author: Smith, J.

text:
    [668 NE2d 1370, 646 NYS2d 76]
    Lama Holding Company et al., Appellants, v Smith Barney Inc. et al., Respondents.
    Argued May 1, 1996;
    decided June 13, 1996

      POINTS OF COUNSEL

      Arent Fox Kintner Plotkin & Kahn (George R Kucik and David T. Dekker of the District of Columbia Bar, admitted pro hac vice, of counsel) and Arent Fox Kintner Plotkin & Kahn, New York City (Jill R. Newman of counsel), for appellants.
    I. The Court below erred in holding that plaintiffs’ loss is not recoverable under New York’s "out-of-pocket” rule of fraud damages. (Kensington Puhl. Corp. v Kable News Co., 100 AD2d 802; Cayuga Harvester v Allis-Chalmers Corp., 95 AD2d 5; Reno v Bull, 226 NY 546; Hotaling v Leach & Co., 247 NY 84; Alpert v Shea Gould Climenko & Casey, 160 AD2d 67; Broffe v Horton, 172 F2d 489; Orbit Holding Corp. v Anthony Hotel Corp., 121 AD2d 311; Hanlon v MacFadden Publs., 302 NY 502; National Conversion Corp. v Cedar Bldg. Corp., 23 NY2d 621; Clearview Concrete Prods. Corp. v S. Charles Gherardi, Inc., 88 AD2d 461.) II. The Court below erred in holding that allegations of loss causation involving an alternative transaction are inherently speculative under New York law. (Woods v Lancet, 303 NY 349; Shack v Holland, 89 Misc 2d 78; Eastwood v National Bank of Commerce, 673 F Supp 1068; General Rubber Co. v Benedict, 215 NY 18; NBT Bancorp v Fleet/ Norstar Fin. Group, 159 AD2d 902; Brown v State of New York, 192 AD2d 936; Mortensen v Memorial Hosp., 105 AD2d 151; Greasy Spoon v Jefferson Towers, 75 NY2d 792; Aufrichtig v Lowell, 85 NY2d 540; Kenford Co. v County of Erie, 67 NY2d 257.) III. The Court below erred by applying New York law to dismiss plaintiffs’ claims without conducting a choice-of-law analysis. (Munzer v St. Paul Fire & Mar. Ins. Co., 145 AD2d 193; Rosenzweig v Glen’s Truck Serv., 136 AD2d 689; Brandman v Cross & Brown Co., 125 Misc 2d 185; Schultz v Boy Scouts of Am., 65 NY2d 189; Hart v General Motors Corp., 129 AD2d 179; Gray v Furia Org., 896 F Supp 144; Coleman v Taub, 638 F2d 628; Mantei v Creole Petroleum Corp., 61 AD2d 910.) IV. The trial court erred in holding that plaintiffs Rana and Rasha lacked standing to sue, because defendants owed these plaintiffs independent duties which, when breached, injured them directly. (Abrams v Donati, 66 NY2d 951; General Rubber Co. v Benedict, 215 NY 18; Weiss v Salamone, 116 AD2d 1009; Ceribelli v Elghanayan,
      990 F2d 62; Powers v Ostreicher, 824 F Supp 372; Grubb v Federal Deposit Ins. Corp., 868 F2d 1151; Leasco Data Processing Equip. Corp. v Maxwell, 468 F2d 1326; Schur v Salzman, 50 AD2d 784; Perlman v Feldmann, 219 F2d 173, 349 US 952; General Elec. Co. v Bucyrus-Erie Co., 563 F Supp 970.) V. In the alternative, plaintiffs should be granted leave to replead. (Sanders v Schiffer, 39 NY2d 727; Estate of Richter v Novo Corp., 43 AD2d 1, 36 NY2d 757; C. E. Hooper, Inc. v Perlberg, Monness, Williams & Sidel, 72 AD2d 687; Cushman & Wakefield v John David, Inc., 25 AD2d 133; Annicaro v Structurtone, 175 AD2d 546; Piffath v Esposito, 58 AD2d 577; Rochester Poster Adv. Co. v Town of Penfield, 51 AD2d 870; Wattson v TMC Holdings Corp., 135 AD2d 375.)

      Skadden Arps Slate Meagher & Flom, New York City (William P. Frank, Jeremy A. Berman and Daniel J. Fish of counsel), for respondents.
    I. Plaintiffs’ complaint does not state a cause of action for fraud or negligent misrepresentation. (Reno v Bull, 226 NY 546; Mihalakis v Cabrini Med. Ctr., 151 AD2d 345, 75 NY2d 790; Sager v Friedman, 270 NY 472; Foster v Di Paolo, 236 NY 132; Hotaling v Leach & Co., 247 NY 84; Dress Shirt Sales v Hotel Martinique Assocs., 12 NY2d 339; AFA Protective Sys. v American Tel. & Tel. Co., 57 NY2d 912; Zivian v McNulty, 136 AD2d 547; Alpert v Shea Gould Climenko & Casey, 160 AD2d 67; Kensington Publ. Corp. v Kable News Co., 100 AD2d 802.) II. Plaintiffs have failed to state a cause of action for breach of fiduciary duty under Delaware law. (Koal Indus. Corp. v Asland, 808 F Supp 1143; Matter of Reading Co., 711 F2d 509; Coleman v Taub, 638 F2d 628; Dofflemyer v Hall Print. Co., 558 F Supp 372.) III. Plaintiffs have not stated a cause of action for breach of contract. (W.W.W. Assocs. v Giancontieri, 77 NY2d 157; Nichols v Nichols, 306 NY 490; M/A-Com Sec. Corp. v Galesi, 904 F2d 134; Van Valkenburgh, Nooger & Neville v Hayden Publ. Co., 30 NY2d 34, 409 US 875; Walther v Bank of N. Y., 772 F Supp 754; Sabetay v Sterling Drug, 69 NY2d 329; Murphy v American Home Prods. Corp., 58 NY2d 293; Cross & Cross Props. v Everett Allied Co., 886 F2d 497; Kenford Co. v County of Erie, 67 NY2d 257.) IV. Plaintiffs have not stated a cause of action for tortious interference with contract and advantageous business relations. (Artwear, Inc. v Hughes, 202 AD2d 76; Israel v Wood Dolson Co., 1 NY2d 116; Ciccolo v Chicago Research & Trading Group, 161 AD2d 364; Guard-Life Corp. v Parker Hardware Mfg. Co., 50 NY2d 183; Fine v Doernberg & Co., 203 AD2d 419; WFB Telecommunications v NYNEX Corp., 188 AD2d 257, 81 NY2d 709.) V. The trial court correctly dismissed causes of action asserted by Rana and Rasha for lack of standing. (Schleidt v Stamler, 106 AD2d 264; Glenn v Hoteltron Sys., 74 NY2d 386; Torrey Delivery v Chautauqua Truck Sales & Serv., 47 AD2d 279; Brock v Poor, 216 NY 387; Ceribelli v Elghanayan, 990 F2d 62; General Rubber Co. v Benedict, 215 NY 18.) VI. There is no choice-of-law issue that warrants reversal of the result below. (First Fed. Sav. & Loan Assn. v Oppenheim, Appel, Dixon & Co., 631 F Supp 1029; Cooney v Osgood Mach., 81 NY2d 66; Neumeier v Kuehner, 31 NY2d 121.) VII. The Court below correctly dismissed plaintiffs’ claims with prejudice. (Bardere v Zafir, 63 NY2d 850; Abbott v Herzfeld & Rubin, 202 AD2d 351, 83 NY2d 995; Licensing Dev. Group v Freedman, 184 AD2d 682; Hickey v National League of Professional Baseball Clubs, 169 AD2d 685; ATI, Inc. v Ruder & Finn, 42 NY2d 454.)
   OPINION OF THE COURT

Smith, J.

This action arises out of the sale by defendant Smith Barney Inc. of all of its stock in a merger with Primerica Corporation. The primary issue here is whether the complaint states any cause of action entitling plaintiffs to recover a $33 million tax liability or any other relief. Because we agree that the complaint fails to state any cause of action, we affirm the order of the Appellate Division dismissing the complaint in its entirety.

In 1987, defendant Smith Barney and Primerica merged, with Primerica acquiring all of the shares of Smith Barney. At the time of the merger, plaintiff Lama Holding Company owned approximately 24.9% of the shares of Smith Barney. Lama was at all times the largest single shareholder of Smith Barney. The stock purchased by Lama was designated "Rana Common Stock.” Lama, incorporated under the laws of Delaware, was formed expressly to acquire and hold stock in Smith Barney for resale at a profit. Lama had purchased its interest in Smith Barney in 1982, for approximately $40 million, through a tritiered corporate structure. Lama was owned by two foreign entities, with 66.6% owned by Rana Investments Ltd., a British Virgin Islands corporation, and 33.3% owned by Rasha Investments, N.V., a Netherlands Antilles corporation. Rana owned 100% of Rasha, and both were part of a Middle Eastern investment group. The acquisition of Smith Barney stock by Lama was part of a complex structure created to take advantage of favorable United States tax treatment under the "General Utilities Doctrine,” pursuant to which a domestic corporation could sell its assets under certain circumstances without incurring tax liability.

