author: Chief Judge Wachtler. Simons, J.

text:
    In the Matter of 1616 Second Avenue Restaurant, Inc., Appellant, v New York State Liquor Authority et al., Respondents.
    Argued November 21, 1989;
    decided January 11, 1990

      POINTS OF COUNSEL

      Richard D. Emery and Pamela M. Parker for appellant.

      Sharon L. Tillman, Stephen D. Kalinsky and Roberta L. Hiller for respondents.
   OPINION OF THE COURT

Chief Judge Wachtler.

The issue on this appeal is whether public statements made by the Chairman of the State Liquor Authority (SLA) concerning charges then pending in an SLA proceeding against a licensee, disqualified the Chairman from participating in the administrative review of that proceeding. We conclude that, because the Chairman’s statements to a legislative oversight committee indicated prejudgment of facts in issue in an adjudicatory proceeding, his failure to disqualify himself from that proceeding deprived the licensee of due process of law under the Federal Constitution.

I.

Petitioner 1616 Second Avenue Restaurant, Inc., operates a Manhattan restaurant known as Dorrian’s Red Hand. Since 1962, Dorrian’s has sold alcoholic beverages for on-premises consumption pursuant to a license issued by respondent SLA. In August 1986, attention was focused on Dorrian’s because of its connection with the highly publicized "preppie murder” case: the young victim and the accused killer, Robert Chambers, had been in Dorrian’s on August 26, shortly before the crime. As a result, the SLA and the New York City Police Department’s Social Club Task Force began to closely monitor Dorrian’s for violations of the Alcoholic Beverage Control Law, especially those involving underage drinkers.

On February 10, 1987, Dorrian’s was charged by the SLA with violating section 65 (1) of the Alcoholic Beverage Control Law by allegedly selling or giving away alcoholic beverages to four underage patrons on November 14-16, 1986. Two of the charges were sustained following a hearing before an Administrative Law Judge commenced on April 15, 1987. The findings were controverted by petitioner and the matter was referred to the five Commissioners of the SLA, including its Chairman, respondent Thomas Duffy, for factual review and for determination of an appropriate penalty (see, 9 NYCRR 54.4 [g]; 54.6 [a]).

In the interim between the filing of the charges and the commencement of the hearing, Chairman Duffy had been called upon to testify before a committee of the New York State Senate that oversees SLA operations. The questioning covered a wide range of topics, but for a time focused on the issue of underage drinking and the charges against Dorrian’s. Duffy’s public discussion of the charges prompted petitioner to request that Duffy recuse himself from consideration of the charges against Dorrian’s on the ground that he had prejudged the matter. Chairman Duffy declined to do so and, with his participation, the Commissioners adopted the findings of the Administrative Law Judge and imposed a 10-day suspension, a 10-day deferred suspension and a $1,000 bond claim.

Petitioner then commenced this article 78 proceeding seeking to annul the SLA’s determination. Upon transfer from Supreme Court pursuant to CPLR 7804 (g), the Appellate Division confirmed the determination without comment. We granted leave to consider whether the Chairman’s public statements disqualified him from participating in the SLA proceeding. Concluding that they did, we now reverse.

II.

Before examining the substance of the Chairman’s statements, we turn to the governing principles.

It is beyond dispute that an impartial decision maker is a core guarantee of due process, fully applicable to adjudicatory proceedings before administrative agencies (Withrow v Larkin, 421 US 35, 46-47; Matter of Warder v Board of Regents, 53 NY2d 186, 197; State Administrative Procedure Act § 303). No single standard determines whether an administrative decision maker should disqualify himself from a proceeding for lack of impartiality (see, 3 Davis, Administrative Law § 19:1 [2d ed 1978]). Many concepts are embraced under the heading of bias, including advance knowledge of facts, personal interest, animosity, favoritism and prejudgment. Not all require disqualification in all circumstances. Disqualification is more likely to be required where an administrator has a preconceived view of facts at issue in a specific case as opposed to prejudgment of general questions of law or policy (see, id., §§ 19:2, 19:4).

For example, administrative officials are expected to be familiar with the subjects of their regulation and to be committed to the goals for which their agency was created. Thus, a predisposition on questions of law or policy and advance knowledge of general conditions in the regulated field are common, and it is expected that they will influence an administrator engaged in a legislative role such as rule making (see, Association of Natl. Advertisers v Federal Trade Commn., 627 F2d 1151, 1168-1169 [DC Cir]; see generally, 1 Koch, Administrative Law and Practice § 6.7 [1985]). Similarly, mere familiarity with the facts of a pending proceeding or taking a public position on a policy issue related to the proceeding have been held insufficient to require disqualification (Hortonville Dist. v Hortonville Educ. Assn., 426 US 482).

On the other hand, disqualification may be required for prejudgment of specific facts at issue in an adjudicatory proceeding (Kennecott Copper Corp. v Federal Trade Commn., 467 F2d 67, 80 [10th Cir]; Cinderella Career & Finishing Schools v Federal Trade Commn., 425 F2d 583, 591 [DC Cir]). It has been noted, moreover, that public statements that indicate prejudgment are especially problematic. While conscientious officials are presumably able to put aside privately held prejudgments, public statements touching on the facts of a proceeding create special problems. Such statements "may have the effect of entrenching [the official] in a position which he has publicly stated, making it difficult, if not impossible, for him to reach a different conclusion in the event he deems it necessary to do so after consideration of the record.” (Cinderella Career & Finishing Schools v Federal Trade Commn., supra, at 590.)

Thus, where, as in this case, an administrative official has made public comments concerning a specific dispute that is to come before him in his adjudicatory capacity, he will be disqualified on the ground of prejudgment if " 'a disinterested observer may conclude that [he] has in some measure adjudged the facts as well as the law of a particular case in advance of hearing it.’ ” (Cinderella Career & Finishing Schools v Federal Trade Commn., supra, at 591 [quoting Gilligan, Will & Co. v Securities & Exch. Commn., 267 F2d 461, 469 (2d Cir)]; see, Kennecott Copper Corp. v Federal Trade Commn., supra, at 80; Texaco, Inc. v Federal Trade Commn., 336 F2d 754, 760 [DC Cir].)

III.

Under this standard, Chairman Duffy was disqualified from participating in the SLA proceeding against petitioner. During his testimony before the Senate committee overseeing SLA operations, the committee chairman brought up the issue of underage drinking, introducing it as follows:

"senator Goodman: One case in particular that I’d like to use to exemplify the problem has become rather notorious. It’s the case of a bar called Dorian’s [sic] at number 1616 Second Avenue in New York City.

* * *

"It’s my impression that, despite the issuance of four summons by the police task force and your intervention on several occasions, that absolutely nothing of any use has occurred in preventing the sale to under age people”.

After noting that charges were pending before the SLA on the matter, the Chairman responded:

"chairman duffy: The summonses were served. It turns out that three of the people who were drinking and under age in that premises live outside the state of New York. One lives in Europe, and two are college students who don’t live here. We have one who is a person who lives in New York, and the summonses have been dismissed in Criminal Court, I think for lack of prosecution and what I am trying to do at the State Liquor Authority is to bring to bear on these kind of charges some innovative ways of establishing guilt by substantial evidence.
"For example, I’m not satisfied to say that in the Dorian case, we will dismiss our proceedings against that establishment because we can’t bring in the people who are outside the state. What I’m trying to do, and the reason that we’re taking our time to do this is, I’m trying to come up with alternate ways to establish by a substantial evidence that in fact there was an under age person who consumed and was served alcoholic beverages at that location
* * *
"[A]s far as Dorian’s is concerned, I think that I’m doing a great job in the Dorian’s matter because I am going to bring Dorian’s to justice without begging off and saying, Well, they’re outside the state and I can’t proceed, and I want to make a record in Dorian’s case and, if I can make a record that’s going to establish that they sold drinks to minors — and that’s what we need, a record — there are people that complain. They [know] that these people are less than 21, and I simply can’t do it on somebody’s conjecture that this person is less than 21. I’ve got to have a record.
"I’m in the process of compiling that record and we’re going to be in the process of being able to report to you the results of hearings and board votes with respect to that”.

Viewed as a whole, this testimony could only be regarded by a disinterested observer as evidencing Chairman Duffy’s belief that petitioner had in fact violated the law regarding the sale of alcohol to minors and his commitment to establishing that fact in the SLA proceeding. His remarks contain no hint that the charges might turn out to be unfounded. From all that appears, the only question in the Chairman’s mind was not whether petitioner was guilty, but whether the SLA would be hamstrung in their efforts to establish guilt because some of the witnesses lived out of State.

We understand that the Chairman was in a somewhat hostile environment — Senator Goodman made it clear that he believed that the SLA had not responded adequately to the problem of underage drinking in general and Dorrian’s in particular. It is possible, therefore, that Chairman Duffy was simply appeasing his overseers with his assurances that Dorrian’s would be brought to justice, and was not reflecting his actual prejudgment of petitioner’s guilt.

But whether or not he had actually prejudged the matter, his statements nonetheless gave the impression that he had, and that impression lent an impermissible air of unfairness to the proceeding. More importantly, those statements and the message they conveyed to a "disinterested observer” established the Chairman’s public position on the issue. Whether or not he believed petitioner to be guilty when he made the statements, his public alignment with that position, especially in front of the Senate committee that oversees his agency’s operations, might have made it more difficult to reach a contrary conclusion in the adjudicatory proceeding. In effect, to find petitioner innocent would require a public confession of error by the Chairman. That is an impermissible burden to place on petitioner.

