author: Chief Judge Wachtler. Simons, J.

text:
    In the Matter of Patchogue-Medford Congress of Teachers, Respondent, v Board of Education of the Patchogue-Medford Union Free School District et al., Appellants.
    Argued April 29, 1987;
    decided June 9, 1987

      POINTS OF COUNSEL

      Robert E. Sapir for appellants.

      Daniel Galinson for respondent.

      Norman H. Gross, Jay Worona and Mara B. Ginsberg for the New York State School Boards Association, amicus curiae.

      Richard K. Willard, Assistant Attorney General (Leonard Schaitman and Robert V. Zener of counsel), for United States, amicus curiae.

      James R. Sandner, Janis Levart Barquist, John H. Jurgens and Katherine A. Levine for New York State United Teachers, amicus curiae.

      Minna J. Kotkin, Steven R. Shapiro and Richard Emery for the New York Civil Liberties Union, amicus curiae.

   OPINION OF THE COURT

Chief Judge Wachtler.

On this appeal we are asked to consider the constitutionality of a School District policy requiring all probationary teachers to submit to urinalysis to detect potential drug abuse. The courts below found that the practice constituted an illegal search and seizure in violation of the teachers’ constitutional rights. The School District appeals.

In 1982 the Patchogue-Medford School District signed a collective bargaining agreement with the Patchogue-Medford Congress of Teachers, the union representing the teachers. The agreement requires probationary teachers to submit to a full physical examination in their first year of employment and again during the final year of their probationary term when they become eligible for tenure. In 1985 there were approximately 22 teachers completing their probationary terms in the Patchogue-Medford School District. Some time prior to May of 1985 each of these teachers had completed a full physical examination conducted by a physician designated by the School District.

On May 3, 1985 the School District notified all of these probationary teachers by letter that they must submit to an additional urinalysis examination. The letter states that, "the district is requiring a urine sample for all einployees eligible for tenure.” The sample would be collected by the school nurse and then forwarded to a laboratory for testing. It is conceded that the sole purpose of this examination was to determine whether any of the teachers were using drugs illegally. There was no resolution by the Board of Education requiring these tests and there is no policy statement or directive from either the Board or the Superintendent relating to them. However, the teachers were informed that the Superintendent would not recommend for tenure any teacher who refused to provide the urine sample.

Prior to the date for the scheduled examination, the teachers’ union commenced this proceeding to prohibit the examination claiming that it was unauthorized and constituted an unreasonable search and seizure in violation of the teachers’ constitutional rights. The union sought declaratory and injunctive relief and obtained an interim stay. The School District raised several procedural objections and, on the merits, contended that the examination was authorized by the collective bargaining agreement, did not constitute a search or seizure and, in any event, was a reasonable requirement to impose on a tenure candidate.

The trial court granted the petition. The court found that the urine test was not part of the medical examination authorized by statute (Education Law § 913) and the collective bargaining agreement signed by the teachers’ representative. The court further held that it constituted a search and seizure and could not constitutionally be made in the absence of reasonable suspicion. The court noted that the "District makes no attempt to justify the demand for a sample upon any ground supporting the need for such testing either as to the prospective tenured teachers as a class or to any of them individually.”

The Appellate Division affirmed. The court agreed that the scheduled test was not part of the required and completed medical examination and constituted a purely investigatory search and seizure seeking evidence of illegal drug use. The court also held that probable cause was not required but that the test could not be ordered without reasonable suspicion. The court stated: "Balancing a Board of Education’s interest in ensuring that its employees are fit to perform their jobs against the teachers’ reasonable expectation of privacy, we hold that the reasonable suspicion standard is the appropriate basis for constitutionally compelling a public school teacher to submit to a urine test for the purposes of detecting the use of controlled substances” (119 AD2d 35, 40).

