author: Smith, J.

text:
    In the Matter of Industrial Indemnity Company et al., Appellants, v Wendy E. Cooper, as Acting Superintendent of Insurance of the State of New York, et al., Respondents.
    Argued February 10, 1993;
    decided March 30, 1993

      POINTS OF COUNSEL

      Everett, Johnson & Breckinridge, New York City (James H. Kenworthy, John S. Breckinridge, Jr., and Laura C. Walton of counsel), for appellants.
    I. The literal language of Insurance Law § 1112 precludes acceptance of the limitation applied by respondents and approved by the courts below. II. Application of an implied limitation on the credits allowed against the retaliatory tax defeats the purpose of the statutory scheme of which Insurance Law § 1112 is a part. (Western & S. Life Ins. Co. v Board of Equalization, 451 US 648; Metropolitan Life Ins. Co. v Ward, 470 US 869.) III. The limitation added "by implication” to Insurance Law § 1112 conflicts with a prior decision of this Court. (John Hancock Mut. Life Ins. Co. v Pink, 276 NY 421.) IV. The commercial rent tax is imposed for the privilege of doing business. (John Hancock Mut. Life Ins. Co. v Pink, 276 NY 421.)

      Robert Abrams, Attorney-General, New York City (Marcie S. Mintz and Jerry Boone of counsel), for respondents.
    The Court below’s order, upholding respondents’ conclusion that section 1112 of the Insurance Law does not require that a credit be granted for amounts paid for commercial rent tax, should be affirmed. (Matter of Medical Malpractice Ins. Assn. v Superintendent of Ins. of State of N. Y., 72 NY2d 753; Western & S. Life Ins. Co. v Board of Equalization, 451 US 648.)
   OPINION OF THE COURT

Smith, J.

The issue presented by this appeal is whether a foreign insurer doing business in the State of New York may lawfully claim amounts paid pursuant to the New York City commercial rent or occupancy tax (hereinafter "commercial rent tax”) (Administrative Code of City of NY § 11-701 et seq.) as a credit toward the retaliatory tax imposed by Insurance Law § 1112. Resolution of this issue requires us to determine whether the commercial rent tax falls within the purview of Insurance Law § 1112 as a tax "for the privilege of doing business.” For the reasons set forth below, we conclude that the interpretation of this section by the Superintendent of Insurance as limiting credits in a retaliatory tax computation to taxes paid specifically for the purpose of doing an insurance business is reasonable and that the commercial rent tax at issue is not such a tax.

Petitioners are foreign insurance companies subject to the retaliatory provisions of Insurance Law § 1112. At various times during the tax periods in question, each conducted business from leased premises in New York City. Petitioners paid the commercial rent tax and sought a credit for those payments against the retaliatory tax imposed under the Insurance Law. Respondents denied the credit, concluding (1) that the commercial rent tax "is not a tax for the privilege of doing business”; (2) that section 1112 "by implication require[s] that in order for there to be a credit in the retaliatory tax computation, the tax imposed must be specifically imposed on an insurer for the purpose of doing an insurance business”; and (3) that "[njothing in section 11-701 of the New York City Administrative Code refers to insurers or the business of insurance” (Findings of Fact, Conclusion and Decision, dated Oct. 30, 1989 [emphasis supplied]).

Petitioners commenced this CPLR article 78 proceeding to annul respondents’ determination, contending that the commercial rent tax was for the privilege of doing business and, therefore, within the purview of section 1112. Supreme Court held that respondents’ statutory interpretation was reasonable and, accordingly, dismissed the petition. The Appellate Division affirmed on that ground and noted that it was "persuaded” that this commercial rent tax was not "imposed 'for the privilege of doing business’ ” within the meaning of Insurance Law § 1112 (182 AD2d 526). Leave to appeal was granted by order of this Court (80 NY2d 755).

Insurance Law § 1112 (a) (1) authorizes the retaliatory taxation of foreign insurers doing business in this State if their domiciliary State imposes onerous taxes, deposits, fees, etc., upon New York State insurers doing business there. The purely retaliatory purpose of section 1112 (a) (1) is made clear by subdivision (d) which exempts foreign insurers from retaliatory taxes so long as there is no similar taxation of New York insurers in the other State.

The constitutionality of the retaliatory tax was established in People v Fire Assn. (92 NY 311, affd sub nom. Philadelphia Fire Assn. v New York, 119 US 110). In Western & S. Life Ins. Co. v Board of Equalization (451 US 648), the United States Supreme Court upheld the constitutionality of the California retaliatory tax, which is similar to the New York tax, and stated that the purpose of such taxes was "to promote the interstate business of domestic insurers by deterring other States from enacting discriminatory or excessive taxes” (451 US, at 668) and "not to generate revenue at the expense of out-of-state insurers” (451 US, at 669).

Taxes imposed specifically upon insurance corporations are also set forth in article 33 of the Tax Law. Section 1511 (b) of the Tax Law authorizes a credit for taxes paid pursuant to article 33 against the "reciprocal” or retaliatory taxes imposed under the Insurance Law.

Pursuant to Administrative Code § 11-701 (5) and § 11-702 (d), petitioners are subject to a separate and additional tax because they conducted their businesses from premises located within New York City. Imposition of this commercial rent tax is not contingent upon the use of the premises to conduct an insurance business. No reference is made to a retaliatory tax credit in the enabling legislation for the commercial rent tax (see, L 1963, ch 257).

Thus, there is no provision in the Insurance Law, the Tax Law, or the commercial rent law and its enabling statute that expressly designates or allows a credit toward a foreign insurer’s retaliatory tax for the payment of the New York City commercial rent tax.

The retaliatory tax specifically and exclusively applies to foreign insurers. The Tax Law imposes some taxes specifically upon insurers and recognizes that reciprocal credit should be allowed for those specific taxes. Given the purpose of the retaliatory tax to promote interstate commerce by allowing both domestic and foreign insurers to compete on an equal basis and the absence of an express grant of a credit for the commercial rent tax, it would be inconsistent to read section 1112 as including payments made for the privilege of doing any business without regard to the nature of the business, such as the commercial rent tax at issue herein. As such, it is proper to defer to the agency’s interpretative expertise unless that interpretation is unreasonable, irrational or contrary to the clear wording of the statute (Matter of Medical Malpractice Ins. Assn. v Superintendent of Ins. of State of N. Y., 72 NY2d 753, 761-762). We conclude that there is a rational basis for interpreting Insurance Law § 1112 to limit its application to payments made specifically for the purpose of doing an insurance business. Since the commercial rent tax is generally applied to all businesses for the privilege of doing business in New York City, it is not a tax paid for the privilege of doing insurance business.

Finally, we note here that our decision today does not conflict with our ruling in John Hancock Mut. Life Ins. Co. v Pink (276 NY 421). In that case, the issue was whether an excise tax imposed for the privilege of conducting business within New York City, Local Laws, 1934, No. 9, was a tax imposed by the "laws of this State” (276 NY, at 424). We concluded that the excise tax was imposed by virtue of the State enacted enabling legislation and allowed a reciprocal credit (276 NY, at 426). The issue of whether or not the tax had to be specifically related to the insurance business to be eligible for the credit was not decided.

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

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

Order affirmed, with costs.

      . Insurance Law § 1112 states in pertinent part: "(a) (1) If, by the laws, or the action of any public official, of any other state, any insurer organized or domiciled in this state, or its duly authorized agents, shall be, required to deposit securities in such other state to protect policyholders or for any other purpose, or shall be required to pay taxes, fines, penalties, fees for licenses or certificates of authority or any other sum for the privilege of doing business in such other state, or shall be subjected to any restrictions, obligations, conditions or penalties, imposed for such privilege, and such requirements are greater than those required of similar insurers organized or domiciled in such other state by the laws of this state for the privilege of doing business herein, then all similar insurers organized or domiciled in such other state and their duly authorized agents in this state shall make like deposits for like purposes with the superintendent, and pay him for taxes, fines, penalties, fees for licenses or certificates of authority or for any other requirement for the privilege of doing business in this state, an amount determined in the manner prescribed by such other state, and shall be subjected to such greater requirements imposed by such other state upon similar insurers of this state and their duly authorized agents.”

      . Insurance Law § 1112 (d) reads: "The provisions of this section shall not apply to insurance companies organized or domiciled in a state or country whose laws do not impose retaliatory taxes or other charges or which grant, on a reciprocal basis, exemptions therefrom to insurance companies organized or domiciled in this state.”

      . Tax Law § 1511 (b) reads in full: "Credit against reciprocal taxes imposed by this state. In assessing taxes under the reciprocal provisions of section one thousand one hundred twelve of the insurance law, credit shall be allowed for any taxes paid under this article.”

      . Section 11-701 (5) states in pertinent part: " ’Taxable premises.’ Any premises in the city occupied, used or intended to be occupied or used for the purpose of carrying on or exercising any trade, business, profession, vocation or commercial activity”.

      . Section 11-702 sets forth the imposition of the tax and subdivision (d) states that "[t]he tax imposed by this chapter shall be in addition to any and all other taxes”.

      . Significantly, under section 1505-a of the Tax Law, a temporary metropolitan transportation business tax surcharge is assessed against all insurers and a reciprocal tax credit is expressly disallowed.


source: Caselaw Access Project

license: Public Domain

text:
    Textile Technology Exchange, Inc., Respondent, v Jack Davis, Appellant.
    Argued February 12, 1993;
    decided April 1, 1993

      POINTS OF COUNSEL

      Robert M. Cohen, Ballston Lake, and Ernest & George Abdella, Gloversville, for appellant.
    The counterclaim is related to the subject matter of plaintiff’s claim against defendant. Accordingly, the affirmative defense of lack of personal jurisdiction is not waived. (Prezioso v Demchuk, 127 AD2d 576; Liebling v Yankwitt, 109 AD2d 780; Beris v Miller, 128 AD2d 822.)

      Michael J. Connolly, Albany, and Alan R. Freedman for respondent.
    The court properly denied defendant’s motion to dismiss plaintiff’s action pursuant to a lack of personal jurisdiction, as defendant’s counterclaim was unrelated to plaintiff’s claim thereby waiving his jurisdictional objection. (Cannon v Putnam, 76 NY2d 644; Seaview Assn. v Williams, 69 NY2d 987; Prezioso v Demchuk, 127 AD2d 576, 70 NY2d 1002; Liebling v Yankwitt, 109 AD2d 780.)
   OPINION OF THE COURT

Smith, J.