We do not hold that every appearance of impropriety in administrative adjudications violates due process. The rule of law we apply, which is well established in the Federal courts, is limited to situations in which an administrative official has taken a public position about specific facts at issue in a pending adjudicatory proceeding. It is true that the decisions of the Federal Circuit Courts of Appeal are not binding on us. In matters of administrative law, however, there is perhaps no court more experienced than the District of Columbia Circuit, which authored the leading decision applying the test we adopt (see, Cinderella Career & Finishing Schools v Federal Trade Commn., 425 F2d 583, supra). We find that decision and the others cited persuasive, not merely because of their source, but also because of their logic.

Nor do the United States Supreme Court cases cited by the dissent require a different rule. None of them deal with public statements indicating prejudgment of adjudicative facts.

Withrow v Larkin (421 US 35, supra), for example, dealt with a claim that the combination of investigative and adjudicative functions by itself violated due process. Trade Commn. v Cement Inst. (333 US 683) concerned a claim that the Commission had prejudged a legal, rather than factual question — whether a particular pricing system violated the Sherman Act (see, 3 Davis, Administrative Law § 19:2, at 372-373 [2d ed]). Similarly, National Labor Relations Bd. v Donnelly Co. (330 US 219) dealt with alleged prejudgment of a legal issue — the admissibility of certain evidence (see, 3 Davis, op. cit., § 19:2, at 376). The Supreme Court has itself noted that the cases involving public statements indicating prejudgment of facts involve different considerations (see, Withrow v Larkin, supra, at 50-51, n 16 [citing e.g., Texaco, Inc. v Federal Trade Commn., 336 F2d 754, supra; and Cinderella Career & Finishing Schools v Federal Trade Commn., 425 F2d 583, supra]).

Finally, we do not fault the Chairman for responding as he did to the questions put to him. His agency is accountable to the Legislature and he therefore has an obligation to respond to their inquiries. Having done so, however, especially in terms that pronounced petitioner’s guilt, he was obligated to recuse himself from the adjudicatory proceeding.

Inasmuch as the findings of the Administrative Law Judge are not compromised by the Chairman’s apparent prejudgment, the proper remedy is reconsideration of those findings, without the participation of the Chairman, by the remainder of the SLA Commissioners.

Accordingly, the judgment of the Appellate Division should be reversed and the petition granted to the extent of annulling the determination and remitting to the State Liquor Authority for further proceedings in accordance with this opinion.

Simons, J.

(dissenting). I agree with the majority that one appearing before an administrative adjudicatory body is entitled to a fair and impartial hearing. The established New York law requires it as a matter of fundamental fairness. We have held, however, that "a mere allegation of bias will not suffice. There must be a factual demonstration to support the allegation of bias and proof that the outcome flowed from it.” (Matter of Warder v Board of Regents, 53 NY2d 186, 197; see also, Matter of Lowcher v New York City Teachers’ Retirement Sys., 54 NY2d 373; Matter of Grant v Senkowski, 146 AD2d 948, 949-950; Matter of Claffey v Commissioner of Educ., 142 AD2d 845; People v Muka, 72 AD2d 649.) In my view, the petitioner has failed to establish that Commissioner Duffy was biased against it but even it be assumed that he was, the evidence fails to establish that the outcome of the case "flowed from” his bias. Indeed, the majority has not attempted to show that it did. Instead, it has changed the existing rule applying to adjudicatory administrative proceedings by adopting a new rule even broader than that applying to Judges and jurors. It holds that the Due Process Clause of the United States Constitution requires annulment of the order finding petitioner guilty of selling to minors "whether or not [Commissioner Duffy] had actually prejudged the matter” because his statements to the Senate committee gave an impression which lent "an impermissible air of unfairness to the proceeding.” (Majority opn, at 164.) The United States Supreme Court has found no such requirement in the Due Process Clause. On the contrary, it has rejected an expansive application of the clause to administrative adjudicatory proceedings and held that knowledge of evidence to be disputed at administrative hearings is insufficient to require disqualification (see, Withrow v Larkin, 421 US 35, and cases cited, at 47-50)1 While language may be found in some decisions of the Circuit Courts of Appeal seeming to support the majority’s holding that the appearance of impropriety violates due process, the decisions do not stand for that proposition and even if they did they are not binding on this court (see, 423 S. Salina St. v City of Syracuse, 68 NY2d 474, 489; Flanagan v Prudential-Bache Sec., 67 NY2d 500, 506). Finally, as a matter of policy we should not create a constitutional guarantee of such breadth, when the Legislature and the Governor are addressing the subject (see, Senate Bill 3613-A of 1989 and veto message of Governor Cuomo, July 25, 1989; Executive Order No. 131, Dec. 7, 1989 [directing State agencies to formulate specific plans to avoid giving the appearance of unfairness in administrative hearings]; see also, NYSBA Report of Task Force on Administrative Adjudication, July 14, 1988). They are positioned best to formulate procedures to meet concerns arising from the appearance of impropriety in matters before the several agencies and departments of State and local government and the court should not adopt a rule broader than that required by the Supreme Court at a time when they are attempting to do so. Accordingly, I dissent.

I

The Administrative Law Judge hearing the evidence in this case found petitioner guilty of two violations of serving alcoholic beverages to minors and exonerated it on two others. On review, the Authority unanimously sustained the Law Judge’s findings and the Appellate Division subsequently found the Authority’s determination supported by substantial evidence and confirmed it. Thus, absent petitioner’s claim of bias the charges are immune from attack.

It is conceded that decision makers, either in courts or adjudicatory administrative hearings, should be fair and impartial. Not all bias is disqualifying, however; disqualification depends upon the nature of the bias and the affect it may be expected to exert on the outcome of the proceedings. One may have a preconceived view about law or policy, a preconceived view about the facts of a particular case, or partiality or personal prejudice in the sense of an unfair attitude against the parties involved.

Bias based upon a prejudgment of law or policy is, as the majority concede, almost universally held not to be grounds for disqualification. Most administrators, because of their positions and their expertise in the regulatory area in which they work, are expected to be biased in favor of effectuating purposes of the programs they administer and enforcing laws concerning them (see, 3 Davis, Administrative Law § 19:2 [2d ed]). A correctional officer, for example, may not be faulted for entertaining a philosophical bias in favor of institutional security or a probation officer or Parole Board for entertaining a bias in favor of public safety (see, e.g., Cleavinger v Saxner, 474 US 193, 204; Gagnon v Scarpelli, 411 US 778). It is no surprise, therefore, and certainly not grounds for disqualification, that Commissioner Duffy entertained a bias in favor of enforcing the rules and regulations of the State Liquor Authority and the criminal laws proscribing its licensees from selling alcoholic beverages to minors. He can hardly be faulted for telling the committee that he intended to enforce such laws and regulations to the fullest, and to devise more efficient methods for doing so, even as the laws and regulations applied to specific licensees.

But this appeal does not deal with policy. Petitioner asserts there must be a reversal because Commissioner Duffy’s public statements about its case warrant a finding that he had prejudged the factual allegations against it or gave the appearance that he had done so.

There is a presumption that one serving as an administrator or a Judge acts honestly and mere familiarity with the facts of a case obtained in the performance of a statutory duty is not disqualifying (Hortonville Dist. v Hortonville Educ. Assn., 426 US 482, 493; Withrow v Larkin, 421 US 35, 47, supra). In this case, Commissioner Duffy, as Chairman of the Authority, was invested by statute with both executive and quasi-judicial powers and duties requiring him to oversee investigations, present charges and review adjudications once made. He could hardly be expected to be ignorant of petitioner’s case, given his responsibilities. Moreover, the Senate committee insisted he be prepared to discuss it and under the circumstances, no adverse inference can arise from his knowledge of the facts.

The critical question is whether the Commissioner’s prior knowledge prevented him from fairly reviewing the Administrative Law Judge’s findings for, as a person adjudicating a claim of which he had prior knowledge, fundamental fairness required that he be willing to give consideration to evidence that his prejudgment about general facts was unsound. The Commissioner was disqualified only if his knowledge had hardened into a prejudgment of guilt which had become so fixed that he was unable to keep an open mind when reviewing evidence subsequently presented to him (see, 2 Davis, Administrative Law § 12:01, at 146 [1958]). It is clear from an examination of the Commissioner’s statements that he entertained no such fixed, unalterable belief in petitioner’s guilt of the pending charges.

II

In looking at the Commissioner’s testimony, it is important to visualize the setting in which it was given. He was newly appointed and called to testify before a Senate committee vested with budgetary control over his agency and headed by a member of the opposite political party. In the past, the committee had been highly critical of the State Liquor Authority and its former Chairman. Its questions to Commissioner Duffy were far-ranging and aggressive. At the outset, the chairman reminded the Commissioner that the Authority had been described previously as a "disorganized and ineffectual toothless tiger” which was "wasting the taxpayers money” and that this "first” committee meeting with him "was to determine in a highly specific way” what Commissioner Duffy had done to remedy those deficiencies. For that purpose, the committee had supplied the Commissioner in advance with "a copious list of questions”, including questions about 34 pending cases. The committee then proceeded to question the Commissioner about proposed administrative reorganization, the Authority’s sensitivity to political influence and the pressures on the Authority and its licensees from gamblers and organized crime. Finally, the committee chairman turned to questions about the Authority’s failure to police its licensees, noting complaints concerning the extensive number of unlicensed premises operating in New York City and violations of the new 21-year-old drinking law and he asked how the Commissioner intended to enforce these laws. Addressing himself specifically to the court’s dismissal of the criminal charges against petitioner for sales to minors, the chairman asked the Commissioner how he intended to handle the "notorious” problem which had existed at petitioner’s premises both before and following the homicide of one of its patrons. The Commissioner was challenged time and again about reports that petitioner was selling alcoholic beverages to minors and criticized for his failure to punish it. His attempted explanations were described by the chairman as "preposterous”.

