues of the case’ ” (id., at 360).

Thus, the possibility that a defendant’s participation at the hearing would be meaningful is apparent. The hearing in this case involved four uncharged crimes dating as far back as 1981. Defendant was in the best position to deny or controvert the allegations with respect to the uncharged crimes, to point out errors in the prosecutor’s account, and to provide counsel with the details of the underlying facts (see, People v Dokes, 79 NY2d, at 661, supra). "In short, the defendant’s presence [would have] help[ed] to ensure that the court’s determination [was] not * * * predicated on the prosecutor’s 'unrebutted view of the facts’ (People v Ortega, 78 NY2d 1101, 1103)” (People v Dokes, supra, at 661). We, therefore, conclude that defendant indeed had a right to be present at the Ventimiglia hearing.

In this case, however, we conclude that defendant waived his right to be present. When the court initially set a date for the Ventimiglia hearing, defendant requested in open court that his presence at the hearing be waived. The request, made by his attorney in defendant’s presence, was clearly voluntary, and clearly at his request — the attorney explained to the court that the defendant had been "calling his boss all morning.” Uncontestably, defendant was then aware that the hearing would take place without him if he failed to appear, and that he had the right to be present at the hearing. Otherwise, there would have been no purpose for seeking permission to be absent from the hearing. Moreover, there is evidence in the record to support an inference that defendant did have knowledge of what would be at issue at the Ventimiglia hearing: the prosecutor and Judge discussed specific evidence of bad acts, admissibility of which would be in question at the hearing, in defendant’s presence, just after he requested his waiver. This express waiver on its face was not limited merely to the date initially fixed for the hearing.

The foregoing amply demonstrates that defendant knowingly, intelligently and voluntarily waived his right to be present at the Ventimiglia hearing. The trial court granted defendant’s initial waiver request and was not required to engage defendant in any additional on-the-record discussion (see, People v Moissett, 76 NY2d 909, 910; People v Harris, 61 NY2d 9). " '[TJhere is no requirement that the Judge conduct a pro forma inquisition in each case on the off-chance that a defendant who is adequately represented by counsel * * * may nevertheless not know what he is doing.’ (People v Francis, 38 NY2d 150, 154.) Overall, a sound discretion, exercised in cases on an individual basis is preferable to a ritualistic uniform procedure” (People v Harris, supra, at 16).

Defendant’s actions following the express waiver completely remove any possible doubt that it was intended to cover any adjourned date for the Ventimiglia hearing. After the Ventimiglia hearing was held, but before the trial began, defendant was given an opportunity to raise any objection to the occurrence of the hearing in his absence. Specifically, the prosecutor asked defendant whether he was "aware he had a right to be present at [the Ventimiglia] hearing and whether or not he [was] going to contest that.” Defense counsel requested that defendant not be required to answer at that time because she did not have her "information”. The Judge told defendant and his attorney to discuss defendant’s absence from the hearing, and if they had any objections, to bring them to his attention. All this took place before trial, when there was time to reopen the Ventimiglia hearing. However, neither defendant nor his counsel ever raised an objection to defendant’s absence from the hearing, although invited to do so. Instead they proceeded to trial.

The Appellate Division erroneously disregarded the express waiver and defendant’s posthearing exchange with the trial court, both of which established that defendant had willfully absented himself from the hearing.

Even if the express waiver of presence were inadequate, a valid implied waiver has been established from this record. A valid waiver of presence at trial will be implied if the record reflects that the defendant is "aware that trial will proceed even though he or she fails to appear” (People v Parker, 57 NY2d 136, 141; see also, People v Epps, 37 NY2d 343, cert denied 423 US 999). This record clearly reflects that defendant knew that the Ventimiglia hearing had been scheduled and would proceed in his absence, having asked that his presence be excused in order to avoid conflict with the demands of his employment.