Plaintiff is a North Carolina corporation which buys and sells new and used textile mill equipment. Defendant is a New York rigger who handles the removal, transporting, repair and resale of such equipment. Plaintiff commenced this action for breach of a February 1986 oral partnership agreement in which defendant was to sell equipment owned by the plaintiff and divide the profits equally. It was alleged that the defendant did not account for the proceeds of the sale of various equipment. Defendant denied the allegations, asserted the affirmative defense of lack of personal jurisdiction (improper service), and asserted a counterclaim based upon "an agreement heretofore entered into between the parties to this action, wherein and whereby the plaintiff agreed to compensate the defendant for certain goods and services provided by the defendant, within six (6) years last past” for sums due and owing.

At the conclusion of the trial, defendant moved to dismiss the complaint for lack of jurisdiction. The trial court denied the motion, holding that the jurisdictional defense had been waived by the assertion of a counterclaim that was unrelated to the plaintiff’s claim. This was based upon the finding that the complaint was based upon a contract "entered into in February, 1986” but the counterclaim involved "several transactions which arose prior to February, 1986.” On the merits, the trial court ruled that plaintiff’s proof established a breach by the defendant, awarded damages and dismissed the counterclaim because the defendant had failed "to establish his cause of action.”

By a 3 to 2 majority, the Appellate Division agreed that the jurisdictional defense had been waived because the counterclaim was unrelated to the plaintiff’s claim. The majority found that the parties began a business relationship in 1985 when plaintiff, acting as the liquidator of equipment at the Industrial Knitted Fabrics (IKF) plant, referred business to defendant. In February 1986, the relationship changed when plaintiff purchased the majority of the IKF equipment and entered into the oral partnership agreement with defendant. The majority concluded:

"Because it is solely this latter agreement which is the subject of plaintiff’s complaint, defendant’s assertion of a counterclaim involving various transactions predating that agreement amounted to the assertion of an unrelated counterclaim, thereby resulting in a waiver of his jurisdictional objection (see, Prezioso v Demchuk, 127 AD2d 576, lv dismissed 70 NY2d 1002; Liebling v Yankwitt, 109 AD2d 780, 781)” (182 AD2d 1029, 1030).

The majority also found that the record supported the award of damages to plaintiff and the dismissal of the counterclaim.

The dissenters essentially concluded that there was an ongoing relationship between the parties involving a series of transactions concerning the sale of the contents of the IKF plant that began in 1985 and was basically unaltered by the February 1986 oral partnership agreement. Since the complaint and the counterclaim were based upon transactions during the course of that relationship, it was reasoned that they were sufficiently related to allow the jurisdictional objection to remain.

Defendant appeals as of right because of the two-Justice dissent (see, CPLR 5601 [a]).

The issue before us is whether the defendant waived his jurisdictional defense by bringing an "unrelated” counterclaim. The Appellate Divisions have developed a rule that interposing a counterclaim related to plaintiff’s claims will not waive the defense of lack of personal jurisdiction, but that asserting an unrelated counterclaim does waive such defense because defendant is taking affirmative advantage of the court’s jurisdiction (see, Prezioso v Demchuk, 127 AD2d 576, lv dismissed 70 NY2d 1002; Liebling v Yankwitt, 109 AD2d 780, 781).

We agree with the underlying rationale of such rule and now adopt it. We clarify, however, that a counterclaim will only be "related” for these purposes when such counterclaim could potentially be barred under principles of collateral estoppel — where the parties or their privies are the same and where the issues in the plaintiffs’ claims are potentially identical and decisive of issues raised in the counterclaims (see, Gramatan Home Investors Corp. v Lopez, 46 NY2d 481, 486). While all counterclaims are "permissive” (CPLR 3019), the spectre of collateral estoppel often requires a defendant to bring certain counterclaims in order to avoid the risk of later preclusion (see, e.g., Siegel, NY Prac § 224, at 328, and § 452, at 684-685 [2d ed]). Where a defendant in effect must bring such counterclaims, it would be unfair to deem those counterclaims to waive a jurisdictional defense.

Applying these principles to this case, we conclude that defendant’s counterclaims were not related to plaintiffs complaint. Defendant’s counterclaims — involving a series of transactions prior to February 1986 — did not involve the same issues to be raised and determined in plaintiffs claim, which revolved around defendant’s alleged breach of the February 1986 agreement. Defendant, thus, stood no risk of preclusion if he did not bring his counterclaims, and we see no unfairness in the conclusion that by bringing them anyway, he affirmatively sought relief from the court and waived his jurisdictional defense.

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

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

Order affirmed, with costs.


text:
    Ben Heller, Appellant, v State of New York, Respondent.
    Argued February 17, 1993;
    decided April 1, 1993

      POINTS OF COUNSEL

      Jones, Day, Reavis & Pogue, New York City (Peter M. Lieb and Thomas L. Abrams of counsel), for appellant.
    I. The transfer gains tax operates as a transfer tax. (Collins v United States, 946 F2d 864.) II. The Department of Taxation’s own, repeated construction of the transfer gains tax as a transfer tax supports claimant’s position. III. The majority opinion rests on several erroneous assumptions. IV. The policies underlying EDPL 702 favor reimbursement of the transfer gains tax.

      Robert Abrams, Attorney-General, Albany (John McConnell, Jerry Boone and Peter H. Schiff of counsel), for respondent.
    I. The court below properly held that the transfer gains tax imposed by Tax Law article 31-B is not a transfer tax for purposes of EDPL 702. (In re 995 Fifth Ave. Assocs., 963 F2d 503; National R. R. Passenger Corp. v 10,178 Sq. Feet of Land, 789 F Supp 142.) II. The decision below is in full accord with prior constructions of the gains tax by the department. (In re 995 Fifth Ave. Assocs., 963 F2d 503; National R. R. Passenger Corp. v 10,178 Sq. Feet of Land, 789 F Supp 142; Collins v United States, 946 F2d 864.) III. Policy grounds behind EDPL 702 provide no basis for reimbursement of the gains tax.
   OPINION OF THE COURT

Smith, J.

The issue presented on this appeal is whether the real property transfer gains tax imposed pursuant to article 31-B of the Tax Law is a transfer tax or other similar expense within the meaning of EDPL 702 (A) (1) so as to require reimbursement by the State. We hold that since the transfer gains tax does not represent an incidental expense such as a recording fee, transfer tax, or a similar expense incurred in connection with the transfer of the property, it is not a transfer tax within the meaning of EDPL 702 (A) (1), and the State is not required to reimburse claimant for such taxes.

In March 1982, claimant purchased real property, known as "Barcelona Neck,” located in the Town of East Hampton, Suffolk County, for $7,015,975. In August 1989, the State Department of Environmental Conservation acquired the property from claimant for $15,000,000 in an eminent domain proceeding.

Pursuant to article 31-B of the Tax Law, claimant, as the transferor, was required to pay a tax of 10% of the net profit realized from the conveyance, or $845,638.99. Claimant paid the tax under protest and, thereafter, sought reimbursement from the State. Claimant asserted that the tax was a transfer tax within the meaning of EDPL 702 (A) (1) and, as such, the State was required to reimburse him. The State refused the reimbursement request, asserting that the transfer gains tax is not a transfer tax within the meaning of EDPL 702 (A) (1).

Claimant commenced this action seeking reimbursement of the $845,638.99. The State counterclaimed against claimant for unpaid personal income taxes for 1989. The Court of Claims granted the State’s motions to dismiss the claim for failure to state a cause of action and for summary judgment on its counterclaim, and awarded the State interest and penalties on its counterclaim.

The Appellate Division modified on the law, by reversing the award of interest and penalties on the counterclaim and remitted the matter to the Court of Claims for recalculation of interest and penalties applicable to the judgment on the counterclaim, and, as so modified, affirmed (180 AD2d 299). The Court held that "[t]he tax imposed by Tax Law article 31-B is neither 'incidental’ nor an 'expense’ incurred in connection with the transfer of the property * * *, bears no direct relationship to the consideration received for the property[, and] * * * is more in the nature of an income tax than a transfer tax” (id., at 301).

We agree with the majority at the Appellate Division that the tax imposed pursuant to article 31-B of the Tax Law (Tax Law § 1440 [7]; §§ 1441, 1443) is not a transfer tax within the meaning of EDPL 702 (A) (1). The latter statute, enacted in 1977 and effective on July 1, 1978, was intended to reimburse a person for incidental or attendant expenses in connection with property taken by eminent domain. There is nothing in article 31-B of the Tax Law or its legislative history to suggest that it was intended to be a transfer tax within the meaning of EDPL 702 (A)(1).

Claimant makes several arguments on this appeal. Claimant contends, first, that the real property transfer gains tax is a transfer tax within the meaning of EDPL 702 (A) (1), and not an income tax, because it is triggered by the transfer of real property. Claimant concedes that the transfer gains tax is measured by the taxpayer’s gain from the transfer of real property, but argues that the transfer gains tax focuses only on gains derived from a single transaction involving the transfer of real property wherein the consideration exceeds $1,000,000.

The State transfer tax is imposed "on each conveyance of real property or interest therein when the consideration exceeds five hundred dollars” (Tax Law § 1402). A tax is imposed pursuant to article 31-B only if there is a gain, that is "the difference between the consideration for the transfer of real property and the original purchase price of such property, where the consideration exceeds the original purchase price” (Tax Law § 1440 [3]). Therefore, it is a tax on the gain, not on the transfer.

In addition, a comparison of Tax Law § 1441 dealing with real property transfer gains taxes and Tax Law § 1402 dealing with real estate transfer taxes supports the conclusion that the transfer gains tax is not a transfer tax incurred in connection with the transfer of real property and as intended in EDPL 702 (A) (1).

The tax on gains derived from real property transfers is "imposed on gains derived from the transfer of real property within the state * * * [and is imposed] at the rate of ten percent of the gain” (Tax Law § 1441). The real estate transfer tax in Tax Law § 1402, on the other hand, bears a direct relationship to the consideration paid for the property, and is "imposed on each conveyance of real property or interest therein when the consideration exceeds five hundred dollars, at the rate of two dollars for each five hundred dollars or fractional part thereof.” Thus, the real property transfer gains tax bears little similarity to a real estate transfer tax.