It is apparent from this background that the Commissioner was trying, in the passages quoted in the majority opinion (at 163-164), to explain why criminal court had dismissed the charges against petitioner and what he intended to do to follow up administratively the repeated complaints against it to insure that they reached the adjudication stage. In response to committee pressures for action, the Commissioner stated that although he intended to bring petitioner to justice he could not proceed on "somebody’s conjecture”, he had "to have a record.” When viewed in this context the statements indicate the Commissioner’s intention to pursue the charges but to ensure that they were based upon sufficient evidence. Under the circumstances, I cannot agree with petitioner that because the Commissioner failed to cast his remarks in terms of petitioner’s "alleged” sales to minors we must infer the existence of actual bias preventing him from fairly considering the evidence against it. There is nothing in the transcripts of the Senate hearing or the adjudicatory hearing to indicate that he had a closed mind about the charges against petitioner or that his determination was based upon anything other than a careful review of the evidence presented at the hearing and he swears that it was not. Thus, on this record petitioner has failed to prove that bias existed or that it resulted in denial of a fair hearing.

Ill

Nor was petitioner denied the procedural due process guaranteed by the United States Constitution. Adjudicatory administrative hearings occur in a variety of settings and the degree of formality and protection required in each depends upon the relative interests of the citizen and the government and the risk of error from the procedures used (see, Mathews v Eldridge, 424 US 319, 335; see generally, 2 Rotunda-NowakYoung, Constitutional Law: Substance and Procedure § 17.9). Whatever the formality required, however, the Supreme Court has never held that due process requires the avoidance of an appearance of impropriety in an administrative hearing. Even in criminal cases, matters of disqualification rarely rise to constitutional levels or violate procedural due process, absent some interest of the Judge in the outcome of the proceedings, and administrators who exercise both executive and adjudicatory functions "cannot possibly be under stronger constitutional compulsions * * * than a court.” (Trade Commn. v Cement Inst., 333 US 683, 703.)

Trade Commn. v Cement Inst, (supra) involved a ruling that cement manufacturers had been guilty of unfair market practices. The manufacturers claimed actual bias because prior statements of the Commission expressly condemned multiple basing point pricing, the very practice later found unlawful in proceedings against respondents. The argument there, as here, was that the prehearing statements were so specific that an inference of actual bias affecting the outcome of the proceedings against them was warranted; the appearance, if not the fact, of impropriety was enough. The United States Supreme Court rejected the claim asserting that the prior statements based upon an intensive investigation by the Commission did not prove the Commissioners’ minds were so "irrevocably closed” that they were unable to evaluate the substantial contrary evidence presented by the respondents at the Commission hearing (supra, at 701).

An even more compelling case is National Labor Relations Bd. v Donnelly Co. (330 US 219) which involved charges of unlawful labor practices against an employer. During the hearing, the examiner rejected a substantial item of evidence offered by the employer. The Board confirmed the examiner’s order and found the employer guilty of unfair labor practices but the Court of Appeals reversed. A second hearing was scheduled before the same examiner over the company’s objection that he had prejudged the case because he had previously rejected the disputed evidence as "valueless”. The motion was denied and the hearing proceeded. After reviewing samples of the excluded evidence, the examiner once again rejected it. The Court of Appeals again reversed the NLRB’s order on the ground of "[t]he unfairness of trying issues of fact to those who have prejudged them” (see, 151 F2d 854, 870). On appeal, the Supreme Court reversed. Recognizing that it might have been preferable to appoint a new examiner, the court nevertheless held the examiner was not legally disqualified and the order need not be annulled (330 US, at 236-237). One may argue, as the majority here does, that the prejudgment involved a question of law but the record demonstrates that the Hearing Examiner had a closed mind on the subject and he retained a closed mind — and rejected exonerating evidence— even after an appellate court had held otherwise. As a leading commentator has noted, the decision may be fairly read to stand for the proposition that a Hearing Officer may have an unalterable conviction, even a closed mind, without being disqualified (see, 3 Davis, Administrative Law § 19.2, at 376-377 [2d ed]). Thus, there are neither Supreme Court precedents nor New York decisions which hold that the appearance of impropriety, standing alone, is sufficient to disqualify an adjudicatory administrative official. Even where there is the strong evidence of preexisting bias, unless it appears the bias foreclosed a fair review of the evidence, there is no basis for annulling the adjudicatory administrative decision.

While there are Federal cases in the circuits discussing disqualification based upon the appearance of impropriety, they are not binding on us and are readily distinguishable. All involve egregious conduct and none have found appearances, standing alone, sufficient to vitiate the administrative judgment. Cinderella Career & Finishing Schools v Federal Trade Commn. (425 F2d 583 [DC Cir]), Texaco, Inc. v Federal Trade Commn. (336 F2d 754 [DC Cir]) and Kennecott Copper Corp. v Federal Trade Commn. (467 F2d 67 [DC Cir]) concerned ill-advised speeches by Commissioner Paul Dixon identifying petitioners and, for all practical purposes, announcing their guilt while proceedings were pending. Importantly, however, the Commissioners in the Cinderella case also ignored the testimony considered by the Hearing Examiner and made a de novo determination, reversing the examiner’s decision dismissing the complaint, reinstating it and issuing a cease and desist order against petitioners. In Texaco, the Commission once again reversed the examiner who had dismissed the complaint, but the court agreed with him that the evidence was insufficient. In Kennecott the charges of bias rested on evidence that while the case was pending there had been several meetings between the Federal Trade Commissioners and Congress during which the subject matter of the pending Kennecott case was discussed and also one Commissioner had given a magazine interview, citing the facts of the Kennecott case as illustrative of problems concerning improper pricing practices. The court affirmed the order of the Commission seeing little merit to the charges in the absence of evidence that the Commissioners had prejudged the facts and the decision had resulted from their bias.

Thus, the cases the majority rely on are factually and legally distinguishable. In Kennecott the court found no due process violation, notwithstanding a Commissioner’s prehearing statements about the case. In both Cinderella and Texaco the Commission had reversed findings of a Hearing Examiner and found violations where the examiner found none and after Commissioner Dixon had given speeches publicly naming the litigants in the two cases, referring to the "evils” they were charged with and all but affirming their guilt before he decided the cases. This case involves none of the irregularities of the Federal cases and there is neither comparable evidence of prehearing bias nor proof that the Authority’s decision was the product of bias. The proceedings were in all respects regular and the Administrative Law Judge’s findings were based upon substantial evidence. The Authority upheld the Law Judge’s findings that petitioner was guilty of two of four charges and the Appellate Division confirmed the sufficiency of the evidence supporting them.

In short, there is no factual basis to reverse this order, no legal requirement that we do so and, as a matter of policy, we should not recognize a broad constitutional rule applying to diverse administrative hearings that due process requires the avoidance of even an appearance of impropriety when it is not required because the specifics of such matters are better left to the other branches of government now addressing them.

Accordingly, I would affirm.

Judges Kaye, Titone and Bellacosa concur with Chief Judge Wachtler; Judge Simons dissents and votes to affirm in a separate opinion in which Judges Alexander and Hancock, Jr., concur.

Judgment reversed, with costs, and petition granted to the extent on annulling the determination of the State Liquor Authority and remitting the matter to Supreme Court, New York County, with directions to remand to the State Liquor Authority for further proceedings in accordance with the opinion herein.

      . The Governor’s Executive Order refers to specific prohibited conduct, e.g., ex parte contacts, contact with agency lawyers, promotions or salary increases based on favorable decisions, establishing decision quotas, etc.

      . Judiciary Law § 14 and 28 USC § 455 also specify the interest or relationship which will disqualify State and Federal Judges as a matter of law.

      . By contrast, a juror, disqualified because possessing "a state of mind that is likely to preclude him from rendering an impartial verdict” (CPL 270.20 [1] [b]) may be qualified, nonetheless, if he or she states unequivocally that the prior state of mind will not influence the verdict, and that he is able to render an impartial verdict solely on the evidence (People v Blyden, 55 NY2d 73, 77-79). A Trial Judge unless proscribed by statute (Judiciary Law § 14) is not disqualified for actual bias and the fact of bias would not, standing alone, invalidate the judgment even if true (see, Matter of Rotwein [Goodman], 291 NY 116, 123). Manifestly, the mere appearance of impropriety, while perhaps grounds for discipline, does not invalidate the judgment.

      . In a prior case involving the same petitioner (Federal Trade Commn. v Cinderella Career & Finishing Schools, 404 F2d 1308 [DC Cir]), the court rejected a due process argument based on petitioner’s claim of appearance of impropriety resulting from the Commission’s press releases (id., at 1315).


source: Caselaw Access Project

author: Simons, J. Titone, J.

license: Public Domain

text:
    Motor Vehicle Manufacturers Association of the United States, Inc., et al., Appellants, v State of New York et al., Respondents.
    Argued November 14, 1989;
    decided January 18, 1990

      POINTS OF COUNSEL

      William R. Stein, Philip A. Lacovara, Ross Lipman, David Madoff, William H. Crabtree, Charles H. Lockwood, II, and John T. Whatley for appellants.

      Robert Abrams, Attorney-General (Thomas G. Conway, O. Peter Sherwood, Peter H. Schiff and Rachel Kretser of counsel), for respondents.
   OPINION OF THE COURT

Simons, J.

Plaintiffs, trade associations representing automobile manufacturers, importers and distributors, commenced this action seeking a declaration that the New Car Lemon Law alternative arbitration mechanism, contained in General Business Law § 198-a (k), violates the State Constitution. Specifically, they allege that the statute deprives motor vehicle manufacturers of their right to trial by jury (NY Const, art I, § 2), abridges the Supreme Court’s jurisdiction (NY Const, art VI, § 7) and constitutes an unconstitutional delegation of judicial authority (NY Const, art VI, §§ 1, 7). In addition, plaintiffs maintain that the alternative arbitration mechanism violates the New York State Administrative Procedure Act.