The School District, joined by the United States Attorney General as amicus curiae, urges on a number of grounds that the compulsory urine test does not violate the teachers’ constitutional rights. First, it is urged that compulsory urine testing does not involve a search and seizure because it may be accomplished without invading the individual’s body and all that is seized is a waste product in which the individual can have no reasonable expectation of privacy. Second, it is argued that if a search and seizure is involved, it is nevertheless reasonable to require teachers to submit to compulsory urine testing at the will of the employer because public school teachers have a diminished expectation of privacy with respect to their fitness and the State has an overriding interest in providing a drug free environment in the public schools. Finally, the School District contends that, in any event, the collective bargaining agreement signed by the teachers’ representative constitutes consent or waiver of the teachers’ rights with respect to a compulsory urine test.

It is not clear whether the urine test compelled here would satisfy Federal constitutional requirements. The Supreme Court has not yet decided a case involving compulsory drug testing of government employees, and the courts which have considered application of the Fourth Amendment have reached diverse conclusions. All appear to have held that such testing involves a search and seizure, but differ as to whether it is reasonable for the government to act only on reasonable suspicion with respect to a particular employee (see, e.g., Division 241 Amalgamated Tr. Union v Suscy, 538 F2d 1264; Jones v McKenzie, 628 F Supp 1500; Capua v City of Plain-field, 643 F Supp 1507; Security & Law Enforcement Employees v Carey, 737 F2d 187, 205; Turner v Fraternal Order of Police, 500 A2d 1005 [DC App]; cf., Allen v City of Marietta, 601 F Supp 482 [reasonable suspicion noted]) or whether some form of random testing of all employees in certain categories is permissible (see, e.g, McDonnell v Hunter, 809 F2d 1302; Shoemaker v Handel, 795 F2d 1136; Rushton v Nebraska Pub. Power Dist., 653 F Supp 1510 [D Neb 1987]; National Treasury Employees Union v Von Raab, 816 F2d 170 [5th Cir]). A majority of courts appear to support the conclusions reached by the courts below in the case now before us, that urine testing compelled by the government does involve a search and seizure, and that reasonable suspicion is required (see, Miller, Mandatory Urinalysis Testing and the Privacy Rights of Subject Employees: Toward a General Rule of Legality Under the Fourth Amendment, 48 U Pitt L Rev 201 [1986]; see also, Fraternal Order of Police v City of Newark, 216 NJ Super 461, 524 A2d 430; City of Palm Bay v Bauman, 475 So 2d 1322 [Fla 1985], reaching a similar conclusion under State Constitutions).

As noted, the School District disputes both of those conclusions and contends that it has a right to conduct such tests at will. The question is an important one which should be settled throughout the State and one on which resort to the Federal Constitution would not be dispositive since the practice, even if permitted by the Fourth Amendment, may not satisfy the requirements of the comparable provision of the State Constitution (NY Const, art I, § 12). The heart of the controversy under both Constitutions is whether the particular test infringes on an expectation of privacy which society considers reasonable. To the extent that this case deals with the expectation of privacy of public employees in this State, it presents a type of inquiry appropriate for resolution under the State Constitution. We therefore consider it necessary and appropriate to decide this case under both the State and Federal Constitutions.

In response to the concurring opinion it should be noted that the petition in this case refers generally to the teachers’ constitutional rights without specifically relying on either the Federal or State Constitutions. If this is sufficient in the context of this case to raise the Fourth Amendment, as we all agree it is, it should serve to present State constitutional questions as well. In search and seizure cases especially, this court has traditionally rested its decisions on both State and Federal grounds when it appears that they both support the result reached (see, e.g., People v Perel, 34 NY2d 462; People v Cantor, 36 NY2d 106; People v Nieves, 36 NY2d 396; People v Gonzalez, 39 NY2d 122; People v Allende, 39 NY2d 474; People v Farenga, 42 NY2d 1092; Hynes v Moskowitz, 44 NY2d 383; People v Boodle, 47 NY2d 398; People ex rel. Piccarillo v State Bd. of Parole, 48 NY2d 76; People v Calhoun, 49 NY2d 398; Matter of Abe A., 56 NY2d 288). As we noted in the Gonzalez case (supra, at 131): "A bad seizure under the Federal Constitution in the Federal courts is also a bad seizure under both the Federal and State Constitutions in the courts of this State.” More recently we have noted that resort to the State Constitution, in addition to the Federal, is particularly apt when the result under Federal law is uncertain (People v Johnson, 66 NY2d 398, 406-407).