Claimant asserts, second, that the real property transfer gains tax is a transfer tax because, like other real estate transfer taxes, it must be paid before a deed of transfer can be recorded (Tax Law § 1447 [1] [f] [1] [i]). However, section 1447 (1) (f) (1) (i) requires only the payment of the "tentative assessment of the amount of tax * * * due”. The Tax Law indicates that "[t]he tentative assessment of the amount of tax due shall not be deemed to be a determination of the actual amount of tax due” (Tax Law § 1447 [2]). On the other hand, Tax Law § 1410 (b) requires payment of the actual amount of the transfer tax due and states, in part, that "[a] recording officer shall not record an instrument effecting a conveyance unless * * * the real estate transfer tax due, if any, shall have been paid.” Thus, the transfer gains tax differs from a transfer tax in the amount of tax that must be paid before a deed of transfer can be recorded.

Third, claimant argues that, like the State transfer tax, the transfer gains tax places the burden of paying the tax upon both the transferors and the transferees (see, Tax Law § 1447 [3] [a]; § 1404 [a]). Tax Law § 1404 (a) imposes primary liability for payment of the real estate transfer tax on both the grantor and the grantee of real property and states that the transfer tax "shall be paid by the grantor * * * [and that] the grantee shall have the duty to pay the tax [if the grantor has failed to pay or is exempt from such tax].” That section also imposes joint and several liability on the grantor and the grantee where "the grantee has the duty to pay the tax because the grantor has failed to pay.” However, where a transferor has failed to pay the tentative assessment of real property transfer gains tax due, Tax Law § 1447 (3) does not automatically impose liability on the transferee. Rather, that section authorizes the Department of Taxation and Finance to place a lien on any money or other property owing from the transferee to the transferor. Section 1447 (3) provides, in part, that "whenever [the Department of Taxation and Finance] shall inform the transferee that a tentative assessment of such tax exists, any sums of money, property or other consideration, which the transferee is required to transfer over to the transferor shall be subject to a first priority right for any such taxes stated to be due from the transferor to the state in such tentative assessment.” The section imposes personal liability on the transferee only where the transferee fails to comply with the provisions of the section of the Tax Law, or where the transferee supplies willfully false or fraudulent information. Thus, the liability imposed on a transferee for nonpayment of a real property transfer gains tax by the transferor differs significantly from the liability imposed on a transferee for nonpayment of a real estate transfer tax by a transferor.

Claimant’s assertion that the State Department of Taxation and Finance has consistently held that the real property transfer gains tax is a real estate transfer tax is unsupportable. The documents cited by claimant in no way reflect an expressed view by the Tax Department that the real property transfer gains tax is an incidental expense under EDPL 702 (A) (1) pursuant to which a condemnor must reimburse a condemnee.

Likewise, no support exists for claimant’s contention that the policies underlying EDPL 702 (A) (1) require reimbursement of the real property transfer gains tax. Claimant maintains that it would be inconsistent with the intent of the statute to require him to bear this tax, which he incurred as a result of a forced sale to the government through condemnation. No support exists for claimant’s position that the Legislature intended to place a condemnee of real property in a better position than a regular seller of real property. In fact, Tax Law § 1440 (7) defines "transfer of real property” as "the transfer or transfers of any interest in real property by any method, including but not limited to sale [or] * * * taking by eminent domain.”

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

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

Order affirmed, with costs.

      . While further judicial action is pending on the counterclaim, the main claim regarding the transfer gains tax has been finally determined. As those two claims are factually and legally discrete, that portion of the Appellate Division order pertaining to the main claim is final under the doctrine of implied severance (see, Sontag v Sontag, 66 NY2d 554). Only the transfer gains tax issue is before the Court.

      . EDPL 702 (A) (1) states:

        "The condemnor shall reimburse a condemnee an amount separately computed and stated, representing the following incidental expenses:
      "(1) any recording fees, transfer taxes and other similar expenses in connection with the acquisition of the property by the condemnor or in connection with the transfer of the property to the condemnor”.

      . L 1977, ch 839, § 1 [§ 702],

      . Tax Law § 1410 (b) provides: "A recording officer shall not record an instrument effecting a conveyance unless the return required by section fourteen hundred nine of this article has been filed and the real estate transfer tax due, if any, shall have been paid as provided in this section.”


author: Chief Judge Kaye.

text:
    Dennis J. Cooney, Plaintiff, v Osgood Machinery, Inc., Defendant and Third-Party Plaintiff-Appellant. Paul Mueller Company, Third-Party Defendant-Respondent; Hill Acme Company, Third-Party Defendant-Appellant, et al., Third-Party Defendants.
    Argued February 18, 1993;
    decided March 25, 1993

      POINTS OF COUNSEL

      Smith, Murphy & Schoepperle, Buffalo (Victor Alan Oliveri and Bonnie T. Hager of counsel), for defendant and third-party plaintiff-appellant.
    I. New York choice of law rules set forth in Schultz v Boy Scouts (65 NY2d 189) apply. (Kilberg v Northeast Airlines, 9 NY2d 34; Babcock v Jackson, 12 NY2d 473; Neumeier v Kuehner, 31 NY2d 121.) II. The issue as to whether Osgood Machinery may maintain its third-party action against Mueller Company is an issue of loss allocation. (Schultz v Boy Scouts, 65 NY2d 189; Viera v Uniroyal, Inc., 142 Misc 2d 1099, 148 AD2d 349; LaForge v Normandin, 158 AD2d 990; Dole v Dow Chem. Co., 30 NY2d 143.) III. New York choice of law rules mandate application of New York law to the issue. (Schultz v Boy Scouts, 65 NY2d 189; Neumeier v Kuehner, 31 NY2d 121; LaForge v Normandin, 158 AD2d 990; Viera v Uniroyal, Inc., 142 Misc 2d 1099; Chandler v Northwest Eng’g Co., 111 Misc 2d 433; MacKendrick v Newport News Shipbuilding & Dry Dock Co., 59 Misc 2d 994; Cooney v Osgood Mach., 174 AD2d 1046.) IV. The United States Constitution does not bar application of New York law to the issue. (Nevada v Hall, 440 US 410; Pacific Ins. Co. v Commission, 306 US 493; Alaska Packers Assn. v Commission, 294 US 532.)

      Bouvier, O’Connor, Buffalo (Chris G. Trapp of counsel), for third-party defendant-appellant.
    I. A governmental interest analysis approach should supplant the rigid lex loci delecti rule. (Schultz v Boy Scouts, 65 NY2d 189; Neumeier v Kuehner, 31 NY2d 121; Dole v Dow Chem. Co., 30 NY2d 143.) II. New York’s loss allocation rules take precedence over Missouri’s restrictive bar. (United States Mtge. & Trust Co. v Ruggles, 258 NY 32; Dole v Dow Chem. Co., 30 NY2d 143.) III. As quasi contractual, indemnification should be governed by New York law. IV. New York’s public policy would be violated by the imposition of Missouri law. (Chandler v Northwest

      Eng’g Co., 111 Misc 2d 433; State of New York v Stewart’s Ice Cream Co., 64 NY2d 83; First Fed. Sav. & Loan Assn. v Oppenheim, Appel, Dickson & Co., 631 F Supp 1029; Tokio Mar. & Fire Ins. Co. v McDonnell Douglas Corp., 465 F Supp 790.)

      Hurwitz & Fine, P. C., Buffalo (Sheldon Hurwitz of counsel), for third-party defendant-respondent.
    New York choice of law rules dictate the application of Missouri Workers’ Compensation Law to this contribution action arising out of an employment-related accident in Missouri, with the employment relationship entered into and performed in Missouri between domiciliarles of Missouri. (Dole v Dow Chem. Co., 30 NY2d 143; Neumeier v Kuehner, 31 NY2d 121; Viera v Uniroyal, Inc., 142 Misc 2d 1099, 148 AD2d 349; Schultz v Boy Scouts, 65 NY2d 189; Chandler v Northwest Eng’g Co., 111 Misc 2d 433; Feldman v Acapulco Princess Hotel, 137 Misc 2d 878; Kilberg v Northeast Airlines, 9 NY2d 34; Loucks v Standard Oil Co., 224 NY 99; Brewster v Baltimore & Ohio R. R. Co., 167 AD2d 908; Roach v McGuire & Bennett, 146 AD2d 89.)
   OPINION OF THE COURT

Chief Judge Kaye.

The issue on this appeal is whether a Missouri statute barring contribution claims against an employer — which conflicts with New York law permitting such claims — should be given effect in a third-party action pending here. Applying relevant choice of law principles, we conclude that the Missouri workers’ compensation statute should be given effect, and therefore affirm the dismissal of the third-party complaint seeking contribution against a Missouri employer.

I.

The facts relevant to this appeal are essentially undisputed. In 1957 or 1958, Kling Brothers, Inc. (succeeded in interest by third-party defendant Hill Acme Co.) manufactured a 16-foot wide "Pyramid Form Bending Roll,” a machine to shape large pieces of metal. The device was sold in 1958 to a Buffalo company, American Standard Inc., through a New York sales agent, defendant Osgood Machinery, Inc., which assisted American in the setup and initial operation of the machine. American closed its Buffalo plant around 1961, and the history of the bending roll is obscured until 1969, when Crouse Company — which obtained the equipment in some unknown manner — sold the machine to Paul Mueller Co., a Missouri domiciliary.

Mueller installed the bending roll in its Springfield, Missouri, plant and subsequently modified it by adding a foot switch. In October 1978, plaintiff Dennis J. Cooney, a Missouri resident working at the Missouri plant, was injured while cleaning the machine. The machine was running at the time —a piece of wood having been wedged in the foot switch — and Cooney was unable to reach the switch to stop the machine and avoid injury.

In Missouri, Cooney filed for and received workers’ compensation benefits. Because under Missouri law an employer providing such benefits "shall be released from all other liability * * * whatsoever, whether to the employee or any other person” (Mo Rev Stat § 287.120 [1]), he could not additionally sue his employer, Mueller, in tort. Cooney did, however, bring a products liability action against Osgood — the machine’s initial sales agent — in Supreme Court, Erie County. (Missouri apparently would not have had personal jurisdiction over Osgood.)