Moreover, defendant’s failure to raise any objection to the occurrence of the proceeding in his absence when the court instructed the defendant to raise any such objections is also evidence of implied waiver. In People v Connor (63 NY2d 11), we deemed defendant to have knowingly and intelligently waived his right to be prosecuted on an information based in part on his failure "to bring [any oversight] to the attention of the trial court at a time when the oversight could readily and promptly have been remedied” (id., at 16). Similarly, defendant here proceeded to trial without making the objection the court expressly invited, thereby precluding the court from reopening the Ventimiglia hearing or taking any other then-available corrective measures. Defendant’s failure to object must, in this context, be interpreted as an acquiescence in the prior proceedings and his absence from them.

In sum, the totality of the record establishes that defendant knowingly, voluntarily and intelligently waived presence at the Ventimiglia hearing.

Accordingly, the order of the Appellate Division should be reversed and the case remitted to the Appellate Division for consideration of the facts (CPL 470.25 [2] [d]; 470.40 [2] [b]) and issues raised but not determined on the appeal to that Court.

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

Order reversed and case remitted to the Appellate Division, Fourth Department, for further proceedings in accordance with the opinion herein.


text:
    [650 NE2d 1299, 627 NYS2d 298]
    Waldbaum, Inc., Respondent, v Fifth Avenue of Long Island Realty Associates, Appellant.
    Argued March 28, 1995;
    decided May 9, 1995

      POINTS OF COUNSEL

      Carb, Luria, Glassner, Cook & Kufeld, New York City (Stephen J. Fallis, Seymour Shainswit and James E. Schwartz of counsel), for appellant.

      Hertzog, Calamari & Gleason, New York City (William Simon and Lina M. Viviano of counsel), for respondent.
   OPINION OF THE COURT

Levine, J.

Plaintiff operates a chain of supermarkets in the Metropolitan New York City area. Since 1959, it has leased space for one of its markets at defendant’s shopping center in Manhasset, Long Island. In 1978 the parties entered into a restatement of lease for an initial term of 15 years, ending in March 1994, with two five-year renewal options. Written notice of the exercise of the option to renew had to be given under the lease at least one year before the expiration of the then existing term.

The renewal option provision of the lease specified that plaintiff would not be entitled to renew "if, at the time of the exercise of such option or the commencement date of the option term, Tenant shall be in default under this lease”.

In October 1991, defendant served plaintiff with a notice of default which gave plaintiff 30 days to cure breaches of provisions of the lease requiring the tenant to comply with all applicable laws and regulations and to "maintain and operate the demised premises as a first-class facility”. The notice cited various violations identified in inspections by the State Department of Agriculture and Markets and the general pronounced deterioration in the market and its fixtures and equipment at the premises. The default article of the lease permitted defendant to cancel the lease when there occurred "an event of default”, i.e., a failure to cure any nonperformance of the tenant’s obligations (other than payment of rent) within 30 days of written notice of the breach. The lease provided for an enlargement of the cure period, however, "if the failure cannot be cured within thirty (30) days by the exercise of reasonable diligence and if Tenant commences promptly to cure the failure, [the cure period] shall be extended as long as Tenant diligently continues its efforts to cure such failure”.

In less than 30 days, plaintiff responded to the notice of default by bringing this action, in which it applied for temporary and permanent "Yellowstone” injunctions (see, First Natl. Stores v Yellowstone Shopping Ctr., 21 NY2d 630) to toll the cure period. Supreme Court issued a temporary restraining order and in June 1992 granted a preliminary injunction extending the cure period for 90 days. The court also appointed a Referee to determine whether plaintiff was in breach of the provisions of the lease and, if so, to supervise and approve the completion of plaintiff’s efforts to cure its nonperformance. The Referee inspected the premises, reviewed the various inspection reports and issued a list of corrective actions to be taken immediately by plaintiff. The parties then stipulated to extend the injunction tolling the time to cure for several additional periods while they negotiated on the scope and extent of the renovations and improvements that would be necessary to bring plaintiff into compliance with its obligation to maintain the premises as a "first-class facility”. Each party submitted renovation plans.