When Lama purchased the Smith Barney stock in 1982, it entered into a shareholders’ agreement (the June 1982 agreement) whereby it agreed not to sell its Smith Barney stock for four years. Under the 1982 agreement, Lama was granted the right of first refusal on any merger, and Smith Barney’s right to sell the remainder of its shares was limited. Lama decided to sell some or all of its Smith Barney stock in 1986 and, in September 1986, retained Bankers Trust Company as its financial advisor and sales representative. Plaintiffs, however, were unsuccessful in their attempt to sell any of their shares. Plaintiffs maintain that by various unlawful means, Smith Barney affirmatively tried to block, frustrate and hinder the sale of Lama’s Smith Barney stock.

During 1986 and 1987 Smith Barney negotiated a merger with Primerica and, by May 1987, negotiations were apparently in their final stages. On May 19, 1987, Smith Barney’s chairman and president (the individual defendants) held a meeting in London (the May 19,1987 meeting) with representatives of Lama. Lama was informed that Smith Barney had secured a merger partner who was prepared to purchase all of Smith Barney’s stock; that virtually all of the other Smith Barney shareholders were expected to vote in favor of the merger and such majority would insure consummation of the merger without the support of Lama; and that because of considerations of time and secrecy, Lama would have to decide immediately (without the benefit of financial or legal counsel) whether it would vote its shares in favor of the merger. Lama’s representatives were additionally informed that if Lama chose not to vote in favor of the merger, it would be left in an unfavorable position as a minority shareholder in a reconstituted Smith Barney. Lama, thereafter, executed a one-page agreement to vote its shares in favor of the merger and waived its right of first refusal.

Lama contends that its consent to the merger was fraudulently induced. Specifically, Lama maintains that at the May 19, 1987 meeting, defendants failed to disclose that the merger partner was Primerica, Primerica would or could withdraw from the merger if 5% of the holders of Smith Barney common stock did not approve the transaction, Smith Barney did not reveal the terms of the proxy statement which contained important tax information, and Smith Barney failed to advise Lama of the potential tax consequences of the sale of Lama’s Smith Barney stock.

After executing the May 19, 1987 agreement, Lama learned that the General Utilities Doctrine had been repealed by the Tax Reform Act of 1986 and, as a result, the sale of its Smith Barney shares would constitute a taxable event. With knowledge of the likely substantial tax consequences of the merger, Lama sought to restructure Primerica’s acquisition of Smith Barney’s stock by having Primerica purchase Lama directly from Rana and Rasha which potentially eliminated Lama’s tax liability. Primerica refused, and the Smith Barney-Primerica merger closed in June 1987. As a result of the merger, Lama received over $163 million for its Smith Barney stock (a profit of approximately $90 million) and was subject to United States tax liability of over $33 million.

Lama commenced an action in Federal court against its financial advisor Bankers Trust, its legal advisor Shearman & Sterling, and the defendants herein (Lama Holding Co. v Shearman & Sterling,, US Dist Ct, SD NY, Duffy, J., 89 Civ. 3639 [see, 758 F Supp 159]). The Federal securities claims against the defendants were dismissed for failure to state claims, and the pendent State claims were not retained. Plaintiffs then brought this action in State court, alleging fraud and misrepresentation, breach of fiduciary duty, negligent misrepresentation, tortious interference with contract and advantageous business relations, and breach of contract. Among other things, plaintiffs seek a judgment in the amount of $33 million, the tax liability, a "sum to be determined at trial, for Plaintiffs’ reasonably anticipated net financial gain from the disposition of The Smith Barney Investment to a third party purchaser, plus prejudgment interest,” and punitive damages.

Supreme Court dismissed with prejudice plaintiffs’ fraud, misrepresentation and tortious interference claims in their entirety and dismissed the breach of fiduciary duty cause of action as asserted on behalf of Rana and Rasha. The court also dismissed the breach of contract claims asserted by Rasha on standing grounds.

The Appellate Division modified and granted defendants’ motion to dismiss the complaint in its entirety, holding that (1) plaintiffs could "not recover damages in fraud or negligent misrepresentation since damages under those theories are limited to indemnity for actual pecuniary loss, and do not include the greater profit that could have been made but for the false representations,” (2) the claims for tortious interference with contract and prospective contract failed because no interference with contract occurred and the prospect of a contract was too speculative and, (3) assuming the truth of the allegations of breach of a fiduciary duty and breach of a contract based upon the shareholders’ agreement, plaintiffs received large profits from the sale of Smith Barney stock and the claim for additional damages was speculative (215 AD2d 314, 315). This Court granted leave to appeal and we now affirm.

Fraud and Negligent Misrepresentation

Counts one and three allege fraud and negligent misrepresentation. Specifically, plaintiffs argue that defendants misled Lama’s representatives at the May 19, 1987 meeting, thereby inducing their vote for the Smith Barney-Primerica merger. They claim as damages the amount of taxes they are required to pay. The issue is whether such consequential damages support the cause of action.

In an action to recover damages for fraud, the plaintiff must prove a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury (see, Channel Master Corp. v Aluminum Ltd. Sales, 4 NY2d 403; New York Univ. v Continental Ins. Co., 87 NY2d 308, 318). "The true measure of damage is indemnity for the actual pecuniary loss sustained as the direct result of the wrong” or what is known as the "out-of-pocket” rule (Reno v Bull, 226 NY 546, 553; Hanlon v MacFadden Publ., 302 NY 502). Under this rule, the loss is computed by ascertaining the "difference between the value of the bargain which a plaintiff was induced by fraud to make and the amount or value of the consideration exacted as the price of the bargain” (Sager v Friedman, 270 NY 472, 481). Damages are to be calculated to compensate plaintiffs for what they lost because of the fraud, not to compensate them for what they might have gained (see, Cayuga Harvester v Allis-Chalmers Corp., 95 AD2d 5). Under the out-of-pocket rule, there can be no recovery of profits which would have been realized in the absence of fraud (Foster v Di Paolo, 236 NY 132; AFA Protective Sys. v American Tel. & Tel. Co., 57 NY2d 912).

Accepting all of plaintiffs’ factual allegations as true, there is no actionable fraud or misrepresentation. Plaintiffs’ tax liability was not caused by an act or omission by defendants, but rather by the repeal of the General Utilities Doctrine under the Tax Reform Act of 1986, six months prior to the May 19, 1987 meeting. Lama’s participation in the merger was a taxable event which required it to pay taxes as a result of the repeal of the General Utilities Doctrine. The complaint does not allege how defendants’ failure to disclose that Primerica was the merger partner or that several directors would be treated favorably by Primerica for their votes, was fraudulent, or proximately caused the tax consequences to Lama of participating in the merger. Plaintiffs additionally fail to allege how defendants could possibly have known of Lama’s ignorance of the change in the tax laws, requiring Smith Barney, as opposed to plaintiffs’ own financial and legal counsel, to provide such information.

Even if the claims of fraud were sufficiently alleged, plaintiffs would be limited to recovering their losses. (Reno v Bull 226 NY 546, supra; see also, Hotaling v Leach & Co., 247 NY 84, 88 ["actual pecuniary loss sustained as a direct result of the wrong is the measure to be applied in fixing damages.”]) There were, however, no losses here because plaintiffs, like the rest of Smith Barney’s shareholders, received more than twice the fair market value for their shares.

Further, the loss of an alternative contractual bargain (Primerica’s purchase of Lama from Rana and Rasha rather than the purchase of stock owned by Lama) cannot serve as a basis for fraud or misrepresentation damages because the loss of the bargain was "undeterminable and speculative” (Dress Shirt Sales v Hotel Martinique Assocs., 12 NY2d 339, 344). While plaintiffs allege that but for defendants’ fraud, Lama could have exercised its 25% appraisal rights to force Primerica to withdraw from the merger with Smith Barney and accept plaintiffs’ offer to purchase Lama from Rana and Rasha, nowhere do plaintiffs allege that Primerica’s refusal to go forward with Lama’s proposal was because of defendants’ fraud rather than an independent business decision made by Primerica.

Nor does the out-of-pocket rule allow for recovery of the payment of taxes, couched as consequential damages or otherwise. This case is similar to Alpert v Shea Gould Climenko & Casey (160 AD2d 67), where investors in a tax shelter sued the law firms that advised them, claiming lost profits and tax benefits they would have obtained had they invested in a viable tax shelter and not relied on their advisor’s opinions. The Alpert Court rejected the plaintiffs’ claim for the recovery of taxes, holding the recovery of taxes paid would put the plaintiffs in a better position than had they not made the choice they did. "The recovery of consequential damages naturally flowing from a fraud is limited to that which is necessary to restore a party to the position occupied before commission of the fraud” (id., at 71). Lama’s tax payment does not naturally flow from Smith Barney’s alleged fraud, but from a change in the tax laws, and recoupment by Lama of the taxes paid would put it in a better position than if it retained its Smith Barney shares.

Breach of Fiduciary Duty

Count two alleges that Smith Barney owed Lama a duty "to act in its best financial interest with the utmost good faith, with the highest degree of knowledge, skill, care, integrity, honesty, fairness and with undivided loyalty, and to comply with all other fiduciary duties.” Plaintiffs maintain that Smith Barney breached its fiduciary duty to Lama by failing to disclose to Lama, prior to issuance of the proxy material, that Primerica was Smith Barney’s merger partner and could or would have withdrawn from the merger if less than 95% of Smith Barney’s shareholders approved of the merger, that Lama faced substantial tax consequences if it participated in the merger, and that Smith Barney did not use its best efforts to permit Lama to sell its shares to a purchaser of Lama’s choice as required by the shareholder agreement.