Seeking contribution from parties it deems more culpable in the event it is found liable to Cooney, Osgood brought a third-party action against Mueller, American Standard, and Hill Acme. Mueller invoked the Missouri statute shielding employers from both direct claims by employees and contribution claims by others, and moved for summary judgment dismissing Osgood’s third-party complaint. In light of the conflict between the Missouri statute and New York law permitting contribution claims against employers, Supreme Court undertook a choice of law analysis and concluded that New York law should apply. The Appellate Division unanimously reversed and dismissed the third-party complaint as well as all cross claims against Mueller. We now affirm.

II.

An inevitable consequence of a mobile society, where people and goods routinely cross State and national borders, is that disputes may implicate the interests of several jurisdictions having conflicting laws. Choice of law principles become relevant, however, only when a State can, consistent with the Full Faith and Credit and Due Process Clauses of the Constitution (US Const, art IV, § 1; 14th Amend, § 1), choose between the conflicting laws. A State may lack sufficient nexus with a case so that choice of its law is arbitrary or fundamentally unfair (Phillips Petroleum Co. v Shultz, 472 US 797, 818; Allstate Ins. Co. v Hague, 449 US 302, 312-313; Schultz v Boy Scouts, 65 NY2d 189, 202-203, n 4). Mueller argues that New York’s connection with the case is so tenuous that a decision to apply New York contribution law would be unconstitutional.

In Hague, the Supreme Court upheld the Minnesota high court’s decision to interpret an automobile insurance policy under Minnesota law instead of under contrary Wisconsin precedent. The policy was issued to a Wisconsin domiciliary, who was a passenger on a motorcycle operated by a Wisconsin resident when he was struck and killed — in Wisconsin — by an automobile driven by another Wisconsin resident. Nevertheless, the Supreme Court plurality found that three contacts with Minnesota, in the aggregate, were sufficient to generate an adequate Minnesota interest in the case: the decedent was employed in Minnesota; his wife, the appointed representative of the estate, subsequently moved to Minnesota; and the insurance company was at all times present and doing business in Minnesota (449 US, at 313-319).

Similarly, New York’s contacts with the present case are, in the aggregate, sufficient to satisfy the constitutional threshold. Osgood has alleged that Mueller has a substantial presence in this State, and there is indication in the record that Mueller does business in New York. Additionally, Osgood, which seeks contribution under New York law, is a domiciliary of this State. Finally, Osgood’s alleged tortious conduct with respect to the machine arose in New York, where the machine was ordered, operated for several years, and eventually shipped out of State.

We conclude, therefore, that this State has sufficient interest in the litigation so that if we chose to apply New York law on the contribution issue, that decision would not run afoul of the Federal Constitution. Accordingly, we turn to a choice of law analysis.

III.

The traditional approach to choice of law problems arising in tort was simply to apply lex loci delicti, the law of the place of the tort, to all substantive issues in the case (see, e.g., Poplar v Bourjois, 298 NY 62, 66; Restatement of Conflict of Laws §§ 377-390). The theoretical underpinning of that rule was the vested rights doctrine: the right to recover in tort is created by, and exists solely to the extent of, the law of the jurisdiction where the injury occurred (Babcock v Jackson, 12 NY2d 473, 477-478).

Although the vested rights doctrine did have the salutary characteristics of predictability and ease of application, it failed to accord any significance to the policies underlying the conflicting laws of other jurisdictions (see, Babcock, 12 NY2d, at 478; Miller v Miller, 22 NY2d 12, 15). Thus in Babcock the Court adopted a more flexible approach intended to give "controlling effect to the law of the jurisdiction which, because of its relationship or contact with the occurrence or the parties, has the greatest concern with the specific issue raised in the litigation.” (Babcock, 12 NY2d, at 481.)

Of the various, sometimes competing, schools of thought on choice of law, the one that emerged as most satisfactory was "interest analysis,” which sought to effect the law of the jurisdiction having the greatest interest in resolving the particular issue (see, Schultz v Boys Scouts, 65 NY2d 189, 197, supra; Miller v Miller, 22 NY2d 12, 15-16, supra). An immediate distinction was drawn between laws that regulate primary conduct (such as standards of care) and those that allocate losses after the tort occurs (such as vicarious liability rules). If conflicting conduct-regulating laws are at issue, the law of the jurisdiction where the tort occurred will generally apply because that jurisdiction has the greatest interest in regulating behavior within its borders. But if competing "postevent remedial rules” are at stake other factors are taken into consideration, chiefly the parties’ domiciles (see, Schultz v Boy Scouts, 65 NY2d, at 197-199; Babcock, 12 NY2d, at 483).

Babcock itself involved a loss distribution rule — an Ontario guest statute limiting an automobile passenger’s ability to recover from the driver — as did subsequent cases (Dym v Gordon, 16 NY2d 120 [Colorado guest statute]; Long v Pan Am. World Airways, 16 NY2d 337 [conflicting Maryland and Pennsylvania laws governing wrongful death recoveries]; Macey v Rozbicki, 18 NY2d 289 [Ontario guest statute]; Farber v Smolack, 20 NY2d 198 [vicarious liability]; Miller v Miller, 22 NY2d 12 [Maine statute limiting wrongful death damages to $20,000]; Looker v Lopez, 24 NY2d 569 [Michigan guest statute]).

In Neumeier v Kuehner (31 NY2d 121), yet another guest statute case, the Court in seeking to return greater predictability and uniformity to the law, adopted a series of three rules that had been proposed by Chief Judge Fuld (see, Tooker v Lopez, 24 NY2d, at 585 [Fuld, Ch. J., concurring]). Although drafted in terms of guest statutes — drivers and passengers— these rules could, in appropriate cases, apply as well to other loss allocation conflicts (see, Schultz, 65 NY2d, at 200-201 [applying first and third Neumeier rules to conflicting charitable immunity laws]).

The Neumeier Rules

Under the first Neumeier rule, when the driver-host and passenger-guest share a common domicile, that law should control. Indeed, when both parties are from the same jurisdiction, there is often little reason to apply another jurisdiction’s loss allocation rules. The domiciliary jurisdiction, which has weighed the competing considerations underlying the loss allocation rule at issue, has the greater "interest in enforcing the decisions of both parties to accept both the benefits and the burdens of identifying with that jurisdiction and to submit themselves to its authority” (Schultz, 65 NY2d, at 198). Moreover, this rule reduces opportunities for forum shopping because the same law will apply whether the suit is brought in the locus jurisdiction or in the common domicile, the two most likely forums (Schultz, 65 NY2d, at 199-201).

The second Neumeier rule addresses "true” conflicts, where the parties are domiciled in different States and the local law favors the respective domiciliary. When plaintiff’s State, for example, would allocate the loss to defendant but defendant’s State would force plaintiff to bear the loss, a true conflict arises. The rule provides that when the driver’s (defendant’s) conduct occurred in the State of domicile and that State would not impose liability, the driver should not be exposed to liability under the law of the victim’s domicile. Conversely, when the plaintiff-passenger is injured in the place of domicile and would be entitled to recover, the out-of-State driver should generally be unable to interpose the law of his or her domicile to defeat recovery (31 NY2d, at 128). In essence, then, the second Neumeier rule adopts a "place of injury” test for true conflict guest statute cases.

Finally, the third Neumeier rule, applicable to other split-domicile cases, provides that the usually governing law will be that of the place where the accident occurred, unless " 'displacing that normally applicable rule will advance the relevant substantive law purposes without impairing the smooth working of the multistate system or producing great uncertainty for litigants’ ” (31 NY2d, at 128). This rule, too, generally uses the place of injury, or locus, as the determining factor.

Assuming that the interest of each State in enforcement of its law is roughly equal — a judgment that, insofar as guest statutes are concerned, is implicit in the second and third Neumeier rules — the situs of the tort is appropriate as a "tie breaker” because that is the only State with which both parties have purposefully associated themselves in a significant way (see, Korn, The Choice-of-Law Revolution: A Critique, 83 Colum L Rev 772, 801 [1983]). Moreover, locus is a neutral factor, rebutting an inference that the forum State is merely protecting its own domiciliary or favoring its own law (see, Schultz, 65 NY2d, at 201). Additionally, the place of injury was the traditional choice of law crucible.

Schultz applied both the first and third Neumeier rules. The plaintiffs in that case, residents of New Jersey, sued New Jersey and Ohio domiciliaries in New York for injuries occurring here. Defendants urged that New Jersey charitable immunity law was controlling; plaintiffs argued for New York law, which does not recognize charitable immunity. As between plaintiffs and the New Jersey defendant — codomiciliaries — the Court looked to the first Neumeier rule and, after analysis, applied the law of the shared domicile, New Jersey. The third Neumeier rule, however, applied to the plaintiffs’ claim against the Ohio domiciliary, because the parties had different domiciles and the injuries occurred in a separate jurisdiction. Although the third rule generally invokes the locus jurisdiction’s law, the Court applied the proviso permitting resort to other law when it would advance substantive law purposes without impairing the multistate system or producing great uncertainty. We thus applied New Jersey law to that claim as well (Schultz, 65 NY2d, at 200-202).

Contribution rules — as involved in the present case — are loss allocating, not conduct regulating. Had conduct regulating been at issue here, our analysis would be greatly simplified, for the traditional rule of lex loci delicti almost invariably obtains. Similarly, if the parties shared the same domicile, we would generally apply that jurisdiction’s loss distribution law. Instead, our analysis is necessarily more complicated, calling upon us to evaluate the relative interests of jurisdictions with conflicting laws and, if neither can be accommodated without substantially impairing the other, finding some other sound basis for resolving the impasse.

Interest Analysis

The general scheme of workers’ compensation acts is that an employer regardless of culpability is required to make specified payments to an injured employee and in exchange, the law immunizes the employer from further liability. Immunity "is part of the quid pro quo in which the sacrifices and gains of employees and employers are to some extent put in balance, for, while the employer assumes a new liability without fault, [it] is relieved of the prospect of large damage verdicts” (2A Larsen, Workmen’s Compensation Law § 65.11 [1993]).

Some States immunize employers only from direct actions by injured workers; others extend protection from third-party contribution actions as well. The Missouri Supreme Court, in rejecting State and Federal constitutional challenges to the Missouri statute at issue here, noted that immunity " 'is the heart and soul of this legislation which has, over the years been of highly significant social and economic benefit to the working [person], the employer and the State.’ ” (State ex rel. Maryland Hgts. Concrete Contrs. v Ferriss, 588 SW2d 489, 491 [Mo], quoting Seabord Coast Line R. R. Co. v Smith, 359 So 2d 427, 429 [Fla].) The court, quoting further from the Florida case, also observed that " ' "the right to contribution is not a vested right on which legislation may not impinge” ’ ” (588 SW2d, at 491).