The Referee rendered several interim reports on the parties’ negotiations and plaintiff’s remediation efforts. The parties’ negotiations reached an impasse, however, and, in January 1993 the Referee rendered his final report to Supreme Court. The report found that plaintiff had indeed failed to perform its obligations under the lease. Regarding the cure of the breach, the Referee essentially approved plaintiff’s remodelling plans as being adequate, if implemented, to restore the premises to a first-class facility in compliance with plaintiff’s obligation under the lease. The Referee recommended that the Yellowstone injunction be extended for six months to enable plaintiff to complete the renovations and thereby effect that cure. The Referee also recommended that plaintiff’s renewal option be extended to 30 days after the completion of its cure.

By decision and order of May 14, 1993, Supreme Court confirmed the Referee’s report, including adoption of the recommendation to extend plaintiff’s option to renew until after its nonperformance had been cured. Defendant and plaintiff each cross-appealed from that order. While the appeal was pending at the Appellate Division, plaintiff served a written notice dated April 27, 1993 of the exercise of its first option to renew, in advance of the May 5, 1993 deadline agreed to by the parties.

Meanwhile, defendant moved for reargument of Supreme Court’s May 14 decision insofar as it granted plaintiff an extension of its right to renew until completion of the cure of the nonperformance. In October 1993, Supreme Court granted reargument and then modified its prior decision by directing an evidentiary hearing to determine whether (1) plaintiff had diligently commenced and pursued its cure efforts; and (2) whether a cure had been accomplished within the fixed six-month period. In its interpretation of the lease, Supreme Court concluded that diligent efforts in effecting a cure and a completed cure were conditions precedent to a valid exercise of plaintiff’s option to renew the lease.

Before the evidentiary hearing directed by Supreme Court in its order upon reargument could be completed, however, the Appellate Division modified Supreme Court’s May 14, 1993 order (200 AD2d 664), ruling in relevant part that "the [Yellowstone] injunction also tolled the cure period applicable to the renewal option clause of the lease” (id., at 665). Since the Appellate Division’s decision effectively eliminated the requirement of plaintiff’s diligent efforts to cure for a valid exercise of the option to renew, Supreme Court limited the evidentiary hearing to the issue of whether plaintiff had effected a cure of its breach of the lease within the six-month period fixed by the Referee. At the conclusion of that hearing, the court rendered a decision finding that, after an expenditure of $3.5 million, plaintiff had achieved a timely cure in accordance with the Referee’s report. By leave of this Court, defendant appeals from the judgment granted on the decision and the intermediate order of the Appellate Division.

We agree with defendant’s position that, it having been established and found by the Referee that plaintiff had in fact been in breach of its obligations under the lease, the Appellate Division erred in concluding that the continuation of a Yellowstone injunction to toll the cure period automatically also extended plaintiff’s option to renew until the cure was completed. The Yellowstone injunction only served to forestall defendant from prematurely cancelling the lease during its initial term, in order to afford an opportunity for plaintiff to obtain a judicial determination of its breach and what would be required to cure it, and bring plaintiff in compliance with the terms of the lease. The injunction could not, in and of itself, relieve plaintiff of the necessity of complying with the condition precedent to renewal set forth in the lease, that plaintiff not be in default (see, Jefpaul Garage Corp. v Presbyterian Hosp., 61 NY2d 442, 446, 448).