Plaintiffs contend that their breach of fiduciary duty claim is governed by Delaware law which authorized the claim made here. Under Delaware law, corporate officers, directors and controlling shareholders "owe their corporation and its minority shareholders a fiduciary obligation of honesty, loyalty, good faith and fairness” (Singer v The Magnavox Co., 380 A2d 969, 976, overruled on other grounds in Weinberger v UOP, Inc., 457 A2d 701). Delaware law imposes a duty upon corporations to disclose "all available material information when obtaining shareholder approval” (Cede & Co. v Technicolor, Inc., 634 A2d 345, 372). Only damages caused by the breach of fiduciary duty are compensable (Thorpe v Cerbco, Inc., 676 A2d 436). Plaintiffs argue that at the May 19, 1987 meeting, defendants’ misrepresentation of material facts concerning Smith Barney’s merger partner and the concomitant tax consequences to Lama of voting in favor of the merger, breached defendants’ fiduciary duty of disclosure.

Plaintiffs do not allege how receipt by Lama of the undisclosed information prior to the May 19, 1987 meeting would have affected Lama’s tax consequences under the merger. At any rate, the undisclosed information was provided to all of Smith Barney’s shareholders, including plaintiffs, in the proxy material. Plaintiffs had all of the previously undisclosed material prior to casting their vote in favor of the merger. Therefore, Lama’s decision to vote in favor of the merger and take its approximately $90 million profit was an informed one and no breach of fiduciary duty was sufficiently pleaded here.

Further, Rana and Rasha are not owed a fiduciary duty, as they are shareholders of Lama, which is itself a shareholder of Smith Barney (see, U-Haul Acquisition Co. v Barbo, 1994 WL 34688 [Del Ch Ct] [decided Jan. 31, 1994] ["It is axiomatic that in order to maintain a claim for breach of fiduciary duty, a plaintiff must show that it was owed a fiduciary duty”]). Rana and Rasha also lack standing because they were neither purchasers nor sellers of Smith Barney stock. Since Rana and Rasha are shareholders of the Smith Barney shareholder, any injury to them is derivative. Moreover, as shareholders of Lama, Rana and Rasha cannot sue directly for injury to Lama (see, Abrams v Donati, 66 NY2d 951 [shareholder has no standing to sue for wrong committed against corporation]; Glenn v Hoteltron Sys., 74 NY2d 386). At any rate, Smith Barney owed no independent and separate duty to Rana and Rasha.

Tortious Interference with Contract and Advantageous Business Relations

Plaintiffs maintain in count four of the complaint that defendants have tortiously interfered with the performance of Lama’s contract and Lama’s advantageous business relationship with Bankers Trust. Tortious interference with contract requires the existence of a valid contract between the plaintiff and a third party, defendant’s knowledge of that contract, defendant’s intentional procurement of the third-party’s breach of the contract without justification, actual breach of the contract, and damages resulting therefrom (Israel v Wood Dolson Co., 1 NY2d 116, 120; see also, NBT Bancorp v Fleet/ Norstar Fin. Group, 87 NY2d 614 [discussing the elements of tortious interference with contract and tortious interference with prospective business relations]).

Plaintiffs charge that defendants’ actions and omissions during the May 19, 1987 meeting "wrongfully interfered with and frustrated the performance of plaintiff’s agreement” with Bankers Trust. There is, however, no allegation that Smith Barney intentionally procured Bankers Trust’s breach of its contract with Lama, nor that Bankers Trust in fact breached its contract to provide financial advice and represent Lama in the disposition of Lama’s Smith Barney stock.

Breach of Contract

In count five of the complaint, plaintiffs allege that Smith Barney, by its omissions and misrepresentations at the May 19, 1987 meeting, breached the parties’ June 1982 agreement. Specifically, plaintiffs argue that defendants breached the June 1982 agreement by obstructing or preventing Lama from selling its stock. The complaint, however, fails to allege any breach of the June 1982 agreement. Plaintiffs do not allege facts sufficient to support their claim that Smith Barney interfered with their efforts to obtain a bona fide offer for Lama stock. Furthermore, applying the law of New York (as provided in the agreement), plaintiffs’ damages claim must fail since it is not susceptible to proof with certainty but is instead entirely speculative (see, Kenford Co. v County of Erie, 67 NY2d 257, 261).

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

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

Order affirmed, with costs.


source: Caselaw Access Project

author: Ciparick, J.

license: Public Domain

text:
    [668 NE2d 1376, 646 NYS2d 82]
    Michael Pringle, Respondent, v Terrance M. Wolfe, as Town Justice of the Town of Walworth, et al., Defendants, and Patricia B. Adduci, as Commissioner of Motor Vehicles of the State of New York, Appellant.
    Argued June 5, 1996;
    decided June 28, 1996

      POINTS OF COUNSEL

      Dennis C. Vacco, Attorney-General, Albany (Julie S. Mereson, Victoria A. Graffeo and Peter H. Schiff of counsel), for appellant.
    Vehicle and Traffic Law § 1193 (2) (e) (7) provides all the process that is due to a driver charged with driving while intoxicated at a blood alcohol level of .10 or greater to support a prompt temporary suspension of the motorist’s license pending prosecution. (City of New York v State of New York, 76 NY2d 479; Rochester Gas & Elec. Corp. v Public Serv. Commn., 71 NY2d 313; Matter of Malpica-Orsini, 36 NY2d 568, appeal dismissed sub nom. Orsini v Blasi, 423 US 1042; Wiggins v Town of Somers, 4 NY2d 215; Loretto v Teleprompter Manhattan CATV Corp., 58 NY2d 143; Mackey v Montrym, 443 US 1;
      Dixon v Love, 431 US 105; Mathews v Eldridge, 424 US 319; Matter of Horodner v Fisher, 38 NY2d 680, 429 US 802.)

      Fiandach & Fiandach, Rochester (Edward L. Fiandach of counsel), for respondent.
    I. Vehicle and Traffic Law § 1193 (2) (e) (7) is unconstitutional since it does not provide the motorist with adequate notice of the proceeding. (People v Mertz, 68 NY2d 136; Mackey v Montrym, 443 US 1; Goldberg v Kelly, 397 US 254; Greene v Lindsey, 456 US 444; Mullane v Central Hanover Trust Co., 339 US 306; People v Key, 45 NY2d 111; People v Demperio, 86 NY2d 549.) II. The structure of the hearing is constitutionally deficient. (Mathews v Eldridge, 424 US 319; Anti-Fascist Comm. v McGrath, 341 US 123; People v Mayo, 36 NY2d 1002; People v Swamp, 84 NY2d 725; People v Donaldson, 36 AD2d 37; People v Mertz, 68 NY2d 136; People v Freeland, 68 NY2d 699; People v Uruburu, 169 AD2d 20, 78 NY2d 1082; Bell v Burson, 402 US 535; Patrolmen’s Benevolent Assn. v City of New York, 41 NY2d 205.) III. Vehicle and Traffic Law § 1193 (2) (e) (7) fails under Mackey v Montrym (443 US 1). (People v Hamilton, 46 NY2d 932; People v Kendzia, 64 NY2d 331; People v England, 84 NY2d 1; People v Smith, 82 NY2d 676; People v Zirpola, 57 NY2d 706; People v Worley, 66 NY2d 523.) IV. Despite cosmetic similarities, Vehicle and Traffic Law § 1193 (2) (e) (7) will not save the contested statute. (People v Johnson, 165 Misc 2d 904.) V. Vehicle and Traffic Law § 1193 (2) (e) (7) is a criminal, not administrative, sanction. (People v Johnson, 165 Misc 2d 904.) VI. Vehicle and Traffic Law § 1193 (2) (e) (7) unconstitutionally imposes a punishment upon less than reasonable doubt. (People v Mertz, 68 NY2d 136; People v Fenti, 175 AD2d 598; Kennedy v Mendoza-Martinez, 372 US 144; Matter of Sardino v State Commn. on Judicial Conduct, 58 NY2d 286; In re Winship, 397 US 358.) VII. The contested act denies the motorist equal protection of the law. (Matter of Merchants Refrig. Co. v Taylor, 275 NY 113; Bauer v Bauer, 55 AD2d 895; Western & S. Life Ins. Co. v Board of Equalization, 451 US 648; Matter of Geary v Commissioner of Motor Vehicles, 92 AD2d 38, 59 NY2d 950; Shapiro v Thompson, 394 US 618; San Antonio School Dist. v Rodriguez, 411 US 1; People v Johnson, 165 Misc 2d 904.) VIII. The hardship provision is impermissibly vague . IX. Vehicle and Traffic Law § 1193 (2) (e) (7) denies the motorist of the opportunity to be believed. X. The statute violates the separation of powers doctrine by forcing the judiciary to determine eligibility and issue a driver’s license. (Matter of LaGuardia v Smith, 288 NY 1; Matter of Guden, 171 NY 529; Matter of New York State

      Inspection, Sec. & Law Enforcement Empls. v Cuomo, 64 NY2d 233.)