Missouri’s decision to shield employers from contribution claims is thus a policy choice implicating significant State interests: "to deny a person the immunity granted * * * by a work[er]’s compensation statute of a given state would frustrate the efforts of that state to restrict the cost of industrial accidents and to afford a fair basis for predicting what these costs will be.” (Restatement [Second] of Conflict of Laws § 184, comment b, at 547.) Indeed, as the Restatement concluded in a related context, for another State "to subject a person who has been held liable in work[er]’s compensation to further unlimited liability in tort or wrongful death would frustrate the work[er]’s compensation policy of the State in which the award was rendered.” (Restatement [Second] of Conflict of Laws § 183, comment c, at 544.)

Arrayed against Missouri’s interest in maintaining the integrity of its workers’ compensation scheme is New York’s interest in basic fairness to litigants. Under traditional joint and several liability rules, when more than one tortfeasor was responsible for plaintiffs injury, each was potentially liable for the entire judgment, irrespective of relative culpability. Indeed, plaintiff was not even required to sue all the wrongdoers, but could recover the entire judgment from the "deep pocket,” who then had no recourse (Sommer v Federal Signal Corp., 79 NY2d 540, 556).

In Dole v Dow Chem. Co. (30 NY2d 143, 148-149 [1972]), this Court mitigated the inequity by allowing a defendant that pays more than its fair share of a judgment, as apportioned by the fact finder in terms of relative fault, to recover the difference from a codefendant. The Legislature, also recognizing the desirability of contribution, subsequently codified the Dole principles in CPLR article 14 (L 1974, ch 742). Stated simply, the "goal of contribution, as announced in Dole and applied since, is fairness to tortfeasors who are jointly liable.” (Sommer v Federal Signal Corp., 79 NY2d, at 556-557.)

Manifestly, the interests of Missouri and New York are irreconcilable in this case. To the extent we allow contribution against Mueller, the policy underlying the Missouri workers’ compensation scheme will be offended. Conversely, to the extent Osgood is required to pay more than its equitable share of a judgment, the policy underlying New York’s contribution law is affronted. It is evident that one State’s interest cannot be accommodated without sacrificing the other’s, and thus an appropriate method for choosing between the two must be found.

This is a true conflict in the mold of Neumeier’s second rule, where the local law of each litigant’s domicile favors that party, and the action is pending in one of those jurisdictions. Under that rule, the place of injury governs, which in this case means that contribution is barred. This holding is consistent with the result reached historically, and reflects application of a neutral factor that favors neither the forum’s law nor its domiciliaries. Moreover, forum shopping by defendants —who might attempt to invoke CPLR 1403 and bring a separate action for contribution in New York if sued elsewhere (compare, Grant Co. v Uneeda Doll Co., 19 AD2d 361, affd 15 NY2d 571) — is eliminated.

A primary reason that locus tips the balance, of course, is that ordinarily it is the place with which both parties have voluntarily associated themselves. In this case, there is some validity to Osgood’s argument that it did nothing to affiliate itself with Missouri. Indeed, a decade after Osgood’s last contact with the bending roll, the machine wound up in Missouri through no effort, or even knowledge, of Osgood. Moreover, the record establishes that Osgood was not in the business of distributing goods nationwide, but limited its activities to New York and parts of Pennsylvania, and thus Osgood may not have reasonably anticipated becoming embroiled in litigation with a Missouri employer.

For this reason, our decision to apply Missouri law rests as well on another factor that should, at times, play a role in choice of law: the protection of reasonable expectations (see, Restatement [Second] of Conflict of Laws § 6 [2] [d]; Allstate Ins. Co. v Hague, 449 US 302, 327 [Stevens, J., concurring]; Schultz, 65 NY2d, at 198 ["protecting the reasonable expectations of the parties” is one reason locus law is generally preferred when there are conflicting conduct-regulating rules]). In view of the unambiguous statutory language barring third-party liability and the Missouri Supreme Court’s holding in Ferriss, Mueller could hardly have expected to be haled before a New York court to respond in damages for an accident to a Missouri employee at the Missouri plant. By contrast, in ordering its business affairs Osgood could have had no reasonable expectation that contribution would be available in a products liability action arising out of the sale of industrial equipment. Indeed, Osgood’s activity in connection with the bending roll occurred in 1958, some 14 years before Dole was decided and the principles of full contribution were introduced into our law. Moreover, even under present law, contribution is not foolproof. A defendant, for example, may be unable to obtain jurisdiction over a joint tortfeasor; the joint tortfeasor may be insolvent or defunct (like Kling Bros. here); or defendant’s own assets may be insufficient to pay its share of the judgment (see, Klinger v Dudley, 41 NY2d 362, 369).

In sum, we conclude that Missouri law should apply because, although the interests of the respective jurisdictions are irreconcilable, the accident occurred in Missouri, and unavailability of contribution would more closely comport with the reasonable expectations of both parties in conducting their business affairs.

IV.

Finally, we turn to Osgood’s contention that New York’s public policy precludes application of the Missouri statute in this case. Under the public policy exception, when otherwise applicable foreign law would "violate some fundamental principle of justice, some prevalent conception of good morals, some deep-rooted tradition of the common weal” (Loucks v Standard Oil Co., 224 NY 99, 111 [Cardozo, J.]), the court may refuse to enforce it.

As Judge Simons noted in Schultz, the public policy exception should be considered only after the court has first determined, under choice of law principles, that the applicable substantive law is not the forum’s law (Schultz, 65 NY2d, at 202). We have already cleared that hurdle in the present case. Moreover, the exception could apply only when New York’s nexus with the case is substantial enough to threaten our public policy (id., at 202-203). While we have yet to explore whether there is a difference between the minimum contacts needed to satisfy the constitutional choice-of-law threshold and those required to implicate the public policy exception, it is unnecessary to do so today; the facts of this case satisfy both standards. Unlike Schultz, where New York’s nexus was insufficient to implicate our public policy, this case involves a New York domiciliary who may be cast in liability by the effect of foreign law which is contrary to New York law. Accordingly, New York’s interest in this case is sufficient to warrant scrutiny under the public policy exception.

Although we have noted that public policy may be found in the State Constitution, statutes and judicial decisions (Shannon v Irving Trust Co., 275 NY 95, 102-103; Schultz, 65 NY2d, at 202), plainly not every difference between foreign and New York law threatens our public policy. Indeed, if New York statutes or court opinions were routinely read to express fundamental policy, choice of law principles would be meaningless. Courts invariably would be forced to prefer New York law over conflicting foreign law on public policy grounds.

The refusal of courts to enforce foreign law as repugnant to public policy reached its zenith prior to the advent of modern choice of law doctrine. In fact, commentators have opined that in earlier times the public policy rationale really substituted as a choice of law mechanism when the prevailing rigid choice of law rules permitted no flexibility (see, Paulsen and Sovern, "Public Policy ” in the Conflict of Laws, 56 Colum L Rev 969, 981 [1956]; see also, Feldman v Acapulco Princess Hotel, 137 Misc 2d 878, 888, n 14). That theory is supported by some of our cases.

In Mertz v Mertz (271 NY 466), for instance, a wife sued her husband in New York for injuries arising out of his alleged negligent operation of a car in Connecticut. Both parties were New York domiciliaries, and under New York law at that time, a wife could not sue her husband for negligence. Connecticut law, however, did not recognize spousal immunity and under lex loci delicti, Connecticut law would ordinarily have applied. Based in part on public policy considerations this Court affirmed dismissal of the complaint. The same result would likely obtain today, however, under choice of law principles. In view of modern choice of law doctrine, resort to the public policy exception should be reserved for those foreign laws that are truly obnoxious.

The thrust of Osgood’s argument is that New York’s law permitting contribution is so strong that any encroachment upon the right violates fundamental public policy. In our choice of law analysis, of course, we explicitly considered New York’s interest in allowing contribution and concluded that it is significant. Osgood’s view, however, is that no abrogation of the right may be tolerated. We disagree.

Certainly, contribution is not a deeply rooted tradition of the common weal (Loucks, 224 NY, at 111), having been introduced into our law only relatively recently. Moreover, as noted,. availability of contribution is not invariably guaranteed. And while Osgood claims that being forced to pay more than its equitable share of plaintiff’s damages is unfair, "public policy is not measured by individual notions of expediency and fairness or by a showing that the foreign law is unreasonable or unwise” (Schultz, 65 NY2d, at 202). In the considered judgment of the Missouri Legislature, employers providing workers’ compensation benefits are not amenable to claims for contribution. New York law is to the contrary. But as Judge Cardozo observed: "Our own scheme of legislation may be different. * * * That is not enough to show that public policy forbids us to enforce the foreign right. * * * We are not so provincial as to say that every solution of a problem is wrong because we deal with it otherwise at home.” (Loucks v Standard Oil Co., 224 NY, at 110-111.) Osgood has not sustained its "heavy burden” of proving that the Missouri statute is offensive to our public policy (Schultz, 65 NY2d, at 202).

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

Judges Simons, Titone, Hancock, Jr., Bellacosa and Smith concur.

Order affirmed, with costs.

      . Were Mueller not subject to jurisdiction in New York, it could of course successfully move to dismiss for lack of personal jurisdiction.

        . New York law permitting contribution against an employer is clearly a minority view (see generally, Annotation, Modern Status of Effect of State Workmen’s Compensation Act on Right of Third-Person Tortfeasor to Contribution or Indemnity From Employer of Injured or Killed Workman, 100 ALRSd 350). A result that might impose New York law on the carefully structured workers’ compensation schemes of other States — especially when the accident occurred there — is undesirable.