It does not follow as defendant urges, however, that plaintiff lost its right to renew the lease because a complete cure of the nonperformance of the obligation to maintain the premises as a first-class facility had not been accomplished at the precise time plaintiff exercised its renewal option. Indisputably, that breach was not curable within 30 days; therefore, under the lease, plaintiff was permitted as long a period to cure as was necessary, provided it had exercised reasonable diligence in commencing and continuing its efforts to cure. As previously noted, a breach of one of the tenant’s obligations under the lease is not ipso facto a default under the lease. By definition, an event of default does not occur under the lease until the tenant has failed to effect a cure of the nonperformance of the obligation within the appropriate cure period after notice. Thus, if plaintiff had complied with the cure requirements of the lease by exercising diligence in commencing, continuing and then successfully completing the restoration necessary to fulfill the obligation to maintain a first-class facility, no event of default occurred. Such timely compliance by plaintiff with the cure provision would, therefore, "enabl[e] it to exercise its renewal option” (Jefpaul Garage Corp. v Presbyterian Hosp., 61 NY2d, at 446, supra). This was precisely how Supreme Court read the lease in reconciling the default/ cure provision and the provision requiring that plaintiff not be in default as a condition precedent to renewal.

Unquestionably, plaintiff relied in good faith upon the foregoing interpretation in attempting to cure its nonperformance by expending $3.5 million in renovations and improvements to the premises, within one year of the expiration of the initial 15-year term of the lease. Those expenditures would be for-felted were the terms of the renewal option in the lease construed, as defendant urges, to require that plaintiffs cure of its breach had to have been completed when plaintiff exercised that option. Defendant was fully apprised of plaintiff’s intention to renew the lease and has not even contended that it changed its position, to seek another tenant or lease the premises to another, in reliance on plaintiffs failure to have completely cured its nonperformance when it gave notice of renewal.

It is also noteworthy that both parties stipulated to the extension of the Yellowstone injunction while they negotiated the scope and extent of the renovations and improvements necessary. At no point during these negotiations did defendant put plaintiff on notice that it intended to insist on completion of plaintiffs cure by the deadline for exercise of the renewal option as a condition precedent to a valid renewal. Under all of the foregoing circumstances, our case law permits the application of the equity power of the court to avoid the forfeiture of plaintiff’s valuable improvements as well as of the goodwill it built up at the location of the leased premises (see, J.N.A Realty Corp. v Cross Bay Chelsea, 42 NY2d 392; Sy Jack Realty Co. v Pergament Syosset Corp., 27 NY2d 449; Jones v Gianferante, 305 NY 135). Moreover, avoiding such a forfeiture would not otherwise prejudice defendant, who was made completely whole through plaintiff’s cure by restoring the premises to the condition of a first-class facility (see, Giles v Austin, 62 NY 486, 493).

Nonetheless, plaintiffs entitlement to a valid exercise of the renewal option here remains contingent upon whether it was in substantial compliance with the cure/default provisions of the lease, that is, its reasonable diligence in undertaking and completing the restoration of the leased premises as a first-class facility (see, Vanguard Diversified v Review Co., 35 AD2d 102, 106). As previously discussed, that issue was left unresolved at the evidentiary hearing in Supreme Court on cure, in reliance on the Appellate Division’s holding that the time for exercise of plaintiffs renewal option was automatically extended by and for the period of the Yellowstone injunction. Therefore, the judgment and the order of the Appellate Division should be modified, by remitting the matter to Supreme Court for an evidentiary hearing as to whether plaintiff substantially complied with the cure/default provision of the lease and exercised reasonable diligence in its efforts to cure its failure in maintaining and operating a first-class facility at the leasehold premises. If so, plaintiff is entitled to a declaration that it had validly executed its option to renew the lease. Conversely, a determination of this issue in defendant’s favor would result in its entitlement to possession of the leasehold premises.

Accordingly, the judgment appealed from and order of the Appellate Division brought up for review should be modified, without costs, by remitting the matter to Supreme Court for further proceedings in accordance with this opinion, and as so modified, affirmed.

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

Judgment appealed from and order of the Appellate Division brought up for review modified, without costs, by remitting the case to Supreme Court, Nassau County, for further proceedings in accordance with the opinion herein and, as so modified, affirmed.

       The parties later agreed to extend the deadline for exercising the first renewal option to May 5,1993.