With respect to the suggestion that our reliance on both Constitutions is somehow unfair to the litigants it should be noted that one of the briefs submitted on this appeal was completely devoted to this issue. In addition, the relief sought here is in the nature of a declaratory judgment, where the object is not to determine whether the rights of a particular litigant have been violated, but is instead intended to provide guidance to the parties so that they may conform their future conduct to the law. As indicated above, reliance on the Federal Constitution alone could not provide a complete or adequate response to that inquiry. For the reasons that follow, we conclude that the test ordered in this case does not satisfy the requirements of either the State or Federal Constitutions.

The guarantee against unreasonable searches and seizures found in both the State and Federal Constitutions (US Const 4th Amend; NY Const, art I, § 12) is designed to protect the personal privacy and dignity of the individual against unwarranted intrusions by the State (People v Hodge, 44 NY2d 553, 557; Schmerber v California, 384 US 757, 767). It protects not only the individual’s home and property but also one’s person and bodily integrity (Matter of Abe A., 56 NY2d 288, supra; Schmerber v California, supra). It is primarily aimed at limiting the scope of criminal investigations by the police, but it also places restrictions on the conduct of government officials generally, including State employers and school authorities (People v Scott D., 34 NY2d 483; New Jersey v T. L. O., 469 US 325; O’Connor v Ortega, 480 US —, 94 L Ed 2d 714).

This court and the Supreme Court have recognized that a blood test ordered to further a criminal investigation constitutes a search and seizure, and therefore must satisfy a reasonableness standard (Matter of Abe A., supra; Schmerber v California, supra). A urine test compelled by a government employer to determine illegal drug use involves some different considerations but still infringes on the individual’s privacy. It is unrealistic to argue, as the School District and the United States Attorney General do, that a person has no reasonable expectation of privacy with respect to urine because it is a waste product periodically eliminated from the body. Although it is a waste product, it is not generally eliminated in public or in such a way that the public or government officials can gain access to it in order to "read” its contents. That is why the School District is requiring the teachers to preserve it and deliver it for inspection. It is settled that a person can have no reasonable expectation of privacy in things which are intentionally abandoned or discarded (People v Baldwin, 25 NY2d 66; Abel v United States, 362 US 217). But it does not follow from this rule that a person has no privacy interests in a waste product before it is abandoned and therefore no right to dispose of it in a way which maintains privacy. If that were true, documents which individuals and businesses periodically destroy would be entitled to no constitutional protection from government scrutiny.

We also reject the School District’s contention that no search is involved when a person is required to provide a urine sample because urine, unlike blood, may be obtained without invading the person’s body. That is not the only privacy interest the Constitution protects. The act of discharging urine is a private, indeed intimate, one and the product may contain revealing information concerning an individual’s personal life and habits for those capable of analyzing it. There is no question that requiring a person to disrobe and expose his body or body cavities, or to empty the contents of his pockets, involves a sufficient intrusion on privacy to constitute a search (People v Perel, 34 NY2d 462, supra; Bell v Wolfish, 441 US 520, 558). Requiring a person to urinate in the presence of a government official or agent, as is sometimes required in these cases (see, e.g., Capua v City of Plainfield, 643 F Supp 1507, supra; Matter of Caruso v Ward, 133 Misc 2d 544; Storms v Coughlin, 600 F Supp 1214), is at least as intrusive as a strip search. Even when the individual is permitted to perform the act in private, at the command and supervision of a person designated by the State, privacy interests are implicated. Ordering a person to empty his or her bladder and produce the urine in a container for inspection and analysis by public officials is no less offensive to personal dignity than requiring an individual to empty his pockets and produce a report containing the results of a urinalysis examination. In short, we conclude that the government’s act of requiring a person to submit to urinalysis for drug abuse constitutes a search and seizure. The remaining question is what standard of reasonableness the State must meet before it can require an employee to submit to such a test.