      . We have eschewed reliance on the fictional expectation of the parties based on mere contact with the locus of an accident (Miller v Miller, 22 NY2d, at 20), but reasonable, justifiable expectations are another matter.


text:
    Shenikwa D. Nowlin, Respondent, v City of New York, Appellant, and Andre Robertson, Respondent.
    Argued February 10, 1993;
    decided March 30, 1993

      POINTS OF COUNSEL

      O. Peter Sherwood, Corporation Counsel of New York City (William J. Thom and Fay Leoussis of counsel), for appellant.
    I. It is uncontroverted that plaintiffs accident took place on a highway owned by the State and part of its arterial highway system. In order to perform its nondelegable duty to maintain this highway, the State entered into an agreement with the City. Under the express terms of that agreement, the City’s only duty was to repair and replace existing signs, not to install new signs. Because the City had no duty to install new signs and, thus, cannot be held liable for any failure to install new signs, the complaint should have been dismissed. In addition, even if the maintenance agreement imposed on the City an obligation to install new signs, that obligation ran only to the State, not to plaintiff, because the City has the same immunity from liability to private parties as any other maintenance contractor would have. (Nunez v City of New York, 177 AD2d 394; Gunn v Good Luck Truck Rental, 85 AD2d 567, 58 NY2d 780; Eaves Brooks Costume Co. v Y.B.H. Realty Corp., 76 NY2d 220; Francois v New York City, 161 AD2d 319; Bourk v National Cleaning, 174 AD2d 827, 78 NY2d 858; Smith v City of Lockport, 154 AD2d 910.) II. Robertson’s conceded grossly excessive rate of speed and his failure to observe or to obey traffic signs were the sole proximate causes of this accident. (Tomassi v Town of Union, 46 NY2d 91, 941; Stanford v State of New York, 167 AD2d 381, 78 NY2d 856.) III. If this Court finds that liability may be imposed on the City, all damages, except the award for pain and suffering, should be deleted as unsupported by legally sufficient evidence.

      Smiley, Schwartz & Captain, New York City (Guy I. Smiley of counsel), and Slater, Vanderpool & Breakstone, Garden City (Jay L. T. Breakstone of counsel), for Shenikwa D. Nowlin, respondent.
    I. As the court below correctly held, the City, having assumed the duty to sign the highway, was charged with the duty to do it right. (Wolf v City of New York, 39 NY2d 568; Florence v Goldberg, 44 NY2d 189; Moch Co. v Rensselaer Water Co., 247 NY 160; Ultramares Corp. v Touche, 255 NY 170; Tomassi v Town of Union, 46 NY2d 91; Atkinson v County of Oneida, 77 AD2d 257; Ames v City of New York, 177 AD2d 528; Nunez v City of New York, 177 AD2d 394; Thompson v City of New York, 78 NY2d 682; Ossmer v Bates, 97 AD2d 871.) II. Proximate cause was a question for the jury and there was overwhelming evidence to support the jury’s reasoned determination. (Commisso v Meeker, 8 NY2d 109; Derdiarian v Felix Contr. Corp., 51 NY2d 308; Wood v State of New York, 112 AD2d 612; Humphrey v State of New York, 90 AD2d 901, 60 NY2d 742; Tomassi v Town of Union, 46 NY2d 91; Stanford v State of New York, 167 AD2d 381, 78 NY2d 856; Wragge v Lizza Asphalt Constr. Co., 17 NY2d 313; Rizzo v State of New York, 141 AD2d 953.) III. The award for economic loss is adequately supported in the record, both as originally granted and as subsequently reduced. (Protzman v State of New York, 91 AD2d 853; Matter of Landford v Rogers, 144 AD2d 785; Wragge v Lizza Asphalt Constr. Co., 17 NY2d 313.)

      Garbarini & Scher, P. C., New York City (Steven I. Brizel of counsel), for Andre Robertson, respondent.
    In the presence of overwhelming credible evidence from which the jury rendered its verdict on the apportionment of liability, the judgment and orders of the Supreme Court should be affirmed in their entirety. (Cohen v Hallmark Cards, 45 NY2d 493; Ziecker v Town of Orchard Park, 75 NY2d 761; Rebhan v City of New York, 122 AD2d 31; Crandall v Lingener, 113 AD2d 529; Furia v Mellucci, 163 AD2d 88.)

      John Powers, New York City, and Schneider, Kleinick & Weitz, P. G, New York City (Brian J. Shoot and Gary Ehrlich of counsel), for New York State Trial Lawyers Association, amicus curiae.

    I. As a municipality which had a statutory right to make whatever modifications or repairs it deemed advisable as to the roadway in issue, defendant City had a corresponding legal duty to exercise reasonable care for the public’s safety. (Weiner v Metropolitan Transp. Auth., 55 NY2d 175; Bonner v City of New York, 73 NY2d 930; Marilyn S. v City of New York, 73 NY2d 910; Mon v City of New York, 78 NY2d 309; Moch Co. v Rensselaer Water Co., 247 NY 160; Friedman v State of New York, 67 NY2d 271; Weiss v Fote, 7 NY2d 579; Lopes v Rostad, 45 NY2d 617; Turner v City of Newburgh, 109 NY 301; Vogel v Mayor of City of N. Y., 92 NY 11.) II. Assuming, arguendo, that the City’s legal duties should be deemed equivalent to that of a nonmunicipal highway contractor, such cannot warrant dismissal herein inasmuch as private contractors are themselves liable in tort for negligent performance of the undertaking where, as here, the work is performed on or above a public street or sidewalk. (Eaves Brooks Costume Co. v Y.B.H. Realty Corp., 76 NY2d 220; Melodee Lane Lingerie Co. v American Dist. Tel. Co., 18 NY2d 57; Lawrence v Fox, 20 NY 268; Little v Banks, 85 NY 258; Robinson v Chamberlain, 34 NY 389; Charlock v Freel, 125 NY 357; Hayes v Brooklyn Hgts. R. R. Co., 200 NY 183; Cook v Dean, 11 App Div 123, 160 NY 660; Smyth v City of New York, 203 NY 106; Seaver v Ransom, 224 NY 233.) III. Where (as here) municipal entities jointly control a roadway, and where they negligently allow the roadway to remain in dangerous condition, they should be deemed jointly and severally liable to persons who thereby sustain injury. (Gutelle v City of New York, 55 NY2d 794; Nunez v City of New York, 177 AD2d 394; Morales v City of New York, 172 AD2d 430; Ames v City of New York, 177 AD2d 528; Gunn v Good Luck Truck Rental, 85 AD2d 567; Di Cupe v City of New York, 167 AD2d 442, 77 NY2d 806; Willis v City of New York, 107 AD2d 747; Torelli v City of New York, 176 AD2d 119; Klenetsky v State of New York, 172 AD2d 646; Huntley v New York State Thruway Auth., 139 Misc 2d 868.)

      Robert Abrams, Attorney-General, Albany, pro se (Michael S. Buskus, Jerry Boone and Peter H. Schiff of counsel), for State of New York, amicus curiae.

    I. Plaintiff proved by overwhelming evidence that the City, and the City alone, failed to discharge its maintenance, contractual and assumed duty with respect to signs on the Henry Hudson Parkway. (Marren v State of New York, 142 AD2d 717; Warren v New York State Thruway Auth., 51 AD2d 679; Merrill Transp. Co. v State of New York, 97 AD2d 921; Hearn v State of New York, 157 AD2d 883, 75 NY2d 710; Bailey v State of New York, 161 AD2d 912; Murray v State of New York, 44 AD2d 239, 38 NY2d 782.) II. Notwithstanding the State’s "ownership” of State arterial highways, the sole governmental entity subject to tort liability for deficient maintenance thereof is the municipality which actually maintains the highway pursuant to contract with the State. (Mason v State of New York, 180 AD2d 63; Klenetsky v State of New York, 172 AD2d 646; Ames v City of New York, 177 AD2d 528; Hutley v New York State Thruway Auth., 139 Misc 2d 868; Willis v State of New York, 107 AD2d 747; Gunn v Good Luck Truck Rental, 85 AD2d 567, 58 NY2d 780; Eaves Brooks Costume Co. v Y.B.H. Realty Corp., 76 NY2d 220; Crosland v New York City Tr. Auth., 68 NY2d 165.)
   OPINION OF THE COURT

Chief Judge Kaye.

Shortly before dawn during August 1983, defendant Andre Robertson, while driving on the Henry Hudson Parkway near 72nd Street in the City of New York, failed to negotiate a curve and drove his car into two highway barriers. The car flipped over, rendering plaintiff, a passenger in the car, a paraplegic.

Plaintiff brought this action against Robertson and the City alleging that Robertson negligently operated the car and the City negligently failed to post proper warning signs. The City resisted liability on several grounds, among them that responsibility for proper signage rested solely with the State. Summary judgment for the City was denied, and after trial, a verdict was returned against both defendants, apportioning liability 67% against the City and 33% against Robertson. The Appellate Division reversed and remanded for a new trial as to damages only, unless plaintiff stipulated to a reduced damages award. Plaintiff so stipulated and an amended judgment was entered. We agree that the City’s claimed lack of responsibility was correctly rejected, and accordingly affirm that judgment.

Viewing the evidence in a light most favorable to plaintiff, Robertson was driving southbound in the right-most lane at night on a road that was unfamiliar to him, at a speed in excess of posted limits. At the accident site, the Parkway makes a "reverse-S” curve and turns into the elevated West Side Highway. Because of the location of lightposts on the "reverse-S” curve, in the dark the road appears to be a continuous straightaway. A diamond-shaped yellow "reverses’’ warning sign and a 35 mile speed limit sign are posted just at the beginning of the curve. Robertson did not see the warning signs until he was at the mouth of the curve, when it was too late.

The evidence established that the City developed and implemented the sign placement plan for the Parkway. From 1970 forward, the City plan called for a diamond-shaped "reverses’’ yellow warning sign to be placed at post H-9, about 300 feet before the curve involved in the accident. A 1977 revision of that plan called for a speed limit of 35 miles per hour to be posted at the same place. Unfortunately, in 1978, City employees mistakenly placed the signs at post H-6 — 300 feet further south, at the start of the curve — where the signs remained on the date of the accident.

The City did not dispute its awareness that the curve was a hazardous location that had been the site of other single car accidents for several years before the accident. The City, however, argues that it can have no liability because the Henry Hudson Parkway is owned by the State as part of the State arterial highway system. We disagree.

As a State arterial highway — meaning a highway running through a locality and connecting it to State highways — the Henry Hudson Parkway by definition involves both the State and the locality.

Determination of the City’s responsibility for that roadway must begin with article XII-B of the Highway Law (Highway Law §§ 349-b through 349-f). That article was enacted in 1944 (L 1944, ch 543) to create a State-wide system for the use of State and Federal funds in the construction and modernization of State arterial highways (see, Highway Law § 349-b).