I

The original Lemon Law (General Business Law § 198-a) was enacted in 1983 to provide New York consumers greater protection than that afforded by automobile manufacturers’ express limited warranties or the Federal Magnuson-Moss Warranty Act (15 USC § 2301 et seq.). Under the statute, when a manufacturer is unable to correct a defect or condition that "substantially impairs” the value of the motor vehicle after a reasonable number of attempts, the manufacturer, at the option of the consumer, is required either to (1) replace the motor vehicle with a comparable motor vehicle or (2) accept return of the vehicle and refund the full purchase price to the consumer (General Business Law § 198-a [c] [1]; 13 NYCRR 300.17 [b]). As originally enacted, the statute did not establish an informal dispute resolution mechanism and consumers were forced to seek these remedies in court or by means of nonbinding informal arbitration programs established by the manufacturers, procedures which often proved costly for the average consumer and resulted in long delays and unfair awards (see generally, Givens, Practice Commentaries, McKinney’s Cons Laws of NY, Book 19, General Business Law § 198-a, at 311-313). The Legislature responded by enacting General Business Law § 198-a (k), which gives the consumer the option of arbitration, rather than legal proceedings, and compels participation by the manufacturer.

Plaintiffs subsequently commenced this action and, after issue was joined, both parties moved for summary judgment. Supreme Court granted defendants’ motion and declared section 198-a (k) constitutional. The Appellate Division modified by declaring a portion of the regulations implementing the statute invalid and otherwise affirmed. Plaintiffs appealed to this court on constitutional grounds (CPLR 5601 [b]) and we now affirm.

II

Plaintiffs contend first that section 198-a (k), which allows the consumer to unilaterally invoke the compulsory arbitration program, violates article I, §2 of the New York State Constitution by depriving automobile manufacturers of their right to a trial by jury. Section 2 mandates that "[t]rial by jury in all cases in which it has heretofore been guaranteed by constitutional provision shall remain inviolate forever” (NY Const, art I, § 2). Thus, an examination of the constitutional sources which previously "guaranteed” a trial by jury is necessary to determine the scope of the present right.

New York’s first Constitution, enacted in 1777, guaranteed trial by jury in all cases "in which it hath heretofore been used” (NY Const of 1777 art XLI). The import of that provision was to include in the constitutional guarantee all cases in which a jury trial had been provided under common law (see, Matter of Luria, 63 Misc 2d 675, 676-677; Siegel, NY Prac § 377). Prior to 1777 a jury trial was required if the nature and substance of the relief requested was legal; if the relief demanded was equitable, there was no right to a jury trial (see, Phoenix Mut. Life Ins. Co. v Conway, 11 NY2d 367, 370; Matter of Luria, 63 Misc 2d 675, 682, supra; 4 Weinstein-KornMiller, NY Civ Prac ¶ 4101.02). Subsequent Constitutions, up to and including the Constitution of 1894, adopted the "heretofore been used” clause without change. The effect was to include in the constitutional guarantee those cases to which the right to jury trial had been extended not only at common law before 1777 but also by statute between the 1777 and 1894 Constitutions (Matter of Luria, supra; Siegel, NY Prac § 377). The Constitution of 1938, whose relevant sections remain unchanged today, abandoned the "heretofore been used” language and provided that "[t]rial by jury in all cases in which it has heretofore been guaranteed by constitutional provision shall remain inviolate forever” (NY Const of 1938, art I, § 2 [emphasis added]). Consequently, all cases afforded a jury trial under the common law prior to 1777 and all cases to which the Legislature extended a right to a jury trial prior to 1894 come within the present constitutional guarantee in article I, §2.

Plaintiffs concur in this interpretation of the constitutional provision but contend that they are entitled to a jury trial because the remedies created by the Legislature in the Lemon Law, acceptance of a replacement vehicle or a refund of the full purchase price (General Business Law § 198-a [c] [1]), are analogous to actions triable by jury at common law.

Analysis starts by recognizing that judicial remedies for breach of contract may be characterized as either "legal” or "equitable”, depending on whether they were available in the common-law courts or in courts of equity (Farnsworth, Contracts § 12.2). The principal "legal” remedy to enforce a contract is a judgment awarding a sum of money. This is a type of "substitutional” relief "intended to give the promisee something in substitution for the promised performance, as when the court awards a buyer of goods money damages instead of the goods” (id.). The principal "equitable” remedy to enforce a contract is an order requiring specific performance of the contract (id.). This is a type of "specific” relief "intended to produce as nearly as is practicable the same effect that the performance due under a contract would have produced” (Restatement [Second] of Contracts § 357, comment a). The remedy of specific performance allows a court to compel a party to a contract to perform, "if not exactly, at least substantially, what he has undertaken to do” (11 Williston, Contracts § 1418, at 644 [3d ed 1968]).

Turning to the Lemon Law remedies, the replacement remedy provided by the Lemon Law is analogous to specific performance; it is designed to produce, as nearly as practicable under the circumstances, the same performance promised under the contract. The remedy is equitable in nature and would not be subject to a jury trial under common law (see, supra; Independent Church of Realization of Word of God v Board of Assessors, 72 AD2d 554, 555). Accordingly, plaintiffs are not entitled to a jury trial under article I, § 2 of the New York Constitution when the consumer seeks the replacement remedy under General Business Law § 198-a (c) (1).

As for the refund remedy, plaintiffs maintain it is indistinguishable from the legal actions of breach of warranty (see, Emerald Painting v PPG Indus., 99 AD2d 891, 892; Walter Sign Corp. v Municipal St. Sign Co., 25 AD2d 667, 668) and revocation of acceptance and refund of the purchase price (see, Merola v Atlas Lincoln Mercury, 70 AD2d 950; Stream v Sportscar Salon, 91 Misc 2d 99, 109; UCC 2-608). Unlike a "legal” breach of warranty action, however, in which a consumer retains the defective vehicle and seeks damages as compensation for the breach (see, UCC 2-714 [2]), the refund remedy of the Lemon Law permits the consumer to seek rescission to undo the wrong and return to the status quo ante (see, Matter of Teller, 277 App Div 937, 938, amended 277 App Div 1016).

Furthermore, compared to an action for revocation of acceptance under UCC 2-608, in which the buyer first revokes acceptance of the product and then pursues an action to recover the consideration paid, the revocation and cancellation of the contract do not occur prior to litigation under the Lemon Law. The distinction is critical. Actions similar to the action under UCC 2-608 for the return of the purchase price after a party has fully rescinded a contract, actions upon a rescission, are considered actions at law (see, Vail v Reynolds, 118 NY 297, 302). By contrast, actions for rescission to restore the status quo ante are considered actions in equity (id.). They are "not founded upon a rescission, but [are] maintained for a rescission” and the plaintiff offers in his complaint to return what he has received and make tender of it upon trial (Vail v Reynolds, 118 NY 297, 302, supra [emphasis in original]).

The Lemon Law refund remedy is an action seeking a rescission and restoration of the status quo ante, similar to an action for restitution, and is equitable in nature (see, Tull v United States, 481 US 412, 422). It would not have been triable by jury under the common law (Phoenix Mut. Life Ins. Co. v Conway, 11 NY2d 367, 370, supra; JIHL Assocs. v Frank, 107 AD2d 662, 663) and is not entitled to a jury trial under article I, §2 of the New York Constitution. That incidental fees and charges are recoverable under the Lemon Law refund remedy (see, General Business Law § 198-a [c] [1]) does not compel a contrary conclusion; a party may receive full relief in an equitable action and the awarding of fees as an incident of the equitable relief sought to restore the status quo ante does not disturb the equitable nature of the action (see, Jamaica Sav. Bank v M. S. Investing Co., 274 NY 215, 222-223). Consequential damages, which are recoverable in a legal action for breach of contract, are not recoverable under the statute (see, Givens, Practice Commentaries, McKinney’s Cons Laws of NY, Book 19, General Business Law § 198-a, at 315).

ill

Plaintiffs next contend that the compulsory arbitration mechanism implemented by General Business Law § 198-a (k) abridges the constitutionally guaranteed jurisdiction of the Supreme Court. Article VI, § 7 (a) of the New York Constitution provides that "[t]he supreme court shall have general original jurisdiction in law and equity”. Plaintiffs maintain that when a claim may be brought in a court of law, as the Lemon Law claim may at the consumer’s option (see, General Business Law § 198-a [f], [h], [j], [l]), the Constitution requires that the Supreme Court be permitted to determine that claim in every instance based on its own de novo review of the law and the facts. Because General Business Law § 198-a (k) limits the Supreme Court’s jurisdiction to CPLR article 75 review when a consumer elects compulsory arbitration in the first instance, plaintiffs argue that the Lemon Law provision produces an unconstitutional limitation of the Supreme Court’s general original jurisdiction.

Legislation which affects the jurisdiction of the Supreme Court is not necessarily void, however. The Constitution gives the Legislature the "power to alter and regulate the jurisdiction and proceedings in law and in equity” (NY Const, art VI, § 30). It may award jurisdiction to other tribunals, change or abolish common-law causes of action or substitute new remedies (see, Loretto v Teleprompter Manhattan CATV Corp., 58 NY2d 143, 152-153; Montgomery v Daniels, 38 NY2d 41, 57; People ex rel. Swift v Luce, 204 NY 478, 488; Matter of Stilwell, 139 NY 337, 342; People v Honeckman, 125 Misc 2d 1000, 1003).