      Eugene B. Nathanson, New York City, for New York State Association of Criminal Defense Lawyers, amicus curiae.

    The statute is unconstitutional because it deprives defendant of a property right without a fair opportunity to challenge that deprivation, and no postdeprivation remedy other than entering a guilty plea. (Bell v Burson, 402 US 535; Mackey v Montrym, 443 US 1; Mathews v Eldridge, 424 US 319; Mullane v Central Hanover Trust Co., 339 US 306; In re Gault, 387 US 1; Wolff v McDonnell, 418 US 539; Dixon v Love, 431 US 105.)
   OPINION OF THE COURT

Ciparick, J.

In an effort to reduce the incidence of drunk driving on New York’s roadways, the State Legislature enacted the prompt suspension law (Vehicle and Traffic Law § 1193 [2] [e] [7]), which under certain circumstances mandates the suspension of a driver’s license to operate a motor vehicle pending prosecution for driving while intoxicated. We hold that the prompt suspension law accords with due process requirements.

I.

Background

To supplement the government’s arsenal in its war against drunk driving, the Legislature enacted Vehicle and Traffic Law § 1193 (2) (e) (7), commonly known as the prompt suspension law (L 1994, ch 312). Designed to provide "an efficient and effective means of balancing the need to maintain safe highways for the public and the rights of the criminal defendant” (Mem of Div of Budget, Bill Jacket, L 1994, ch 312), the prompt suspension law requires the suspension, pending prosecution, of the license of a driver charged with driving while intoxicated. Specifically, the law mandates that before the conclusion of all proceedings necessary for arraignment, the Judge must suspend the driver’s license of a person charged with driving while intoxicated upon determining that the accusatory instrument is sufficient on its face and finding reasonable cause to believe that the driver operated a motor vehicle with a blood alcohol level in excess of .10 of 1% as evidenced by the results of a chemical test (Vehicle and Traffic Law § 1193 [2] [e] [7] [a], [b]).

Michael Pringle was arrested and charged with driving while intoxicated per se and driving while intoxicated (see, Vehicle and Traffic Law § 1192 [2], [3]). Before Pringle was arraigned on these charges, he instituted this action seeking a declaratory judgment that the prompt suspension law (Vehicle and Traffic Law § 1193 [2] [e] [7]) is unconstitutional, and an order enjoining its enforcement against him. Supreme Court granted a preliminary injunction preventing the suspension of Pringle’s license pending prosecution and thereafter granted Pringle’s motion for summary judgment declaring that the prompt suspension law provides insufficient procedural protection in violation of the Due Process Clause of the Federal and State Constitutions. The Commissioner appeals to this Court as of right (CPLR 5601 [b] [2]) and we now reverse.

II.

Procedural Due Process

It is well established that a driver’s license is a substantial property interest that may not be deprived without due process of law (see, Bell v Burson, 402 US 535, 539). The issue on appeal, then, is what process is due to protect against the risk of its erroneous deprivation (id., at 539-540; see, Curiale v Ardra Ins. Co., 88 NY2d 268, 274-275). To determine whether the temporary license deprivation worked by the prompt suspension law accords with due process requirements, we employ the balancing test articulated by the United States Supreme Court in Mathews v Eldridge (424 US 319, 335) and elucidated in subsequent cases upholding the procedural adequacy of driver’s license suspension schemes (see, Illinois v Batchelder, 463 US 1112; Mackey v Montrym, 443 US 1; Dixon v Love, 431 US 105). We also bear in mind that the prompt suspension law, a legislative enactment, is entitled to a presumption of constitutionality, which will only be rebutted by a showing of the statute’s unconstitutionality beyond a reasonable doubt (see, City of New York v State of New York, 76 NY2d 479, 485). The due process inquiry consists of a balancing of the following interests:

"First, the private interest that will be affected by the official action; second, the risk of an erroneous deprivation of such interest through the procedures used, and the probable value, if any, of additional or substitute procedural safeguards; and finally, the Government’s interest, including the function involved and the fiscal and administrative burdens that the additional or substitute procedural requirement would entail” (Eldridge, 424 US, at 335, supra).

A. Private Interest

To determine the impact of the prompt suspension law on the private interest at stake — which can be generally defined as the substantial interest in retaining one’s license to drive pending criminal prosecution — we consider the availability and timing of a judicial hearing, the duration of the suspension, and the availability of hardship relief (see, Mackey, 443 US, at 11-12, supra). As the following analysis demonstrates, the severity of the prompt suspension law is tempered by the driver’s right to a presuspension judicial hearing, its temporary duration, and the availability of a conditional license and hardship relief.

Under the prompt suspension law, the court must hold a suspension hearing before the conclusion of the proceedings required for arraignment and before the driver’s license may be suspended (Vehicle and Traffic Law § 1193 [2] [e] [7] [b]). At the suspension hearing, the court must first determine whether the accusatory instrument is sufficient on its face and next whether there exists reasonable cause to believe that the driver operated a motor vehicle while having a blood alcohol level in excess of .10 of 1% as shown by a chemical test (id.). The court may not order suspension of the license unless it has in its possession the results of the chemical test, and, as the Commissioner concedes, these results must be presented to the court in certified, documented form (see, CPLR 4518 [c]). If the Judge affirms the sufficiency of the accusatory instrument and finds reasonable cause to believe the driver operated a motor vehicle with the proscribed blood alcohol level as evidenced by the documented results of a reliable chemical test, a prima facie showing for license suspension has been established.

Once the prima facie showing is made, the statute provides that the driver "shall be entitled to an opportunity to make a statement regarding these two issues and to present evidence to rebut the court’s findings” (Vehicle and Traffic Law § 1193 [2] [e] [7] [b]). In interpreting this language, Supreme Court concluded that the statute requires that the court order the license suspension once a prima facie showing is made but before the driver is given an opportunity to present evidence — in effect denying the driver a right to be heard— which formed the basis of Supreme Court’s ruling of unconstitutionality. Because it is meaningless to allow the driver to "rebut the court’s findings” after the suspension is ordered, we reject Supreme Court’s myopic reading of the statutory language and hold that the driver is entitled to present evidence to rebut the court’s tentative findings before the court may order the license suspension.

Pringle further contends that the statute provides inadequate notice of the license suspension proceeding. We disagree. First, the statute provides clear notice that the license suspension hearing will be held before the conclusion of all proceedings required for the arraignment (see, People v Demperio, 86 NY2d 549, 552; see also, Commonwealth v Crowell, 403 Mass 381, 386, 529 NE2d 1339, 1342 ["A person could hardly contemplate that there would be no adverse consequences flowing from test results showing a significant blood alcohol level. No specific warning concerning those consequences is constitutionally required”]). In addition, at the time of arrest, the driver is notified of the specific criminal charges and of the time and place of arraignment, eliminating any possibility that the suspension will be ordered in the driver’s absence. Finally, the statute expressly provides that the driver is "entitled to an opportunity * * * to present evidence tending to rebut the court’s findings,” which we construe as requiring an adequate opportunity to prepare for the license suspension hearing (see, Loretto v Teleprompter Manhattan CATV Corp., 58 NY2d 143, 149; McKinney’s Cons Laws of NY, Book 1, Statutes § 150). Thus, it would be incumbent on the court to grant a driver’s reasonable request for a short adjournment if necessary to marshal evidence to rebut the prima facie showing of "reasonable cause.”

Aside from the availability of a presuspension hearing, the impact of the license suspension is tempered by its limited duration and the availability of relief from its terms. As a general rule, the prompt suspension law mandates the suspension of full driving privileges only until the disposition of the criminal proceeding. Although subject to procedural variations throughout the State, its duration is always constrained by the speedy trial limits of CPL 30.30. After a mandatory suspension period of 30 days, moreover, the driver is entitled to apply to the Commissioner for a "conditional” license (Vehicle and Traffic Law § 1193 [2] [e] [7] [d]). The conditional license, as prescribed by Vehicle and Traffic Law § 1196, permits the operation of a motor vehicle to and from a place of employment, during the hours of employment if the job requires, to and from school, and for medical treatment, and "shall remain in effect during the term of the suspension * * * unless earlier revoked by the commissioner” (Vehicle and Traffic Law § 1196 [7]).

Additionally, the statute permits the arraigning court to grant hardship relief (Vehicle and Traffic Law § 1193 [2] [e] [7] [e]). If the driver is able to present evidence in addition to his own testimony that the license suspension will cause extreme hardship, the court may grant limited driving privileges to the licensee, including the privilege to "travel to or from the licensee’s employment, or to or from necessary medical treatment for the licensee or a member of the licensee’s household, or if the licensee is a matriculated] student enrolled in an accredited school, college or university travel to or from such licensee’s school, College or university if such travel is necessary for the completion of the educational degree or certificate” (Vehicle and Traffic Law § 1193 [2] [e] [7] [e]). Unlike the 30-day mandatory suspension period before a conditional license may be issued, hardship relief can be granted immediately upon suspension of the license.

B. Risk of Erroneous Deprivation

The second factor in the Mathews v Eldridge balancing test is the risk of erroneous deprivation of the driver’s license through the license suspension procedure, bearing in mind that "[t]he Due Process Clause simply does not mandate that all governmental decisionmaking comply with standards that assure perfect, error-free determinations” (Mackey, 443 US, at 13, supra). We conclude that the risk of an erroneous deprivation under the prompt suspension law is minimal.