Under article XII-B, the State is empowered to expend State or Federal funds for the purchase, design, construction or reconstruction of arterial routes running through cities (Highway Law § 349-c [1], [5], [6]), and thereby attains ownership of such roads (Highway Law § 349-d). Once State construction or reconstruction of an arterial highway is complete, however, the State must return "jurisdiction” of the roadway to the City (Highway Law § 349-c [3.4]). Notwithstanding such return of jurisdiction article XII-B contemplates that the State retains continuing maintenance responsibility for State arterial highways it has constructed or reconstructed (Highway Law § 349-c [7]-[9]).

The trial evidence showed that the State had attained ownership of the Henry Hudson Parkway due to a reconstruction under article XII-B. Moreover, effective 1978, the State had transferred jurisdiction to the City with the direction that such transfer "shall not operate in derogation of the State’s right to establish and require compliance with maintenance standard[s] and also require compliance with any Federal Highway Administration order, directive rule or regulation concerning Federal-aid Highways.” Thus, as of the date of the accident, the City had jurisdiction over the Henry Hudson Parkway but the State retained certain maintenance responsibilities. These responsibilities — as allowed by Highway Law § 349-c (7)-(9) — were delegated to the City under an ongoing maintenance agreement. Under the maintenance agreement, the State reserved the right to perform its own sign installation and replacement, with the City to maintain any signs installed by the State.

Article XII-B, however, did not relieve the City of its obligation to keep the Henry Hudson Parkway — a highway within its jurisdiction — safe (see, Weiss v Fote, 7 NY2d 579, 584). To the contrary, according to the statutory Declaration of Policy: "it is the manifest intention of the state to recognize and to preserve the powers or rights heretofore conferred upon or delegated to any city to regulate the property, affairs or government thereof, in the modernization and the construction of such arterial highways” (Highway Law § 349-b). During the drafting of article XII-B, concern was expressed that the law would prevent New York City from acting over its own streets and "proceeding with * * * design or acquisition even with its own money” (Letter from Mayor La Guardia to Governor Dewey, dated Mar. 23, 1944, recommending disapproval of A Int 2052, Pr 2428, in Bill Jacket for L 1944, ch 543). In response, the memorandum filed with the bills stated "[t]hese bills meticulously avoid unnecessary infringement upon the local government and local responsibility for local affairs” (Governor’s Approval Mem, dated Apr. 1944, filed with A Int 2052, Pr 2428; S Int 13, Pr 1994, in Bill Jacket for L 1944, ch 543). As enacted, the statute explicitly reserves to the City the right to make its own plans, acquire its own property, perform its own construction, and otherwise control arterial highways within City limits (see, Highway Law § 349-c [3.1]-[3.4], [3.6]).

Recognition of City responsibility is a theme sounded throughout the legislative history of amendments to article XII-B (see, e.g., Mem in Opposition to S 6939 from Legis Rep R. Brown, in Bill Jacket for L 1971, ch 617 ["(s)ince the inception in this state of the Federal-aid highway program, the City has had a concurrent power over state highway construction in the City of New York and has exercised this power in the City’s interest”]; Letter from R. Moses, City of NY Planning Commn, dated Feb. 21, 1945, in Bill Jacket for L 1945, ch 619 [discussing arrangements to retain "genuine autonomy” for the City of New York in the matter of State arterial highways]). Thus, the City’s argument — that it could not be liable here because the placement of signs on the Parkway was solely a State responsibility — is wholly without basis.

Indeed, the City acknowledges that, as contemplated by the statute, it actually planned where new signs should be placed on the Parkway and then placed those signs. Once a municipality undertakes a duty, it must of course perform that duty in a nonnegligent manner (Florence v Goldberg, 44 NY2d 189, 196; Wolf v City of New York, 39 NY2d 568, 573; Moch Co. v Rensselaer Water Co., 247 NY 160, 167 [the "hand once set to a task may not always be withdrawn with impunity though liability would fail if it had never been applied at all”]). There is no dispute that negligent placement of the signs perpetuated a dangerous traffic condition, and the jury reasonably found that such condition was a proximate cause of plaintiff’s injury. Thus, there was no error in allowing liability against the City.

Thompson v City of New York (78 NY2d 682, 684-685) is not to the contrary. There we restated the rule that a municipality has a duty to maintain its streets in a reasonably safe condition and that the municipality breaches such duty if it permits a dangerous or potentially dangerous condition to exist and cause injury (id., at 684-685). However, we reversed the judgment against the City because plaintiff there had failed to show that the City had rendered a safe situation dangerous by neglecting to replace a bulb in a streetlight (id., at 685). Here, by contrast, the road condition was hazardous from the outset and the City undertook to make it safe. In failing to do so, the City perpetuated the dangerous condition, and cannot now escape liability by disavowing responsibility for placing signs on the Parkway.

Finally, there is no merit in the City’s contention that the sign placement was irrelevant to liability because defendant Robertson’s speeding was the sole cause of the accident. Proximate cause is a jury question (Derdiarian v Felix Contr. Corp, 51 NY2d 308, 315), and we see no reason to disturb the jury’s determination that the negligence of both the City and Robertson contributed to the accident. We also reject the City’s request to reduce or eliminate the award for economic loss, as we cannot say those damages — already reduced by the Appellate Division — are without sufficient support in the record.

Accordingly, the judgment appealed from and order of the Appellate Division brought up for review should be affirmed, with costs.

Judges Simons, Titone, Hancock, Jr., and Bellacosa concur; Judge Smith taking no part.

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


author: Simons, J.

text:
    Kronos, Inc., Formerly Known as NL Chemicals, Inc., Appellant, v AVX Corporation, Respondent, and TAM Ceramics, Inc., Defendant.
    Argued February 10, 1993;
    decided April 1, 1993

      POINTS OF COUNSEL

      McGee & Gelman, Buffalo (William R. Bronner, Michael R. McGee, F. Brendan Burke, Jr., and Michael J. Cronin of counsel), for appellant.
    I. The causes of action against AVX first accrued when damages were suffered by Kronos. (Jacobus v Colgate, 217 NY 235; Roldan v Allstate Ins. Co., 149 AD2d 20; Israel v Wood Dolson Co., 1 NY2d 116; Simon v Noma Elec. Corp., 293 NY 171; NRT Metals v Laribee Wire, 102 AD2d 705; Automotive Elec. Serv. Corp. v Association of Automotive Aftermarket Distribs., 747 F Supp 1483; Skoller v Blue Cross-Blue Shield, 584 F Supp 288; Victorson v Bock Laundry Mach. Co., 37 NY2d 395; Chen v United States, 854 F2d 622.) II. TAM did not commit the predicate material breach of contract until 1988. (Ga Nun v Palmer, 202 NY 483; Airco Alloys Div. v Niagara Mohawk Power Corp., 76 AD2d 68; Kartiganer Assocs. v Town of New Windsor, 108 AD2d 898, 65 NY2d 925; Fury Imports v Shakespeare Co., 625 F2d 585, 450 US 921; Ryan Ready Mixed Concrete Corp. v Coons, 25 AD2d 530; Brooklyn Union Gas Co. v Interboro Surface Co., 87 AD2d 833.) III. The result favored by Kronos is consistent with the application of Statutes of Limitation in other situations where tortious conduct also breaches a contract. (Tavares v Hobart Waste Compactor, 151 AD2d 251; Heller v U.S. Suzuki Motor Corp., 64 NY2d 407; Sommer v Federal Signal Corp., 79 NY2d 540.)

      Cravath, Swaine & Moore, New York City (Paul M. Dodyk and Larry W. Miller of counsel), for respondent.
    I. Kronos has made no claim that AVX induced a breach of contract by TAM in 1988. (Sharma v Skaarup Ship Mgt. Corp., 916 F2d 820; Demalco Ltd. v Feltner, 588 F Supp 1277; Israel v Wood Dolson Co., 1 NY2d 116; Sommer v Federal Signal Corp., 79 NY2d 540; Victorson v Bock Laundry Mach. Co., 37 NY2d 395.) II. Kronos’s claims that AVX induced a breach of contract occurring in 1984 are time-barred and must be dismissed. (Kartiganer Assocs. v Town of New Windsor, 108 AD2d 898, 65 NY2d 925; Norris v Grosvenor Mkgt., 803 F2d 1281; Schonberger v Serchuk, 742 F Supp 108; Metro Oil Co. v Sun Ref. & Mkgt. Co., 936 F2d 501; Rock Is. Bank v Aetna Cas. & Sur. Co., 692 F2d 1100; Kassner & Co. v City of New York, 46 NY2d 544; Edlux Constr. Corp. v State of New York, 252 App Div 373, 277 NY 635; Ryan Ready Mixed Concrete Corp. v Coons, 25 AD2d 530; Brooklyn Union Gas Co. v Interboro Surface Co., 87 AD2d 833; National Life Ins. Co. v Hall & Co., 67 NY2d 1021.)
   OPINION OF THE COURT

Simons, J.

Plaintiff instituted this action in 1991 alleging in its third cause of action that defendant AVX had tortiously induced the breach of its contract with another. AVX moved to dismiss the cause of action claiming it was time-barred (CPLR 3211 [a] [5]). The parties agree that the three-year Statute of Limitations for injury to property applies (see, CPLR 214 [4]), and the sole question presented is whether the cause of action accrued when the contract was breached in 1984, as AVX contends, or in 1988 when plaintiff alleges it first suffered actual damages as a result of AVX’s tortious conduct. Plaintiff had no cause of action, and the Statute of Limitations could not start to run, until plaintiff suffered injury (see, Schmidt v Merchants Desp. Transp. Co., 270 NY 287, 300; see generally, Siegel, NY Prac § 40, at 47 [2d ed]). Inasmuch as plaintiff’s complaint alleges facts demonstrating that no injury was sustained until 1988, AVX’s motion to dismiss should be denied.

I

Assuming as we must for purposes of this motion that the facts set forth in the amended complaint are true (Nasaba Corp. v Harfred Realty Corp., 287 NY 290, 294), plaintiff’s predecessor was the owner of patents for producing "multilayer capacitors” used in certain electronic devices. In 1974, it granted Corning Glass Works a nonexclusive license to produce capacitors under the patents. The agreement gave Corning "most favored licensee” status, i.e., if more favorable terms were subsequently negotiated by the licensor with another, the licensor was required to offer Corning the same terms. Five years later, plaintiff sold its capacitor assets to codefendant TAM Ceramics, Inc. and assigned the patents and its rights under the Corning license to TAM as a part of the transaction. TAM was to administer the Corning license in the interest of both parties and pay one half of all future royalties to plaintiff.