The Supreme Court has lost no jurisdiction as a result of General Business Law § 198-a (k) because the jurisdiction secured to it by the Constitution does not attach until a claim is made litigable, that is, made the subject of a suit or litigation in a court of law (People ex rel. Swift v Luce, supra). If the consumer chooses to litigate a Lemon Law claim, the Supreme Court has full jurisdiction to adjudicate it. If the consumer chooses arbitration, the claim becomes litigable when either party seeks review of the award. Supreme Court is vested with jurisdiction to review the claim in such proceedings by applying the standards of CPLR article 75 as we have interpreted them (see, Mount St. Mary’s Hosp. v Catherwood, 26 NY2d 493, 508 [judicial review of compulsory arbitration pursuant to CPLR art 75 must be premised on adequate evidence in the record]). In enacting the statute, the Legislature has merely created a new cause of action and, as it has done before, awarded one of the litigants the option of choosing arbitration or judicial proceedings in the first instance (see, Executive Law §§ 297-298 [Human Rights Law]). Although the type of adjudication differs when a consumer elects arbitration, the statute does not withhold or abridge the court’s "general original jurisdiction” (see, Loretto v Tele prompter Manhattan CATV Corp., 58 NY2d 143, 152-153, supra).

In sum, the constitutional provision is not offended by the statute because once a consumer decides to litigate a claim in court, or either party decides to seek review of the arbitration proceeding, the Supreme Court is vested with jurisdiction to hear the claim.

IV

Plaintiffs further allege that they have a constitutional right to have a court or public officer adjudicate their disputes with consumers (see, NY Const, art VI, §§ 1, 7) and that General Business Law § 198-a (k) abridges that right by unconstitutionally delegating sovereign judicial power to private arbitrators.

The Legislature may, by statute, provide for compulsory references in certain instances provided that it does not violate rights guaranteed to the parties by the Constitution (see, Schaffer v City Bank Farmers Trust Co., 269 NY 336, 339-340; Steck v Colorado Fuel & Iron Co., 142 NY 236, 250-251; Glass v Thompson, 51 AD2d 69, 75-76; Siegel, NY Prac § 379). As we have stated, however, plaintiffs are not entitled to a jury trial for claims arising under the Lemon Law and therefore adjudication by arbitrators in the first instance is permissible under the Constitution (see also, CPLR 4317 [b] [authorizing a reference without consent of the parties]).

The dissent refers to language found in the Mount St. Mary’s decision stating that the Legislature may not create ad hoc arbitration tribunals, unlimited by rules of law or evidence, to resolve disputes (Mount St. Mary’s Hosp. v Catherwood, 26 NY2d 493, 505, supra). The court continued, however, that a legislative delegation to an arbitration tribunal is constitutional if there are "standards to guide the delegate body” and judicial oversight "to assure that there is a reasonable basis for the action by [it] in compliance with the legislative standards.” (Id.)

The General Business Law, and the regulations implementing it, carefully outline standards to guide the arbitrators and authorizes judicial oversight to insure a reasonable basis for the decision. Thus, the statute and rules provide that before undertaking their duties arbitrators must be trained in the required procedural techniques and in the responsibilities they assume under the program (13 NYCRR 300.7 [e]) and their "personal objectivity” must be "insured” (General Business Law § 198-a [k]; see also, 13 NYCRR 300.7 [b], [c]). Each party has the "right” to present its case at the arbitration hearing, "to be in attendance during any presentation made by the other party and to rebut or refute such presentation” (General Business Law § 198-a [k]; see also, 13 NYCRR 300.13). Moreover, the statute spells out the basis for relief and the specific award authorized. The consumer is entitled to relief if, within certain time periods set forth in General Business Law § 198-a (b), the manufacturer is unable to repair or correct any defect or condition which "substantially impairs the value of the motor vehicle to the consumer after a reasonable number of attempts”, as defined in the statute (General Business Law § 198-a [c] [1]; [d] [1], [2]). If the consumer prevails, the arbitrator is limited to awarding one of two remedies, acceptance of a replacement vehicle of comparable quality or a refund of the full purchase price, plus certain fees and charges (General Business Law § 198-a [c] [1]; 13 NYCRR 300.17 [b]).

Thus, arbitrators are selected pursuant to detailed standards, the procedures they must follow are specified, the grounds for relief defined and their determinations are subject to judicial review under article 75 of the CPLR to ensure compliance with these standards (General Business Law § 198-a [k]).

The dissent expresses apprehension over the deference afforded to arbitration proceedings generally. However, Lemon Law arbitrators, unlike others, are not given broad powers to interpret substantive case law when rendering a decision (see, dissenting opn, at 192-193). Rather, they are required to follow a specific procedure outlined in the statute and regulations to resolve fact-specific disputes and grant one of only two types of specific relief. Inasmuch as compulsory arbitration is involved, judicial review under CPLR article 75 is broad, requiring that the award be in accord with due process and supported by adequate evidence in the record (see, Caso v Coffey, 41 NY2d 153, 156; Mount St. Mary’s Hosp. v Catherwood, 26 NY2d 493, 508, supra). The award must also be rational and satisfy the arbitrary and capricious standards of CPLR article 78 (Caso v Coffey, supra, at 158). If the arbitrator fails to follow the statutory standards, the award should be vacated for exceeding the legislative grant of authority (see, Mount St. Mary’s Hosp. v Catherwood, 26 NY2d 493, 506, supra, quoting Matter of Guardian Life Ins. Co. v Bohlinger, 308 NY 174, 183). Finally, the court’s coercive power is available to ensure compliance with the arbitrator’s decision pursuant to the provisions of CPLR 7514. Given these legislative standards and the courts’ power under CPLR article 75, the arbitration proceeding remains within the judicial domain.

Although the dissent’s argument proceeds on the premise that something has been taken away from the courts, it concedes the statute creates a new cause of action and a new remedy and does not violate the constitutional provision contained in article VI, § 7 (dissenting opn, at 193). The Legislature has merely created a new limited class of disputes and provided a procedure for resolving them, much in the same way it removed automobile claims from judicial cognizance by the No-Fault Insurance Law (see, Montgomery v Daniels, 38 NY2d 41, 57, supraA Thus, the situation differs materially from that in Matter of Fink v Cole (302 NY 216) in which power, without appropriate standards, was delegated to a private corporation to issue licenses at its discretion. Moreover, the "traits” by which the dissent would identify the judicial function abide in all dispute-resolution bodies; they are not unique to the courts.

Finally, the Legislature has provided for accountability in several ways. It has set forth the procedures to be followed and the elements of the claim entitling a consumer to recovery, defining the arbitration mechanism, the elements of the claim and the relief to be accorded and ensuring that its mandate be followed by providing for the expanded judicial review available in compulsory arbitration.

Accordingly, we find no merit to plaintiff’s claim that the statute unconstitutionally abridges the powers of the judiciary or the dissent’s argument that it violates fundamental concepts of separation of powers or accountability.

V

Finally, plaintiffs argue that the alternate arbitration mechanism established under the Lemon Law violates the State Administrative Procedure Act by not requiring that the arbitrator’s decision include findings of fact, conclusions of law, or reasons for the determination (see, State Administrative Procedure Act § 302 [1]). The State Administrative Procedure Act requirements apply to "agencies” conducting "adjudicatory proceedings” (see, State Administrative Procedure Act §§ 100, 102). General Business Law § 198-a (k) provides that the alternate arbitration procedure "shall be conducted by a professional arbitrator or arbitration firm”, presently the American Arbitration Association. This entity is not a "department, board, bureau, commission, division, office, council, committee or officer of the state, or a public benefit corporation or public authority” and therefore is not an "agency” within the meaning of the State Administrative Procedure Act (see, State Administrative Procedure Act § 102 [1]). Accordingly, the State Administrative Procedure Act requirements do not apply to the alternative arbitration mechanism and the standards and procedures to be applied are those set forth in General Business Law § 198-a and the regulations enacted to implement it (13 NYCRR 300.1-300.19).

Plaintiffs claim that the arbitration violates their right to procedural due process, raised for the first time in the Appellate Division, is beyond our review (see, Matter of Barbara C., 64 NY2d 866, 868).

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

Titone, J.

(dissenting). This appeal challenging the compulsory arbitration provisions of the State’s Lemon Law (General Business Law § 198-a [k]) raises disturbing questions about when and under what circumstances the Legislature may assign the task of adjudicating civil claims, which is ordinarily reserved to the sovereign, to a private dispute-resolution specialist. Because I cannot agree with the manner in which the majority has resolved this weighty question, I dissent.

At the outset, it is important to identify precisely what the Legislature has done by enacting the compulsory arbitration provisions that are the subject of this appeal (General Business Law § 198-a [k]). First, it has singled out a class of commercial disputes, i.e., consumer breach of warranty claims arising out of automobile sales, and established a mandatory remedy of replacement or repair, provided certain simple procedural steps are taken (General Business Law § 198-a [b], [c]; see, Givens, Practice Commentaries, McKinney’s Cons Laws of NY, Book 19, General Business Law § 198-a, at 311-315). Next, it has substituted for traditional judicial adjudication a system of compulsory dispute resolution by private arbitrators, who would act under administrative guidelines established by the Attorney-General (General Business Law § 198-a [k]). Significantly, with the exception of a new statutory presumption, the features of a claim under the Lemon Law, and the related defenses, closely resemble those of a conventional breach of warranty claim (see, General Business Law § 198-a [c] [3]; [d]).

Thus, although it is fair to conclude, as the majority has done, that the Lemon Law has technically established what may be characterized as a new, legislatively created cause of action (majority opn, at 184), it cannot be denied that the gist of the legislative effort was to remove this class of disputes from the courts and to place the responsibility for their resolution in the hands of undoubtedly more efficient, and less costly, private dispute-resolution professionals, acting under the supervision of State administrators. As one commentator has observed this obviously well-intended consumer-oriented legislation rests on the premise that "an entirely new compulsory judicial structure can be erected by an elected official to solve certain types of disputes” (Givens, op. cit., at 316). Whether this "breathtaking concept” (id.) passes constitutional muster is a troubling question worthy of close scrutiny.