The court may not order suspension of the driver’s license unless it has in its possession the documented results of a reliable chemical test showing that the driver’s blood alcohol level was in excess of .10 of 1% (see, Vehicle and Traffic Law § 1193 [2] [e] [7] [b]; cf., People v Mertz, 68 NY2d 136, 148). Moreover, the minimal risk of an erroneous suspension is further diminished by the driver’s right to a meaningful presuspension opportunity to rebut the chemical test results (see, Batchelder, 463 US, at 1118, supra). Therefore, we conclude that the slight risk that the prompt suspension law will result in an erroneous deprivation does not dilute its constitutional adequacy.

C. Governmental Interest

The third factor is the importance of the State’s interest served by the prompt suspension law, measured against the increased burden of providing additional procedural safeguards. The Supreme Court has recognized the States’ "paramount interest” in maintaining highway safety. As a result, the States are "accorded * * * great leeway in adopting summary procedures to protect public health and safety” (Mackey, 443 US, at 17, supra).

To compel the State to provide another level of procedural protection would require plenary hearings and would effectively convert the license suspension proceeding into a trial on the merits of the underlying criminal charge (cf., Dixon, 431 US, at 114, supra). Such a procedure would be prohibitively expensive and cumbersome, and would subvert the State’s compelling interest in promoting highway safety (see, Mackey, supra, at 18 ["The summary and automatic character of the suspension sanction available under the statute is critical to attainment of (its) objectives”]). In view of the temporary duration of the license suspension, such elaborate procedural protections are not constitutionally mandated.

In sum, though the private interest affected by the prompt suspension law is substantial, the severity of the license suspension is mitigated by its temporary duration, the availability of a conditional license and hardship relief, and the significant protection of a presuspension judicial hearing, which militates heavily in favor of the statute’s constitutionality (see, Batchelder, 463 US, at 1119, supra ["The driver’s right to a hearing before he may be deprived of his license * * * accords him all of, and probably more than, the process that the Federal Constitution assures”]). Further weighing against the driver’s interest in maintaining his license are the slight risk of an erroneous deprivation and the overriding State interest in "the prompt removal of a safety hazard” from its streets (Dixon, 431 US, at 114, supra). Based on the foregoing, we hold that the prompt suspension law affords the driver all the process that is constitutionally due.

III.

Vagueness

Supreme Court expressed the concern, without ruling, that the prompt suspension law is unconstitutionally vague. In that court’s view, there was an "inherent problem” posed by the statutory requirement that the court suspend the license of one who "at the time of arrest” had a blood alcohol level over .10 of 1% (Vehicle and Traffic Law § 1193 [2] [e] [7] [a]) because "it is not a crime to be intoxicated at the time of arrest, but only at the point of operating the motor vehicle.”

Due process requires that a civil statute contain "a reasonable degree of certainty so that individuals of ordinary intelligence are not forced to guess at the meaning of statutory terms” (Foss v City of Rochester, 65 NY2d 247, 253). As the Commissioner persuasively argues, the language in subclause (a) of section 1193 (2) (e) (7) must be read in conjunction with subclause (b), which provides that a prima facie showing for license suspension is established only when the court finds reasonable cause to believe the driver operated a motor vehicle with the proscribed blood alcohol level. The language of subclause (a) does not alter this required prima facie showing and consequently does not render the statute void for vagueness.

The parties’ remaining contentions have been considered and are found to be without merit.

Accordingly, the judgment of Supreme Court should be reversed, with costs, and Vehicle and Traffic Law § 1193 (2) (e) (7) declared constitutional.

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

Judgment reversed, etc.

      . Although the prompt suspension law was due to expire on November 1, 1996 (see, L 1994, ch 312, § 7), the Legislature has extended the statute’s term for one year (see, L 1996, ch 229). While we note the various constitutional challenges to the prompt suspension law currently pending in the lower courts, we. only have occasion to reach those issues squarely presented on this appeal.

      . The statute provides in pertinent part:
      "(7) Suspension pending prosecution; excessive blood alcohol content, a. A court shall suspend a driver’s license, pending prosecution, of any person charged with a violation of subdivision two or three of section eleven hundred ninety-two of this article who, at the time of arrest, is alleged to have had .10 of one percent or more by weight of alcohol in such driver’s blood as shown by chemical analysis of blood, breath, urine or saliva, made pursuant to subdivision two or three of section eleven hundred ninety-four of this article.
      "b. The.suspension occurring under this subparagraph shall occur no later than at the conclusion of all proceedings required for the arraignment; provided, however, that if the results of any test administered pursuant to section eleven hundred ninety-four of this article are not available within such time period, the complainant police officer or other public servant shall transmit such results to the court at the time they become available, and the court shall, as soon as practicable following the receipt of such results and in compliance with the requirements of this subparagraph, suspend such license. In order for the court to impose such suspension it must find that the accusatory instrument conforms to the requirements of section 100.40 of the criminal procedure law and there exists reasonable cause to believe that the holder operated a motor vehicle while such holder had .10 of one percent or more by weight of alcohol in his or her blood as was shown by chemical analysis of such person’s blood, breath, urine or saliva, made pursuant to the provisions of section eleven hundred ninety-four of this article. At the time of such license suspension the holder shall be entitled to an opportunity to make a statement regarding these two issues and to present evidence tending to rebut the court’s findings” (Vehicle and Traffic Law § 1193 [2] [e] [7] [a], [b]).

      . We find unpersuasive Pringle’s argument that the court’s ability to grant hardship relief violates the separation of powers doctrine. In granting the relief, the Judge engages in the judicial function of assessing the hardship caused by the suspension and making the judicial determination, authorized by statute, that the defendant’s circumstances warrant partial relief from the suspension in the form of limited driving privileges. To the extent that the court acts in an administrative capacity, the Legislature is not prohibited by the separation of powers doctrine from conferring on the judicial branch administrative functions such as the license suspension procedure that are " 'reasonably incidental to the performance of judicial duties’ ” (see, Clark v Cuomo, 66 NY2d 185, 189, quoting Matter of Rosenthal v McGoldrick, 280 NY 11, 14; cf., Matter of O’Brien v Keegan, 87 NY2d 436).


author: Chief Judge Kaye.

text:
    [669 NE2d 242, 646 NYS2d 308]
    Mark Weissman, Respondent, v Sinorm Deli, Inc., Defendant, and Richard A. Cummings et al., Appellants.
    Argued April 30, 1996;
    decided June 11, 1996

      POINTS OF COUNSEL

      Tressler, Soderstrom, Maloney & Priess, New York City (Donald M. Bernstein of counsel), for appellants.
    I. An indemnificatian of all liabilities arising out of any breach of any covenant in a contract for the sale of stock, and of the indemnitee’s unstated, unknown, future contingent obligations, is not an instrument for the payment of money only under CPLR 3213. (Interman Indus. Prods. v R. S. M. Electron Power, 37 NY2d 151; Times Sq. Assocs. v Grayson, 39 AD2d 845; New Rochelle Dodge v Bank of N. Y., 127 AD2d 638; Dresdner Bank AG. v Morsel Diesel, Inc., 115 AD2d 64; Maglich v Saxe, Bacon & Bolan, 97 AD2d 19; Gittleson v Dempster, 148 AD2d 578; Horizons Hotels Corp. v New York Patroons, 193 AD2d 911; Technical Tape v Spray Tuck, 131 AD2d 404; Paine Webber Jackson & Curtis v Aronson, 115 AD2d 355.) II. As a matter of law, thé indemnification does not include a guaranty by appellants of the corporate promissory note and appellants’ cross motion to dismiss should have been granted. (Matter of Martin v Commissioner of Taxation & Fin., 162 AD2d 890; Depperman v Chenango Val. Pet Foods, 201 AD2d 936; Hooper Assocs. v AGS Computers, 74 NY2d 487; Matter of Heimbach v Metropolitan Transp. Auth., 75 NY2d 387; Altchek v DiGennaro, 214 AD2d 527; Commander Oil Corp. v Advance Food Serv. Equip., 991 F2d 49; Slamow v Del Col, 79 NY2d 1016; Shire Realty Corp. v Schorr, 55 AD2d 356; Mastan Co. v Weil, 84 AD2d 657; Two Guys from Harrison v S.F.R. Realty Assocs., 63 NY2d 396.) III. Any ambiguities in the indemnification agreement should not have been resolved on a motion for summary judgment and the matter should be remanded for trial. (Chimart Assocs. v Paul, 66 NY2d 570; Matter of Heimbach v Metropolitan Transp. Auth., 75 NY2d 387; Mallad Constr. Corp. v County Fed. Sav. & Loan Assn., 32 NY2d 285; Eden Music Corp. v Times Sq. Music Publs. Co., 127 AD2d 161; Barclay v Denckla, 182 AD2d 658; Marine Midland Bank v Dino & Artie’s Automatic Transmission Co., 168 AD2d 610.)