In 1984, without notice to plaintiff or Corning, TAM entered into a license agreement with defendant AVX under terms more favorable than those in Coming’s licensing agreement, and AVX began competing with Corning in the capacitor market. In spite of this competition, however, plaintiff’s share of royalties from the Corning license continued to rise through 1987. At that time, Corning learned of AVX’s license and advised TAM that it had violated the "most favored licensee” provisions by not offering it comparable terms. The matter was never resolved, TAM taking the position it had no obligation to renegotiate the Corning license. A few months later AVX acquired from Corning the assets it used to manufacture capacitors without assuming any royalty obligation to plaintiff or TAM under the agreement. Because its own license contained no limit on production, AVX was able to use both its preexisting facilities and those acquired from Corning to produce its capacitors without resorting to the Corning license. In March of 1988, TAM informed plaintiff that no further payments from the Corning license would be made.

Plaintiff commenced an action in February 1991, seeking damages from AVX for its tortious inducement to breach plaintiff’s contract with TAM and for intentionally inflicting economic harm. AVX subsequently moved to dismiss, arguing the claims were time-barred. It claims that accrual occurred in 1984, when TAM allegedly breached its contract with plaintiff by entering into the licensing agreement with AVX. The trial court found that no breach occurred until 1988, when TAM ceased making payments under the Corning license but the Appellate Division reversed concluding that the breach occurred, and the cause of action accrued, in 1984 on the date TAM and AVX entered into their licensing agreement. In response to plaintiffs contention that the damage element necessary for its tort claim did not arise until 1988, the Appellate Division relied on the well-established rule of contract law that the law will infer at least nominal damages at the moment of breach.

II

Were this an action sounding in contract, AVX would be correct in its insistence that settled law marks accrual from the contractual breach. However, plaintiffs cause of action is one sounding in tort, and, as a general proposition, a tort cause of action cannot accrue until an injury is sustained (Schmidt v Merchants Desp. Transp. Co., 270 NY 287, 300-301, supra; see generally, Siegel, NY Prac § 40, at 47 [2d ed]). That, rather than the wrongful act of defendant or discovery of the injury by plaintiff, is the relevant date for marking accrual (Schmidt v Merchants Desp. Transp. Co., supra, at 300). The Statute of Limitations does not run until there is a legal right to relief. Stated another way, accrual occurs when the claim becomes enforceable, i.e., when all elements of the tort can be truthfully alleged in a complaint (see, Jacobus v Colgate, 217 NY 235, 245; Roldan v Allstate Ins. Co., 149 AD2d 20, 26).

The tort of inducement of breach of contract, now more broadly known as interference with contractual relations, consists of four elements: (1) the existence of a contract between plaintiff and a third party; (2) defendant’s knowledge of the contract; (3) defendant’s intentional inducement of the third party to breach or otherwise render performance impossible; and (4) damages to plaintiff (Israel v Wood Dolson Co., 1 NY2d 116, 120; see generally, Restatement [Second] of Torts § 766; 4 Lee and Lindahl, Modern Tort Law § 45.02, at 20 [rev ed]). Since damage is an essential element of the tort, the claim is not enforceable until damages are sustained. Thus, in its present posture, this action is time-barred only if plaintiff’s complaint must be read to allege damages arising prior to 1988.

Plaintiff states in its complaint that it suffered damages in 1988: it has made no allegation of damage occurring before that date. AVX advances two themes for finding otherwise: it maintains that the damage element must be construed as arising in 1984 because the law always infers at least nominal damages at a contractual breach or, alternatively, because actual damages at the time of breach must be inferred from the particular facts of this complaint.

AVX first proposes that the legal fiction of nominal damages be imported from contract law into this tort action. By doing so, and assuming for the sake of argument that the events of 1984 constituted a contractual breach, the court would be compelled to find that all the elements of the tort claim were present in 1984 and the cause of action accrued then. The use of the contractual breach as the date of accrual has been accepted in some jurisdictions (see, e.g., Metro Oil Co. v Sun Ref. & Mktg. Co., 936 F2d 501, 504; Rock Is. Bank v Aetna Cas. & Sur. Co., 692 F2d 1100, 1103) with some courts expressly employing the legal fiction of nominal damages (see, e.g., Bankers Health & Life Ins. Co. v Fryhofer, 114 Ga App 107, 150 SE2d 365, 369-370; Note, Damages Recoverable in an Action for Inducing Breach of Contract, 30 Colum L Rev 232, 238). To do so, however, is to ignore the fundamental differences between tort and contract principles.

Nominal damages are always available in breach of contract actions (5 Corbin, Contracts § 1001, at 29), but they are allowed in tort only when needed to protect an "important technical right” (Note, Damages Recoverable in an Action for Inducing Breach of Contract, op. cit., at 238). For example, nominal damages have been recognized in tort to protect a landowner’s right to be free of trespass, but that exception from the established rule that actual injury must be shown is warranted because a continuing trespass may ripen into a prescriptive right and deprive a property owner of title to his or her land (Prosser and Keeton, Torts, at 75 [5th ed]). There is no similarly compelling reason for departing from the actual injury rule when the trespass alleged is not to real property but to a chattel (1 Harper, James and Gray, Torts § 2.3, at 141-143 [2d ed]) or, as in the present case, to an intangible property right arising under contract. In such cases, actual loss must be demonstrated (see, Prosser and Keeton, op. cit., at 1002-1003; Annotation, Liability for Procuring Breach of Contract, 26 ALR2d 1227, § 43; see, e.g., Hodge v Meyer, 252 F 479, cert denied 248 US 565; Myers v Arcadio, Inc., 73 NJ Super 493, 180 A2d 329).

There is no anomaly in the fact that nominal damages are recognized in plaintiffs breach of contract claim against TAM but disallowed in this tort action, in which the same contractual breach is an element. Fundamentally different functions are served by an action in tort on the one hand, and an action in contract on the other, and an understanding of that functional difference is critical to understanding why nominal damages are appropriate in one and not in the other. Contract liability is "imposed by the law for the protection of a single, limited interest, that of having the promises of others performed * * * The law of torts * * * is concerned with the allocation of losses arising out of human activities” (Prosser and Keeton, op. cit, at 5-6). In other words, a party’s rights in contract arise from the parties’ promises and exist independent of any breach. Nominal damages allow vindication of those rights. In tort, however, there is no enforceable right until there is loss. It is the incurring of damage that engenders a legally cognizable right. To recognize nominal damages element of tort claims would be to wrest the cause of action from its traditional purposes — the compensation of losses — and to use it to vindicate nonexistent or amorphous inchoate rights when unlike in trespass to property, there is no compelling reason to do so.

Moreover, it is important to distinguish the two breaches in this cause of action — one a tortious breach, the other a contractual breach — and to understand their differing legal significance. AVX’s breach of duty in tort owing to plaintiff occurred when it allegedly made improper inducements to TAM. That tortious breach is separate and distinct from any contractual breach committed by TAM. For purposes of this litigation, the contractual breach is a result of the tortious breach and, in large measure, simply a link in the causal chain between defendant’s wrongful act and plaintiff’s injury. No need to make a right enforceable against defendant arises at that point, for no right exists until there is loss.

AVX’s second theory for finding that damages arose in 1984 is that the particular factual allegations made by plaintiff necessarily imply damages at the time the contract was breached. Though plaintiff alleges no damages in 1984, we would nonetheless be bound to recognize them if the only reasonable inference to be drawn from plaintiff’s allegations is that it suffered some loss at that time (see, Nasaba Corp. v Harfred Realty Corp., 287 NY 290, 294, supra). A review of the amended complaint does not support such an inference.

AVX’s theory is that when TAM and AVX entered into a separate licensing agreement in 1984, the value of the Corning license was diminished and plaintiff thus suffered immediate economic loss. However, it does not follow that injury necessarily occurred at the moment TAM merely promised to act in a manner counter to plaintiff’s interests. Either TAM or AVX could have chosen not to follow through on the second contract, or TAM could have decided to abide by the "most favored licensee” terms of the Corning license, thereby protecting whatever interest plaintiff had (see, Fury Imports v Shakespeare Co., 625 F2d 585, cert denied 450 US 921). Because the Corning license was nonexclusive, a fact that would have been reflected in its value in the marketplace, TAM’s act of agreeing to create a new licensee, without more, does not compel us to infer actual injury from the facts as stated in the complaint. Indeed, after making the second licensing arrangement, TAM continued to honor the financial terms of its agreement with plaintiff through 1987, with plaintiff’s royalty revenue from the Corning license actually increasing. In 1987, some three years after AVX had received its license and begun competing in the capacitor market, Corning continued to predict substantial profits from its capacitor operation. AVX’s argument that plaintiff’s complaint characterizes the events of 1984 as creating a "competitive disadvantage” is not availing. More than an inchoate "disadvantage” would be required to indicate actual economic loss in 1984, and the facts alleged in the amended complaint do not require the inference, as a matter of law, that damages were suffered prior to 1988.

To summarize, no cause of action for tortious inducement to breach a contract arises until actual damages are sustained; nominal damages associated with the underlying breach of contract will not stand in the stead of actual damages; and, finally, no inference of actual damages is implicit by the facts alleged in the amended complaint.

Accordingly, the order of the Appellate Division should be reversed, with costs, and defendant AVX Corporation’s motion to dismiss the third and fourth causes of action of the amended complaint denied.

Chief Judge Kaye and Judges Titone, Hancock, Jr., Bellacosa and Smith concur.

Order reversed, etc.

      . Because the motion sought relief only under CPLR 3211 (a) (5), we do not address the arguments in defendant’s brief that the amended complaint fails to state a cause of action. Intentional infliction of economic harm has not been recognized in New York, and we state no opinion on this limited motion whether it should be. The claim, if such there was, accrued at the same time as the cause of action for inducement and would be governed by a three-year Statute of Limitations.

        . Plaintiff would clearly prevail if the breach occurred in 1988 and while it renews this argument on appeal it relies principally on its claim that the cause of action did not accrue until it sustained actual damages in 1988. We agree with the Appellate Division that the complaint alleges a breach occurring in 1984.