It has been held that the legislative powers possessed by the sovereign State cannot be delegated to a private entity (Matter of Fink v Cole, 302 NY 216; Builders' Council v City of Yonkers, 106 Misc 2d 700, 703, affd 79 AD2d 696). It would also seem obvious that the inherently coercive authority possessed by the judicial branch of government also cannot be delegated to private entities, who are not accountable to the public either through the elective process or the strictures of the Public Officers Law. Indeed, our citizens’ respect for and willingness to submit to the notion of peaceful dispute resolution depends, in large measure, on the fact that in our system the process is conducted not by other private citizens, but rather by public officials who act, at least theoretically, on behalf of the body politic as a whole. Since one of the primary functions of government is to keep the peace by resolving private disputes among citizens, I would reject the notion that this function can simply be legislatively delegated to private dispute-resolution specialists with no public accountability. Yet, that is precisely what the Legislature has done in enacting General Business Law § 198-a (k).

The arbitrators who have been assigned by the Attorney-General, pursuant to the statute, to adjudicate Lemon Law disputes — members of the American Arbitration Association— are private citizens who are not elected, removable or otherwise accountable as public officers. They are not even classifiable as "quasi-governmental” authorities. Indeed, the majority acknowledges as much when it observes that the American Arbitration Association is not a " 'department, board, bureau, commission, division, office, council, committee or officer of the state * * *’ and therefore is not an 'agency’ within the meaning of the State Administrative Procedure Act” (majority opn, at 188, quoting State Administrative Procedure Act § 102 [1]). Parenthetically, the majority’s analysis on this point highlights the difficulty of permitting delegation of what are ordinarily sovereign functions to private entities: important regulations designed to promote public accountability, such as the State Administrative Procedure Act, are not available.

Furthermore, there can be little doubt that the function General Business Law § 198-a (k) assigns to private arbitrators is judicial in nature. Under the statute, manufacturers are compelled to submit to binding arbitration breach of warranty disputes that differ very little from those that formerly would have been adjudicated in the courts. Arbitrators are empowered to take evidence (13 NYCRR 300.13), to subpoena witnesses and documents (300.10 [e]), and make binding determinations of fact and law (300.17 [i]). These traits are unique characteristics of the sovereign judicial function (see, Hecht v Monaghan, 307 NY 461, 469 [" '(a) judicial inquiry investigates, declares, and enforces liabilities as they stand on present or past facts and under laws supposed already to exist’ ”]; Matter of Metz v Maddox, 189 NY 460, 472 ["(t)he essence of a judicial proceeding is that it decides something and that its decision is conclusive on the parties”]; Matter of Nash v Brooks, 251 App Div 616, 618 [" '(t)o adjudicate upon, and protect the rights and interests of individual citizens, and to that end to construe and apply the laws, is the peculiar province of the judicial department’ ”]).

Contrary to the conclusion of the majority (majority opn, at 185), the judicially approved, long-standing practice of compulsory references to private dispute intermediaries does not furnish legitimizing precedent for what the Legislature has done here. New York has traditionally recognized two types of Referees: Referees "to hear and report” and Referees "to hear and determine” (see, CPLR 4301; Judiciary Law former § 115 [repealed by L 1962, ch 704]; § 117; Family Ct Act § 439; see also, NY Const, art VI, § 25). The former function merely "as an aid to the court” (Matter of 3260 Perry Ave. Realty Corp. [De Burr], 285 App Div 71; accord, Bannon v Bannon, 270 NY 484, 492), while the latter have been permitted even to direct entry of the final appealable judgment (see, e.g., Schuyler v Smith, 51 NY 309, 317). Even in the case of Referees "to hear and determine,” however, there is some oversight by the judiciary in the form of an initial, individualized determination by a publicly accountable Judge that the matter is an appropriate one for a binding reference (see, Matter of Seamerlin Operating Co. [Searing — Merlino], 307 NY 407; Bannon v Bannon, supra). Indeed, the constitutionality of a statute authorizing references "to hear and determine” was upheld, in part, because of the existence of that initial judicial participation (Matter of Brock, 245 App Div 5, 10; see generally, Decker v Canzoneri, 256 App Div 68). That saving feature — the initial participation in the litigation of a publicly accountable judicial or quasi-judicial officer — is not present here.

Nor is the problem posed by this delegation of a sovereign function to a private entity answered by the availability of the purportedly heightened standards of judicial review that are applicable to awards resulting from compulsory, as distinguished from voluntary, arbitration. In Mount St. Mary’s Hosp. v Catherwood (26 NY2d 493), the court held that, in addition to the extremely limited review ordinarily afforded to other arbitration awards, compulsory arbitration awards must be tested under the somewhat more exacting CPLR article 78 standards ordinarily applied to administrative agency determinations, because those standards are necessary to ensure that the litigant receives at least the minimum consideration that constitutional due process requires. Due process is implicated, of course, because the individual has been required by government to submit to the authority of an arbitrator. While the use of such heightened review may resolve the due process problem posed by compulsory arbitration laws, however, it does not satisfactorily address the entirely separate problem— not addressed in Mount St. Mary’s — arising from the delegation of the State’s coercive judicial powers to a private entity. Indeed, while the private due process interests of the litigants may be satisfied by the level of review afforded under CPLR article 78, one may well question whether the public’s interest in primary decision making by accountable officials may be satisfied by that mechanism.

Moreover, the majority’s reliance on the Mount St. Mary’s standard for judicial review of compulsory arbitration awards is open to serious question. The Mount St. Mary’s court noted that "if, indeed, the Legislature purported to provide ad hoc arbitration tribunals to resolve * * * disputes without limitation to rules of law, it would have acted unconstitutionally”, but went on to assert that the constitutional problem is ameliorated by the existence of "standards to guide the delegate body” and adequate judicial oversight "to assure that there is a reasonable basis for the action by [it] in compliance with [those] standards.” (26 NY2d, at 505, supra [emphasis supplied].) Although Mount St. Mary’s articulated a heightened standard analogous to that applied in article 78 proceedings in order to satisfy constitutional concerns, that standard has noticeably been eroded by this court’s recent applications of the standard in the context of no-fault compulsory arbitration appeals.

In Matter of Smith (Firemen’s Ins. Co.) (55 NY2d 224, 232), the court summarized the modern standard of compulsory arbitration review emerging from its recent holdings (Cohn v Royal Globe Ins. Co., 49 NY2d 942; Matter of Furstenberg [Aetna Cas. & Sur. Co.], 49 NY2d 757; Matter of Garcia v Federal Ins. Co., 46 NY2d 1040; see also, Matter of McKenna v County of Nassau Off. of County Attorney, 75 AD2d 815, affd 51 NY2d 902) as follows: "[W]e generally will not vacate an arbitrator’s award where the error claimed is the incorrect application of a rule of substantive law * * * unless it is so 'irrational as to require vacatur’ ”. Even apart from its apparent circularity, this standard is substantially less exacting than that applied in the review of the legal conclusions of administrative agencies (see, e.g., Kurcsics v Merchants Mut. Ins. Co., 49 NY2d 451). Thus, a legitimate and well-founded concern exists about what may be characterized as the excessive judicial deference to the arbitrator’s legal, as well as factual, conclusions that the post Mount St. Mary’s case law seems to require. Indeed, this court’s assertion in Smith that the recent cases all but preclude judicial review for error of law may well bring the current law on the subject into direct conflict with the Mount St. Mary’s court’s warning against the legislative establishment of "aid hoc arbitration tribunals to resolve * * * disputes without limitation to the rules of law” (26 NY2d, at 505, supra [emphasis supplied]).

On a more fundamental level, I have grave doubts as to whether this legislation is consistent with the basic tenets of the separation of powers doctrine. I agree with the majority (majority opn, at 183-185) that General Business Law § 198-a (k) does not, as a technical matter, effect an impermissible reduction in the Supreme Court’s general original jurisdiction (NY Const, art VI, § 7), since it merely furnishes potential suitors with an alternative forum in which to pursue their claims. However, when examined from a broader, practical perspective, it is apparent that the Legislature has sought to accomplish precisely what the separation of powers doctrine forbids.

While the immediate purpose of the Lemon Law’s compulsory arbitration provisions may have been to remedy the defects in the manufacturers’ informal dispute-resolution systems, which were adopted in accordance with the Federal Magnuson-Moss Warranty Act and related Federal Trade Commission regulations (15 USC §§ 2310-2312; 16 CFR part 703; see, General Business Law § 198-a [g]), the overriding motivation behind the legislation was the Legislature’s dissatisfaction with the cumbersome and often too slow and too expensive judicial mechanisms for resolving this type of dispute (see, Attorney-General’s Mem to Governor Re: S 8342-A, Bill Jacket, L 1986, ch 799; see also, Givens, op cit., at 311-316). Accordingly, the Legislature seized upon the solution of simply bypassing the judiciary by authorizing use of private arbitrators and procedures prescribed by the Attorney-General.

The implications of this court’s approval of such a solution are no less than monumental. If the Legislature may authorize disputants to bypass the judiciary and choose an adjudicative forum supervised by the executive branch each time it is dissatisfied with the manner in which the judicial branch is handling a particular class of disputes, there would be little left to insulate the judiciary from legislative incursion. In this regard, it is worth emphasizing that the compulsory arbitration mechanism established by the Legislature in connection with the no-fault insurance program is not analogous to the compulsory arbitration system created by the Lemon Law. The controversial no-fault insurance legislation entirely abolished a class of common-law tort claims and replaced it with what resembled an administrative claim system unlike anything that had existed before in the area of vehicular negligence litigation (see, Montgomery v Daniels, 38 NY2d 41). Here, in contrast, the Legislature took what was formerly a traditional, litigable breach of warranty cause of action and, after making certain minor and incidental alterations, made that virtually unchanged cause of action subject to arbitration, rather than judicial resolution, at the behest of the claimant. Thus, unlike the broad-based, multifaceted No-Fault Law, which was aimed primarily at eliminating a particular class of tort actions, this legislation was intended to preserve a class of existing legislatively favored causes of action while at the same time circumventing the judicial system in favor of a private arbitral forum. It seems to me that such legislation squarely contravenes the separation of powers doctrine upon which our system of governmental checks and balances is built and that it ought not be tolerated.