      Capell & Vishnick, Lake Success (Bernard Vishnick and Alan Roger Pollack of counsel), for respondent.
    I. The decision of the lower court granting plaintiff-respondent’s motion for summary judgment and the judgment entered thereon must be affirmed because the promissory note and the indemnification agreement fall within the scope of CPLR 3213 and appellants failed to come forward with admissible evidentiary proof sufficient to raise an issue of fact as to a defense to the instrument. (Interman Indus. Prods. v R. S. M. Electron Power, 37 NY2d 151; Seaman-Andwall Corp. v Wright Mach. Corp., 31 AD2d 136, 29 NY2d 617; Zuckerman v City of New York, 49 NY2d 557; Grasso v Shutts Agency, 132 AD2d 768, 70 NY2d 797; Alicanto v Woolverton, 142 AD2d 703; National Bank v Alizio, 103 AD2d 690; Alvord & Swift v Muller Constr. Co., 46 NY2d 276; Fried v Bower & Gardner, 46 NY2d 765; Carrowkeel Inv. Co. v Breed, 203 AD2d 506; Marine Midland Bank v Thurlow, 53 NY2d 381.) II. The decision of the lower court granting respondent’s motion for summary judgment and the judgment entered thereon must be affirmed because no question of fact exists as to the indemnification agreement and its clear and unambiguous requirement that appellants indemnify and hold respondent harmless as to his monetary losses incurred by reason of defendant’s default on its liability and obligation to respondent under the promissory note. (Bell v Xanthopoulos, 202 AD2d 910; Benjamin Elec. Eng’g Works v Rampart Constr. Assocs., 173 AD2d 370; Perciasepe v Premuroso, 208 AD2d 511; Lui v Park Ridge, 196 AD2d 579; Marine Midland Bank v Poulson, 199 AD2d 208; Trustco Bank N. Y. v Drake, 195 AD2d 665; Curwil Constr. Corp. v RHP Dev. Corp., 194 AD2d 514; Leumi Fin. Corp. v Richter, 24 AD2d 855, 17 NY2d 166; Hogan & Co. v Saturn Mgt., 78 AD2d 837; Roche v Hearst Corp., 53 NY2d 767.) III. The new arguments set forth in points II and III of appellants’ brief must be disregarded because such arguments are being raised for the first time on appeal. (Devlin v Video Servs. Acquisition, 188 AD2d 370; Habenicht v Nassau County Dept. of Social Servs., 123 AD2d 667; Roth v Robbins, 117 AD2d 794, 68 NY2d 602; Abacus Real Estate Fin. Co. v P.A.R. Constr. & Maintenance Corp., 115 AD2d 576; Chiulli v Cross Westchester Dev. Corp., 130 AD2d 616; Sheehy v Big Flats Community Day, 73 AD2d 629.)
   OPINION OF THE COURT

Chief Judge Kaye.

Two questions lie at the heart of this appeal. First, is the indemnification sued on an "instrument for the payment of money only” within CPLR 3213? Second, is the indemnification a guaranty by the individual defendants of the corporation’s obligation? We answer both questions in the negative: the individual defendants’ indemnification is neither "an instrument for the payment of money only” within CPLR 3213 nor a guaranty. The summary remedy is therefore not available to plaintiff, and indeed summary judgment should be granted against him dismissing his action against the individual defendants.

Prior to March 5, 1992, plaintiff and the five individual defendants constituted all of the shareholders of Sinorm Deli, Inc., a New York corporation. To resolve irreconcilable differences among them, Sinorm agreed to buy out plaintiff’s one-quarter interest in the corporation. The transaction was set out in a stock agreement dated March 5, 1992 with Sinorm as buyer, plaintiff as seller and the individual defendants as the remaining shareholders.

The purchase price was $250,000 to be paid by the corporation as follows: $50,000 at the closing in exchange for plaintiffs shares, and a $200,000 promissory note with interest of 7% per year to be paid in monthly installments. The installments were to be $1,667.67 per month for 36 consecutive months, then $2,500 per month until December 5, 2002, and a final payment of $1,696 on January 5, 2003.

The stock agreement further provided that the note was collateralized by an agreement which granted plaintiff a purchase-money first security interest in Sinorm’s assets; an assignment to plaintiff of Sinorm’s lease; and a sublease between plaintiff as sublandlord and the corporation as subtenant. The lease and the assignment were to be deposited in escrow with plaintiff’s attorneys under a written escrow receipt. Sinorm represented in the stock agreement that until full payment of the note was made it would not without plaintiff’s written consent take any action which "will or might impair [its] obligations” under the stock agreement, including transferring, selling, assigning or encumbering any of its assets or properties.

The stock agreement also contained both default and indemnification provisions. Under the default provision, failure to make the monthly installment payment, after a 10-day cure period, allowed the holder of the note to call it due in its entirety. The indemnification provision (art 10.1 of the stock agreement) stated:

"Buyer’s Indemnification. Buyer and the Remaining Shareholders shall indemnify and hold Seller, his heirs, successors and assigns, harmless from and against all costs, losses, claims, taxes, liabilities, fines, penalties, damages and expenses (including any interest and court costs imposed in connection therewith and reasonable fees and disbursements of counsel) incurred by any of them in connection with any breach of any of the representations, warranties, covenants or agreements made by Buyer in this Agreement as well as all liabilities and obligations accruing from 7/23/91 and thereafter.
"Seller’s Indemnification. Seller shall indemnify the Buyer and the Remaining Shareholders, their heirs, successors and assigns safe and harmless from and against any and all unpaid corporate taxes not reflected on Buyer’s books and records up to and including July 31, 1991 to the extent of twenty-five (25%) percent of any assessment required to be paid by Buyer in excess of the taxes previously paid by the Buyer.”

A separate indemnification agreement mirroring the indemnification language of the buyer’s indemnification was also signed by the parties at closing. During the closing, the last lines of the buyer’s indemnification — reading "as well as all liabilities and obligations accruing from 7/23/91 and thereafter” — were handwritten into article 10.1 and the indemnification agreement. At the closing, the contract was executed, the corporation paid the $50,000 and it delivered Sinorm’s $200,000 note.

Promptly after Sinorm’s default on the note installment due November 5, 1993, plaintiff moved under CPLR 3213 for summary judgment in lieu of complaint against the corporation and the individual defendants, seeking $189,984.31 plus interest. He based his motion on the note, the indemnification agreement and the stock agreement, asserting that the indemnification agreement represented a personal guaranty by the individual defendants of Sinorm’s note.

The corporation did not oppose the motion. Two months after its default on the note, it had been evicted by its landlord in a nonpayment proceeding. The individual defendants, however, cross-moved for summary judgment and submitted the affidavit of Burton Beal, the attorney who represented them in negotiating the various agreements. Apart from challenging the propriety of plaintiff’s motion under CPLR 3213, the attorney contradicted plaintiff’s assertion that the indemnification agreement was intended as a personal guaranty of the note, adding that when plaintiff at closing asked for individual guaranties, the request was adamantly refused. According to Beal, the parties agreed there would be no personal guaranty for the note. Rather, he asserted, the indemnification agreement was intended to protect plaintiff from any personal liability he might incur as a result of his status as a principal shareholder of the corporation. Plaintiffs reply affidavit denied the factual allegations of the Beal affidavit.

Supreme Court granted plaintiffs motion and denied the cross motion, finding that plaintiff had established a prima facie case by proof of the promissory note, the indemnification agreement, and default in payment and indemnification. In granting summary judgment to the plaintiff, the court held

"the indemnification agreement, the latter portion of which was handwritten, clearly and unambiguously obligates the individual defendants to indemnify the plaintiff for losses he sustained arising from the corporate obligor’s default on the promissory note.”

The Appellate Division affirmed for the reasons stated by Supreme Court.

Before us defendants urge that the indemnification agreement does not qualify as an instrument for the payment of money only, as the agreement covers future, unstated, contingent liabilities to unknown third parties. Further, they contend that the indemnification agreement unambiguously does not constitute a guaranty of the corporation’s promissory note, and consequently their cross motion should have been granted. We consider each in turn.

Summary Judgment in Lieu of Complaint

Introduced more than three decades ago, CPLR 3213 was a procedural reform that, for the limited matters within its embrace, melded pleading and motion practice into one step, allowing a summary judgment motion to be made before issue was joined (compare, CPLR 3212). Its purpose was to provide quick relief on documentary claims so presumptively meritorious that "a formal complaint is superfluous, and even the delay incident upon waiting for an answer and then moving for summary judgment is needless” (1st Prelim Report of Advisory Comm on Practice and Procedure, 1957 NY Legis Doc No. 6 [b], at 91). The statute provides:

"When an action is based upon an instrument for the payment of money only or upon any judgment, the plaintiff may serve with the summons a notice of motion for summary judgment and the supporting papers in lieu of a complaint.”

CPLR 3213 begins with the seemingly straightforward— though stringent — requirement that the action be based on "an instrument for the payment of money only or a judgment.” The prototypical example of an instrument within the ambit of the statute is of course a negotiable instrument for the payment of money — an unconditional promise to pay a sum certain, signed by the maker and due on demand or at a definite time (see, 4 Weinstein-Korn-Miller, NY Civ Prac ¶ 3213.04, at 253). In fact, the remedy has proved an effective one, particularly for financial institutions recovering on promissory notes and unconditional guaranties (see, Cozier, Summary Judgment § 25.4, at 830, in 2 Commercial Litigation in New York State Courts [Haig ed]).

Ironically, however, the threshold requirement has also generated a spate of litigation, leading one commentator to note that there have been "so many invocations of CPLR 3213 over the years in which the result was a dismissal of the application for want of a proper 'instrument’ * * * [so as] to point up the illusory advantages of CPLR 3213 when used so carelessly” (Siegel, Practice Commentaries, McKinney’s Cons Laws of NY, Book 7B, CPLR 3213:1, at 497).

This Court last spoke to the threshold requirement in Interman Indus. Prods. v R. S. M. Electron Power (37 NY2d 151, 154-155), observing that cases within CPLR 3213 "have dealt primarily with some variety of commercial paper in which the party to be charged has formally and explicitly acknowledged an indebtedness.” Where the instrument requires something in addition to defendant’s explicit promise to pay a sum of money, CPLR 3213 is unavailable. Put another way, a document comes within CPLR 3213 "if a prima facie case would be made out by the instrument and a failure to make the payments called for by its terms” (Interman, 37 NY2d at 155, citing Seaman-Andwall Corp. v Wright Mach. Corp., 31 AD2d 136, affd 29 NY2d 617). The instrument does not qualify if outside proof is needed, other than simple proof of nonpayment or a similar de minimis deviation from the face of the document (see, e.g., Bank Leumi Trust Co. v Rattet & Liebman, 182 AD2d 541 [readily accessible interest rate]).

Plaintiff’s action falls far short of satisfying the 3213 threshold requirement. There is no written instrument by which the individual shareholders explicitly obligated themselves to make a required payment of a sum certain (Interman, 37 NY2d at 156). The note at issue was signed only by Sinorm; the individual defendants never signed any commercial paper.

Critically here, the indemnification agreement does not qualify as an instrument for the payment of money only. The test "is not what the instrument may be reduced to by part performance or by elision of a portion of it * * * but rather how the instrument read in the first instance” (Haug v Metal City Findings Corp., 47 AD2d 837, 838).

The indemnification agreement contains no description of what constitutes the "liabilities and obligations arising from 7/23/91 and thereafter,” and these unknown and unstated obligations cannot be proved from the instrument itself. The agreement also covers unknown future obligations and liabilities that will arise after March 5, 1992. Plaintiff faced contingent personal liabilities as a controlling shareholder of the corporation — for example, legal obligations for unpaid wages and salaries (see, Business Corporation Law § 630) and unpaid taxes (see, Tax Law § 1133), as well as potential liability from litigation involving the corporation — which were covered by the indemnification agreement. These liabilities and obligations, however, can only be ascertained by resorting to evidence outside the instrument.

Because the indemnification agreement fails to meet the threshold requirement of "an instrument for the payment of money only,” we conclude that CPLR 3213 was improperly invoked.

Defendant’s Cross Motion for Dismissal

If, as in the present case, the plaintiff has mistaken his remedy and CPLR 3213 is in fact not available, the action typically should not be dismissed but simply converted to ordinary form as the statute provides. The statute, however, additionally authorizes the court to do "otherwise.” Thus, if plaintiff’s claim plainly fails on the merits, the court can grant summary judgment for defendant, denying the motion and dismissing the action (see, Siegel, Practice Commentaries, McKinney’s Cons Laws of NY, Book 7B, CPLR 3213:11, at 509).

Before us, both sides contend the indemnification agreement is unambiguous and can only be read to require summary judgment in their favor. Relying on the trial court’s decision, plaintiff urges that the document unambiguously obligates the defendants to make him whole as a result of the corporation’s default. Defendants counter that the trial court’s interpretatian was contrary to the plain meaning of the contract and eviscerates the distinction between an indemnification and a guaranty.

A contract is of course interpreted so as to effectuate the intention of the parties as expressed in the unequivocal language used. In particular, "[w]hen a party is under no legal duty to indemnify, a contract assuming that obligation must be strictly construed to avoid reading into it a duty which the parties did not intend to be assumed” (Hooper Assocs. v AGS Computers, 74 NY2d 487, 492, citing Levine v Shell Oil Co., 28 NY2d 205, 211; Kurek v Port Chester Hous. Auth., 18 NY2d 450, 456).

Defendants are correct in pointing out the fundamental differences between an indemnification and a guaranty. In an indemnification the entire loss is shifted from the person who has been compelled to pay (the indemnitee) to another upon the imposition of a contingent liability (see, Bellevue S. Assocs. v HRH Constr. Corp., 78 NY2d 282, 296, rearg denied 78 NY2d 1008). An indemnification is thus a primary obligation: if a loss or event occurs within its scope, the indemnitors are primarily liable. A guaranty, by contrast, is a contract of secondary liability (General Phoenix Corp. v Cabot, 300 NY 87, 95). Thus, a guarantor will be required to make payment only when the primary obligor has first defaulted.

Plainly, the agreement here was one of indemnification not guaranty. The agreement was labeled an indemnification by the parties, and it employs the language commonly used in contracts of indemnification (see, e.g., Hooper, 74 NY2d at 492). The document "indemnifies” and "holds harmless” plaintiff, his heirs, successors, and assigns "from and against all costs, losses, claims, taxes, liabilities, fines, penalties, damages and expenses * * * incurred by any of them.” This language obligates the individual defendants to pay on plaintiff’s behalf — to make him whole — if plaintiff incurs certain liabilities.

The agreement explicitly holds plaintiff harmless for his own liabilities and obligations, not for those of the corporation. Thus, if plaintiff incurred an obligation arising out of a breach of the stock agreement, he would be protected against that loss not only by the corporation but also by the individual defendants. The additional phrase "as well as all obligations and liabilities accruing from [July 23, 1991] and thereafter” — still within the indemnification agreement — enlarges the protection to include liabilities that might accrue beyond the terms of the stock agreement. It does not alter the unambiguous language that it is plaintiff’s obligations that are indemnified against, not the corporation’s. Without question, the $200,000 note is an obligation of the corporation, not a liability or obligation of plaintiff.

Plaintiff’s proffered interpretation of the agreement seeks to make the individual defendants guarantors of the corporation’s note. A promise to assume an obligation in an indemnity, however, should not be found unless it can be clearly implied from the language and purpose of the entire agreement (see, Hooper, 74 NY2d at 492). This is consistent with the familiar proposition that when parties set down their agreement in a clear, complete document, evidence outside the four corners of the document as to what was actually intended is generally inadmissible (see, W.W.W. Assocs. v Giancontieri, 77 NY2d 157, 162).

Here, despite plaintiff’s urging, the contract indicates a contrary intention. The agreement speaks only of plaintiff’s liabilities and obligations, contains no language of guaranty, and nowhere mentions the note. Under plaintiff’s reading, Si-norm as cosignatory to the indemnification agreement would be guaranteeing its own obligation — a construction that would render a portion of the agreement meaningless.

The stock agreement, which is incorporated by reference in the indemnification agreement, further manifests that the individual defendants did not guaranty the corporation’s note. Plaintiff already had security for the promissory note as set forth in the stock agreement — in fact, an entire article of the stock agreement was devoted to plaintiff’s security for the note. Plaintiff was granted a purchase-money first security interest in Sinorm’s assets, an assignment of Sinorm’s lease and a sublease between plaintiff as sublandlord and the corporation as subtenant. The article says nothing about any type of guaranty for the note; nor does the article concerning default make mention of any guaranty of the note. Indeed, the stock agreement nowhere provides that the individual defendants will pay if the corporation defaults on the note.

In addition, the indemnification’s reference to potential "costs, losses, claims, taxes” as well as "liabilities and obligations” comports with plaintiff’s potential personal liability for corporate obligations, such as possible outstanding guaranties, unpaid taxes (see, Tax Law § 1133), unpaid wages or salaries owed to laborers and employees (see, Business Corporation Law § 630), as well as potential personal liability resulting from litigation involving the corporation and its shareholders.

Accordingly, the order of the Appellate Division should be reversed, with costs, plaintiff’s motion pursuant to CPLR 3213 for summary judgment in lieu of complaint denied and the individual defendants’ cross motion for summary judgment granted.

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

Order reversed, etc.

      . Proposals for legislative reform would broaden the statute’s coverage to include several categories of common commercial transactions (see, 1996 NY Senate-Assembly Bill S 6775, A 9188).

      . Defendants offer an additional factual explanation for the indemnification agreement: that plaintiff ceased having any active role in Sinorm’s affairs after July 23, 1991, yet technically remained a shareholder until the closing on March 5, 1992 and for that reason sought the indemnification in part to protect himself from liabilities incurred "from 7/23/91 and thereafter.”


text:
    [669 NE2d 470, 646 NYS2d 490]
    Mary Hausser et al., Appellants, v Salvatore Giunta, Respondent.
    Argued March 27, 1996;
    decided May 2, 1996

      POINTS OF COUNSEL

      Jerome Turner, Long Beach, for appellants.
    I. The abutting landowner was in violation of section 256 of the Code of City of Long Beach and is liable for negligence in allowing and permitting a defective, hazardous condition to exist on the sidewalk abutting his property of which he had notice and which he did not cure and which was the precipitating cause of the accident in question and the injuries sustained by plaintiff. (Willis v Parker, 225 NY 159; Hohnke v I-H Sing Lee, 159 AD2d 487; Sheenan v Rubenstein, 154 AD2d 663; Surowiec v City of New York, 139 AD2d 727; Kiernan v Thompson, 137 AD2d 957; Beltzer v City of Long Beach, 24 Misc 2d 279, 15 AD2d 789; Karom v Altarac, 3 AD2d 925.) II. The case of Rooney v City of Long Beach (42 AD2d 34) should be reversed and section 256 of the Long Beach City Code is a valid legislative act not in violation of the Municipal Home Rule Law § 11 (1) (j). (Patrolmen’s Benevolent Assn. v City of New York, 41 NY2d 205; Doctors Council v New York City Employees’ Retirement Sys., 71 NY2d 669; Matter of Tucker v Board of Educ., 82 NY2d 274; Dougal v County of Suffolk, 102 AD2d 531; Robin v Incorporated Vil. of Hempstead, 30 NY2d 347; Willis v Parker, 225 NY 159.)