While the intention of the Lemon Law’s drafters to facilitate the vindication of consumer claims was, no doubt, commendable, the method they chose — bypassing, rather than improving, the judicial process — represents an unacceptable incursion on the province of the judiciary. As Justice Brandéis observed in a different context: "Experience should teach us to be most on our guard to protect liberty when the Government’s purposes are beneficent. * * * The greatest dangers to liberty lurk in insidious encroachment by men of * * * well-meaning [intention]” (Olmstead v United States, 277 US 438, 479 [Brandeis, J., dissenting]). Although I am in complete accord with the goal of improving the mechanisms for resolving just consumer claims, I believe that the mechanism the Legislature has chosen is simply too disruptive of the delicate balance governing the relationship among the various branches of government. For that reason, I respectfully dissent.

Chief Judge Wachtler and Judges Kaye, Alexander, Hancock, Jr., and Bellacosa concur with Judge Simons; Judge Titone dissents and votes to reverse in a separate opinion.

Order affirmed, with costs.

      . General Business Law § 198-a (k) provides:
      "Each consumer shall have the option of submitting any dispute arising under this section upon the payment of a prescribed filing fee to an alternate arbitration mechanism established pursuant to regulations promulgated hereunder by the New York state attorney general. Upon application of the consumer and payment of the filing fee, all manufacturers shall submit to such alternate arbitration.
      "Such alternate arbitration shall be conducted by a professional arbitrator or arbitration firm appointed by and under regulations established by the New York state attorney general. Such mechanism shall insure the personal objectivity of its arbitrators and the right of each party to present its case, to be in attendance during any presentation made by the other party and to rebut or refute such presentation. In all other respects, such alternate arbitration mechanism shall be governed by article seventy-five of the civil practice law and rules.”

      . Plaintiffs’ contention is not that they possess a due process right to litigate a particular claim in Supreme Court (see, Matter of Colton v Riccobono, 67 NY2d 571, 576 [generally, there is no per se constitutional right of access to the civil courts]), but that the Supreme Court’s constitutionally guaranteed jurisdiction may not be curtailed by compelling binding arbitration of the new Lemon Law cause of action at the sole option of the consumer.

      . Although the Supreme Court has jurisdiction over all claims arising in law or equity (except for claims against the State, where exclusive jurisdiction has been conferred on the New York Court of Claims [see, NY Const, art VI, §9]), the Legislature may grant concurrent jurisdiction to other courts of limited jurisdiction (see, e.g., Matter of Malloy, 278 NY 429, 432; People v Darling, 50 AD2d 1038; People v Davis, 27 AD2d 299; see generally, Siegel, NY Prac § 12).

      . Contrary to the dissent’s argument (dissenting opn, at 190-191), other compulsory arbitration mechanisms established by the Legislature which do not provide for a first-instance adjudication by a judicial entity have been upheld (see, Mount St. Mary’s Hosp. v Catherwood, 26 NY2d 493, 497-498; Country-Wide Ins. Co. v Harnett, 426 F Supp 1030, affd 431 US 934; see, Insurance Law § 5106 [b]).

      . In Glass v Thompson (51 AD2d 69), where the binding references occurred by virtue of administrative assignment rather than individualized judicial determination, the references were made to individuals who were at least public officers, albeit not constitutionally elected or appointed Judges. Furthermore, this court has not necessarily approved the practice discussed in that case (see, Babigian v Wachtler, 69 NY2d 1012,1014).

      . The majority’s suggestion (at 186) that "Lemon Law arbitrators * * * are not given broad powers to interpret substantive case law” is puzzling. Although their primary role is to resolve factual disagreements, the disputes placed before them will inevitably give rise to some substantive and legal questions. At the very least, the arbitrators will be called upon to decide how to apply the statutory and regulatory procedures and to construe the statute and regulations in the event of a perceived ambiguity. Moreover, application of the substantive concepts related to this "new” cause of action, such as "substantial impairment ofj the value of the motor vehicle” (General Business Law § 198-a [c] [1]), unquestionably requires a measure of legal analysis.


author: Hancock, Jr., J.

text:
    Home Insurance Company, Plaintiff, v American Home Products Corporation et al., Defendants.
    Argued November 15, 1989;
    decided January 18, 1990

      POINTS OF COUNSEL

      Sheila L. Birnbaum, Irene A. Sullivan, Timothy G. Reynolds and Douglas W. Dunham for plaintiff.

      Daniel J. Thomasch, Louis C. Lustenberger, Jr., and Susan M. Hart for American Home Products Corporation and another, defendants.

      Eugene R. Anderson, Irene C. Warshauer, John H. Kazanjian, James Walker Smith and Tracy E. Makow for The Product Liability Advisory Council, Inc., amicus curiae.

   OPINION OF THE COURT

Hancock, Jr., J.

A judgment for $9.2 million in compensatory damages and $13 million in punitive damages, based on a jury verdict, was recovered in an Illinois trial court against American Home Products Corp. (AHP). The damages were awarded for the grave and permanent injuries (including severe impairment of mental function) sustained by Marcus Batteast, a two-year-old boy, as a result of the administration of a drug, aminophylline, manufactured by AHP through its subsidiary, Wyeth Laboratories. On appeal to the appellate court of Illinois the judgment against AHP was unanimously affirmed (Batteast v American Home Prods. Corp., No. 806-16808 [Cir Ct, Cook County, Ill], affd sub nom. Batteast v Wyeth Labs., 172 Ill App 3d 114, 526 NE2d 428 [1st Dist 1988], lv granted 123 Ill 2d 556, 535 NE2d 398 [1988]).

The question to be decided — certified to this court by the United States Circuit Court of Appeals for the Second Circuit —concerns the insurance coverage under the excess liability policy issued by The Home Insurance Company (Home) to AHP and whether that policy covers the award for punitive damages in the Batteast case. Home commenced an action in New York State Supreme Court against AHP seeking a judgment declaring that it was not obligated to indemnify AHP for the amount of the punitive damages not covered by primary insurance. The action was removed to Federal court which declared that Home "is liable under its excess insurance policy for the punitive damages awarded in Batteast”. (Home Ins. Co. v American Home Prods. Corp., 665 F Supp 193, 197 [Duffy, J., SD NY 1987].) Home appealed to the Circuit Court of Appeals.

The Circuit Court of Appeals, noting that the question of coverage for punitive damages recovered in out-of-State judgments is one of first impression in this State and one which involves important New York public policy considerations, has certified to us the following question: "Would New York require the insurer to reimburse the insured for punitive damages awarded against the insured on the out-of-state judgment in this case?” (873 F2d 520, 522 [2d Cir 1989].)

For reasons which follow, we hold that to require Home to indemnify AHP for such damages under its excess policy would be contrary to the public policy of this State. Accordingly, we answer the certified question in the negative.

I

The parties are in agreement that the answer to the question certified depends on an analysis of New York’s public policy and an application of that policy to the circumstances here. There is no question that the general rule, as articulated in two of our recent decisions, is that New York public policy precludes insurance indemnification for punitive damage awards, whether the punitive damages are based on intentional actions or actions which, while not intentional, amount to "gross negligence, recklessness, or wantonness” (Public Serv. Mut. Ins. Co. v Goldfarb, 53 NY2d 392, 400) or "conscious disregard of the rights of others or for conduct so reckless as to amount to such disregard” (Hartford Acc. & Indent. Co. v Village of Hempstead, 48 NY2d 218, 227).

The considerations underlying our public policy — thoroughly discussed in the court’s opinion in Hartford Acc. (id., at 225-229) — need not be detailed here. The main argument against coverage, we noted, is that to allow it would defeat "the purpose of punitive damages, which is to punish and to deter others from acting similarly, and that allowing coverage serves no useful purpose since such damages are a windfall for the plaintiff who, by hypothesis, has been made whole by the award of compensatory damages.” (Id., at 226.)

We underscored these policy considerations in Public Serv. Mut. Ins. Co. v Goldfarb (supra). There, we declared that the insured, a dentist, could not claim reimbursement for any punitive damages that might be awarded in the malpractice case which had been brought against him by a patient who claimed that he had committed sexual abuse. We emphasized that if punitive damages were to be awarded "on any ground other than intentional causation of injury [emphasis in original] — for example, gross negligence, recklessness or wantonness —indemnity for compensatory damages would be allowable even though indemnity for the punitive or exemplary component of the damage award would be barred as violative of public policy. ” (Public Serv. Mut. Ins. Co. v Goldfarb, supra, at 400 [emphasis supplied].)

It can be argued that the claims for punitive damages in Public Serv. Mut. (based on alleged sexual abuse by the insured) and in Hartford Acc. (based on police officers’ alleged violation of 42 USC § 1983 in using nightsticks) involved alleged wrongs which could be found to have been intentional or even criminal and which were, for that reason, more grievous in nature than the wrongful conduct in a case based on negligence or products liability. We hold, however, that the policy articulated in Public Serv. Mut. and Hartford Acc. should apply equally to cases involving conduct which, although not intentional, is found to be grossly negligent, or wanton or so reckless as to amount to a conscious disregard of the rights of others. Indeed, the very language of these opinions (see, Public Serv. Mut. Ins. Co. v Goldfarb, supra, at 400; Hartford Acc. & Indent. Co. v Village of Hempstead, supra, at 227) indicates that the same policy considerations would apply to conduct of this kind (see, Aetna Cas. & Sur. Co. v Shuler, 72 AD2d 591, 592; Padavan v Clemente, 43 AD2d 729; Parker v Agricultural Ins. Co., 109 Misc 2d 678, 680-681).