      Devitt, Spellman Barrett, Callahan, Leyden & Kenney, LLP, Smithtown (L. Kevin Sheridan of counsel), for respondent.
    The Rooney case was correctly decided and, in any event, that judicial construction of former City Home Rule Law § 11, as amended by chapter 1080 of Laws of 1960, and of Municipal Home Rule Law § 11 (1) (j) should be adhered to in this case. (Rooney v City of Long Beach, 42 AD2d 34; Karom v Altarac, 3 AD2d 925; Matter of Branford House v Michetti, 81 NY2d 681; People ex rel. French v Lyke, 159 NY 149; Blanchko v Wurster, 156 NY 437; Chittenden Lbr. Co. v Silberblatt & Lasker, 288 NY 396; People v Ryan, 274 NY 149; City Bank Farmers’ Trust Co. v New York Cent. R. R. Co., 253 NY 49; Matter of Eckart, 39 NY2d 493; People v Hobson, 39 NY2d 479.)
   OPINION OF THE COURT

Smith, J.

The issue presented by this personal injury action is whether Municipál Home Rule Law § 11 (1) (j) renders invalid section 256 of the City of Long Beach Code, which makes a landowner with property abutting city sidewalks liable for injuries caused by defects in the sidewalk. We conclude that Long Beach Code § 256 is not invalidated by the Municipal Home Rule Law and reverse the order of the Appellate Division.

Appellants Mary and Henry Hausser live next door to respondent Salvatore Giunta in the City of Long Beach. Portions of a city sidewalk abut the property in front of both houses. In 1989, appellants commenced this action for personal injury against respondents Salvatore and Theresa Giunta seeking to recover for injuries appellant Mary Hausser sustained after she tripped over a broken, cracked or depressed portion of the sidewalk abutting the front of respondent’s property. Appellant sustained serious injuries to her knee which required surgery. By notice of motion dated February 1, 1993, respondent moved for summary judgment, arguing that under Rooney v City of Long Beach (42 AD2d 34), section 11 (1) (j) of the Municipal Home Rule Law invalidated section 256 of the City Code. By notice of motion dated March 31, 1993, appellants opposed respondent’s motion, and cross-moved for summary judgment.

Supreme Court granted respondent’s motion for summary judgment and dismissed the complaint, finding that respondent neither created the defect nor caused the defective condition due to special use, and respondent was not clothed with liability by a statute or ordinance. The court concluded that the facts of this case were controlled by Rooney v City of Long Beach (42 AD2d 34, appeal dismissed 33 NY2d 897, supra). The Appellate Division affirmed, finding that the City of Long Beach Code § 256 was invalidated by the 1960 amendment to City Home Rule Law § 11 (1) (now Municipal Home Rule Law § 11 [1] [j]).

Under the powers granted within section 11 (1) of the former City Home Rule Law (which granted power to local governments to adopt local laws and charters), the City of Long Beach, in 1931, adopted section 256 of the City of Long Beach Charter, transferring liability from the municipality to abutting landowners and clothing landowners with liability for injuries caused by defective sidewalks. It provides:

"The owner or occupant of lands fronting or abutting on any street, highway, traveled road, public lane, alley or square, shall make, maintain and repair the sidewalk adjoining his lands and shall keep such sidewalk and the gutter free and clear of and from snow, ice and all other obstructions. Such owner or occupant and each of them, shall be liable for any injury or damage by reason of omission, failure or negligence to make, maintain or repair such sidewalk.”

Section 11 (1) of the former City Home Rule Law was amended in 1960 to prohibit municipalities from transferring liability to property owners. The amendment provided that "no city shall have the power to adopt local laws transferring to abutting property owners its liability for failure to maintain its sidewalks and gutters in a reasonably safe condition” (L 1960, ch 1080). The effect of this amendment was to eliminate the powers of cities to adopt local laws, similar to Long Beach City Code § 256, transferring its liability to abutting property owners.

In 1963, the Legislature repealed the City Home Rule Law. Within the same year, the Legislature enacted the Municipal Home Rule Law (L 1963, ch 843) which replaced the repealed City Home Rule Law. The 1960 amendment to the former City Home Rule Law, prohibiting cities from transferring liability to abutting property owners for failure to maintain sidewalks, was not incorporated into the amended Municipal Home Rule Law. Section 11 (1) (j) of the Municipal Home Rule Law provides:

"1. Notwithstanding any provision of this chapter, the legislative body shall not be deemed authorized by this chapter to adopt a local law which supersedes a state statute, if such local law: * * *
"j. In the case of a city, transfers to abutting property owners its liability for failure to maintain its sidewalks and gutters in a reasonably safe condition.” (Emphasis added.)

Generally, liability for injuries sustained as a result of negligent maintenance of or the existence of dangerous and defective conditions to public sidewalks is placed on the municipality and not the abutting landowner (City of Rochester v Campbell, 123 NY 405; Roark v Hunting, 24 NY2d 470, 475). There are, however, circumstances under which this general rule is inapplicable and the abutting landowner will be held liable. Liability to abutting landowners will generally be imposed where the sidewalk was constructed in a special manner for the benefit of the abutting owner (Clifford v Dam, 81 NY 52), where the abutting owner affirmatively caused the defect (Colson v Wood Realty Co., 39 AD2d 511, 512), where the abutting landowner negligently constructed or repaired the sidewalk (id.) and where a local ordinance or statute specifically charges an abutting landowner with a duty to maintain and repair the sidewalks and imposes liability for injuries resulting from the breach of that duty (Willis v Parker, 225 NY 159).

In Rooney v City of Long Beach (supra) the Appellate Division concluded that Municipal Home Rule Law § 11 (1) (j) invalidated section 256 of the Long Beach City Code and precluded a city from transferring its liability to abutting landowners. Appellant Rooney sustained injuries when she tripped over a curb stop (water valve) which was 2 1h inches above the sidewalk level. Rooney sued the owner of the property abutting the sidewalk, the City of Long Beach and the adjacent property owner who benefited from the curb stop. The City was found liable because it created the defective condition, either directly, or indirectly through an independent contractor. The adjacent property owner was found liable because he benefited from the curb stop. The abutting property owner, however, was not found liable because she did not create the condition, nor did she benefit from the water valve.

The Court stated that the 1960 amendment to the City Home Rule Law (L 1960, ch 1080), which prohibited cities from transferring liability to abutting property owners for failure to maintain sidewalks, invalidated section 256 of the City’s Code purporting to transfer such liability to abutting property owners. The Court further stated that the provisions of the amended City Home Rule Law were contained in the new Municipal Home Rule Law § 11 (1) (j) and were designed "to announce a new public policy of this State which is diametrically opposed to such transfers of liability” (42 AD2d, at 39). Thus, the Court concluded that although the Municipal Home Rule Law "is couched only in terms of conflict with statutory law, * * * the fact that the Legislature may have thought in 1964 that the source of this doctrine was statutory does not militate against our giving it an interpretation which saves it from being meaningless” (id., at 38). Therefore, according to the Rooney Court, any conflicting local law was superseded by the State law.

The Court in Rooney misinterpreted the effect of section 11 of the Municipal Home Rule Law. Section 11 of the Municipal Home Rule Law plainly restricts the adoption of local laws which would supersede State statute. On its face, section 11 (1) (j) does not expressly prohibit localities from enacting statutes which transfer liability to property owners for injuries caused by defective sidewalks unless a contrary State statute exists. Further, the local statute here, section 256 of the Long Beach City Code, does not supersede a State statute. No other State statute, aside from Municipal Home Rule Law § 11 (1) (j), is involved in this action and Municipal Home Rule Law § 11 (1) (j) does not prohibit the transfer of a locality’s liability to abutting property owners for injuries sustained due to defective sidewalks.

Accordingly, the order of the Appellate Division should be reversed, with costs, and respondent’s motion for summary judgment denied.

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

Order reversed, etc.

      . Theresa Giunta died prior to commencement of the instant lawsuit and is not a party hereto.

      . Appellant Mary Hausser seeks to recover for personal injury and loss of earnings and Henry Hausser seeks to recover loss of companionship and consortium.

      . Appellants maintain that respondent had notice of the hazardous condition and was negligent in failing to maintain and repair that portion of the sidewalk abutting his property. Appellants claim that they offered to repair the broken sidewalk prior to the incident but respondent declined the offer. Respondent denies that appellants ever offered to repair the sidewalk.