Nor should New York policy be applied any differently solely because the punitive damages award happens to have been rendered in another State. It is the punitive nature of the award coupled with the fact that a New York insured seeks to enforce it in New York against a New York insurer which calls for the application of New York public policy. To determine whether there should be reimbursement in New York for an out-of-State punitive damages award, we must examine the nature of the claim, including the degree of wrongfulness for which the damages were awarded in the foreign State, as well as that State’s law and policy relating to punitive damages in order to properly ascertain whether reimbursement would offend our public policy.

We accordingly turn to an analysis of the Batteast punitive damages award and of the Illinois law under which it was rendered.

II

The tort theory on which AHP’s liability was predicated was its failure to warn of the risks it knew to be inherent in the administration of the drug, aminophylline, in suppository form to children. The appellate court of Illinois, on its review of the trial record, found "that there is ample evidence to support plaintiffs’ contention that Wyeth’s aminophylline was unreasonably dangerous due to the lack of adequate warnings accompanying the product. While the evidence demonstrates that Wyeth was aware of certain risks involved in administering aminophylline suppositories to children, Wyeth failed to warn the medical profession of the risks.” (Batteast v Wyeth Labs., 172 Ill App 3d 114, 127, 526 NE2d 428, 437, supra.) The appellate court listed nine separate risks for which no warning was given including, significantly, the fact that "severe intoxication and death have followed rectal administration because of hypersensitivity or overdosage” (id., at 127, at 437).

Having decided the question of liability, the appellate court addressed the issue of punitive damages and rejected defendant’s two contentions: (1) that the trial court should, as a matter of law, have dismissed the claim for punitive damages without submitting the issue to the jury and (2) that, in any event, the verdict on punitive damages was contrary to the weight of the evidence.

With respect to the legal challenge to the sufficiency of the proof to warrant submission of the punitive damages issue, the appellate court of Illinois stated: "if the jury believed that Wyeth was guilty of willful and wanton conduct which proximately caused plaintiff to be injured, and if the jury believed that justice and the public good require it, it was proper for the jury to award plaintiffs an amount which will serve to punish Wyeth and deter others from the commission of like offenses. Willful and wanton conduct is a course of action which shows deliberate intention to harm or shows an utter indifference or conscious disregard for the safety of others” (id., at 141, at 446). The court, on its review of the record, decided that the evidence was "amply sufficient to support the trial court’s decision to submit the issue of punitive damages to the jury” (id.).

In rejecting defendant’s argument that the punitive damages verdict was contrary to the weight of the evidence, the intermediate appellate court determined that, if accepted by the jury, the evidence of defendant’s failure to warn and its failure to provide sufficient information for avoiding toxicity in the use of the drug, despite its awareness of the involved risks, showed "an utter indifference to or conscious disregard for the safety of others” (id.). The court noted that the jury "believed the pertinent evidence [on the issue of punitive damages] which it had a right to do” (id.).

In deciding whether there should be indemnification for the Batteast punitive damages verdict as affirmed by the appellate court, we should assume that the judgment was made in conformity with prevailing Illinois law. Under Illinois law, punitive damages may only be awarded upon a showing that a tort has been " 'committed with fraud, actual malice, deliberate violence or oppression, or when the defendant acts willfully, or with such gross negligence as to indicate a wanton disregard of the rights of others’ ” (Case Co. v McCartin-McAuliffe Plumbing & Heating, 118 Ill 2d 447, 453, 516 NE2d 260, 263 [1987] [quoting Kelsay v Motorola, Inc., 74 Ill 2d 172, 186, 384 NE2d 353, 359 (1978)]). The purposes behind a punitive award are to punish the defendant and to serve as a "warning” and as an " 'example to deter the defendant and others from committing like offenses’ ” (id.). Additionally, the Illinois Supreme Court has recently emphasized that "[because of their penal nature, punitive damages are not favored in the law, and courts must be cautious in seeing that they are not improperly or unwisely awarded” (Deal v Byford, 127 Ill 2d 192, 203, 537 NE2d 267, 272 [1989]) and will soon apply its own rule in the Batteast case, now pending before it.

We discern no relevant difference between the rules governing punitive damages in New York and the comparable rules in Illinois. In New York, as in Illinois, punitive damages are intended to act as a deterrent to the offender "and to serve as a warning to others. They are intended as punishment for gross misbehavior for the good of the public and have been referred to as 'a sort of hybrid between a display of ethical indignation and the imposition of a criminal fine.’ [Citations omitted.] Punitive damages are allowed on the ground of public policy and not because the plaintiff has suffered any monetary damages for which he is entitled to reimbursement; the award goes to him simply because it is assessed in his particular suit. The damages may be considered expressive of the community attitude towards one who wilfully and wantonly causes hurt or injury to another.” (Reynolds v Pegler, 123 F Supp 36, 38 [SD NY 1954], affd 223 F2d 429 [2d Cir 1955], cert denied 350 US 846 [quoted in Toomey v Farley, 2 NY2d 71, 83].) The nature of the conduct which justifies an award of punitive damages has been variously described, but, essentially, it is conduct having a high degree of moral culpability (see, Walker v Sheldon, 10 NY2d 401, 405) which manifests a "conscious disregard of the rights of others or conduct so reckless as to amount to such disregard.” (Welch v Mr. Christmas, 57 NY2d 143, 150.) Such conduct need not be intentionally harmful but may consist of actions which constitute willful or wanton negligence or recklessness (see, Giblin v Murphy, 73 NY2d 769, 772; Public Serv. Mut. Ins. Co. v Goldfarb, supra, at 400; NY PJI 2:278).

The concept of punitive damages has been sanctioned under New York law in actions based on negligence (see, Wittman v Gilson, 70 NY2d 970, 972; Caldwell v New Jersey Steamboat Co., 47 NY 282, 296) and strict products liability (see, Bikowicz v Nedco Pharmacy, 130 AD2d 89, 94; see also, Racich v Celotex Corp., 887 F2d 393 [2d Cir 1989]; Roginsky v Richardson-Merrell, Inc., 378 F2d 832, 838-842 [2d Cir 1967]). While no case involving punitive damages in a strict products litigation has come before our court, nothing in New York law or public policy would preclude an award of punitive damages in a strict products case, where the theory of liability is failure to warn and where there is evidence that the failure was wanton or in conscious disregard of the rights of others. A products liability action founded on a failure to warn involves conduct of the defendant having attributes of negligence (see, Sage v Fairchild-Swearingen Corp., 70 NY2d 579, 585; Wolfgruber v Upjohn Co., 72 AD2d 59, 62, affd for reasons stated in App Div opn 52 NY2d 768) which the jury may find sufficiently wanton or reckless to sustain an award of punitive damages (see, Racich v Celotex Corp., 887 F2d 393, 396-397, supra [sustaining an award of punitive damages in a products liability case based on failure to warn of the dangers of asbestos and expressly rejecting the argument that under New York law the recovery of punitive damages would be inappropriate]; Fischer v Johns-Manville Corp., 103 NJ 643, 512 A2d 466 [1986]).

In concluding that punitive damages could be recovered in New York in a failure to warn case, we do not suggest that punitive damages are necessarily appropriate in all types of products liability litigation (see generally, discussion in Fischer v Johns-Manville Corp., supra; Comment, Punitive Damages Awards in Strict Products Liability Litigation: The Doctrine, the Debate, the Defenses, 42 Ohio St LJ 771; Comment, Torts-Damages-Punitive Damages Recoverable in a Strict Liability Failure to Warn Action Based on Exposure to Asbestos: Fischer v Johns-Manville Corp., 103 NJ 643, 512 A2d 466 [1986], 18 Rutgers LJ 979).

From our conclusion that willful and wanton conduct like that found to have been committed by AHP in Batteast could support a punitive damages verdict under New York law, it follows that insurance indemnification for the Batteast punitive damages award would be contrary to our State’s public policy (see, Public Serv. Mut. Ins. Co. v Goldfarb, supra; Hartford Acc. & Indent. Co. v Village of Hempstead, supra).

Ill

AHP argues, however, that it is not enough for an application of our public policy that we be satisfied that the legal standard under which the punitive damages were awarded in Batteast is substantially the same as New York’s standard. We should look beyond the law, it is argued, and make our own de novo analysis of the trial record to determine whether AHP’s conduct was "morally culpable”. In effect, AHP asks us to discredit the application of Illinois law by the Illinois courts in upholding the jury’s award of punitive damages. We decline to do so. We have no reason to question the regularity of the Illinois proceedings or the legitimacy of the Illinois judgment. Indeed, it would be contrary to precedent and to our policy of respecting the judicial proceedings of sister States (see, Matter of Farmland Dairies v Barber, 65 NY2d 51, 55-56; Greschler v Greschler, 51 NY2d 368, 376; Restatement [Second] of Conflict of Laws § 98; see also, Hinchey v Sellers, 7 NY2d 287, 293-296; cf., Matter of Halyalkar v Board of Regents, 72 NY2d 261, 266-270) to undertake the collateral factual review which defendant requests.

Following certification of a question by the United States Court of Appeals for the Second Circuit and acceptance of the question by this court pursuant to section 500.17 (22 NYCRR 500.17) of the Rules of Practice of the New York State Court of Appeals, and after hearing arguments by counsel for the parties and consideration of the briefs and record submitted, the certified question is answered in the negative.

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

Following certification of a question by the United States Court of Appeals for the Second Circuit and acceptance of the question by this court pursuant to section 500.17 of the Rules of Practice of the New York State Court of Appeals (22 NYCRR 500.17), and after hearing argument by counsel for the parties and consideration of the briefs and the record submitted, certified question answered in the negative.

         Home (a New Hampshire corporation) and AHP (a Delaware corporation) both have their principal offices and places of business in New York. For purposes of this action, Home and AHP are considered New York residents.