Reasonableness generally requires that the State have probable cause and obtain a warrant before conducting a search and seizure (see, e.g., People v Gokey, 60 NY2d 309; United States v Chadwick, 433 US 1). Under certain special circumstances, however, it may be reasonable to permit the government to search without a warrant on grounds not amounting to probable cause. In such instances the court must assess the reasons for the search and the extent to which it intrudes on legitimate privacy interests to determine whether, on balance, the government’s action is reasonable (People v Scott, 63 NY2d 518, 525; People v John BB, 56 NY2d 482, 487).

We have applied this analysis to searches of students by school officials seeking to eliminate illegal drugs from the public schools. We noted that given "the special responsibility of school teachers in the control of the school precincts and the grave threat, even lethal threat, of drug abuse among school children, the basis for finding sufficient cause for a school search will be less than that required outside the school precincts” (People v Scott D., 34 NY2d 483, 488, supra). However, we held that the fact that such searches were not aimed at uncovering evidence of crime, but were only intended to preserve the school environment, did "not permit random causeless searches”. (People v Scott D., supra, at 487; see also, New Jersey v T. L. O., supra, at 342, n 8 [permitting warrant-less search of student on "individualized suspicion”, but leaving open question as to whether this is an "essential element” of the reasonableness standard applicable to school authorities]).

Similar considerations are relevant when school authorities seek to have teachers submit to urinalysis for potential drug abuse. The School District has an interest in seeing that its teachers are fit and that drug abuse does not impair their ability to deal with the students. Teachers in this State are generally required to submit to an examination to determine their physical and mental fitness to perform their duties (Education Law § 913). They therefore have a diminished expectation of privacy with respect to State inquiries into their physical fitness to perform as teachers, and it is not unreasonable to require teachers to submit to further testing when school authorities have reason to suspect that they are currently unfit for teaching duties. Thus we agree with the courts below that reasonable suspicion is an appropriate standard, and that probable cause and a warrant are not required before school officials can demand that a teacher submit to a urinalysis for potential drug abuse (cf., O’Connor v Ortega, supra [plurality opinion holding government employer justified in searching employee’s office when reasonable grounds for suspecting that it will yield evidence of work-related misconduct, but leaving open question as to whether individualized suspicion is an essential element of the unreasonableness standard]).

The School District concededly did not have reasonable suspicion to believe that all or any of its probationary teachers was engaged in drug abuse. It claims, however, that reasonable suspicion is not required when a public employer chooses to test all employees in a particular category for potential drug abuse. It urges that such uniform testing is analogous to police check points and an effective and expected screening process for persons engaged in highly regulated activities.

Both this court and the Supreme Court have held that the police may uniformly stop individuals at fixed checkpoints in order to identify drunk drivers (People v Scott, supra; Delaware v Prouse, 440 US 648, 663). We emphasized, however, that under the applicable regulations, the police could only stop and inquire but could not give sobriety tests unless the driver’s appearance and demeanor, as measured by certain specified standards, gave cause to believe that he was intoxicated. We did not suggest that the police could also uniformly require the public, even the highly regulated driving public, to step to the side of the road and provide urine samples. Thus, here we are dealing with a greater intrusion on individual privacy and dignity.

Although the District notes, as we have in the past, the prevalence of drugs in the schools among students, and more recent statistics showing a similar problem in the general work force, there is nothing in the record to indicate that this is also a problem among teachers generally or in this particular School District. If it is a problem, it has not been addressed by the Legislature, the Regents, the Commissioner of Education or, apparently, this School Board itself, which, as noted, issued no policy statement or regulation relating to the tests. It appears that the Superintendent alone identified the problem and chose a controversial solution.

The State has a legitimate interest in seeing that its employees are physically fit and that their performance is not impaired by illegal drug usage. The State also has a manifest interest in preventing crime and seeing that those who violate the law are brought to justice. There is little question that these goals would be more attainable if the State were able to search everyone periodically in an all-inclusive dragnet. If random searches of those apparently above suspicion were not effective, there would be little need to place constitutional limits upon the government’s power to do so. By restricting the government to reasonable searches, the State and Federal Constitutions recognize that there comes a point at which searches intended to serve the public interest, however effective, may themselves undermine the public’s interest in maintaining the privacy, dignity and security of its members. Thus random searches conducted by the State without reasonable suspicion are closely scrutinized, and generally only permitted when the privacy interests implicated are minimal, the government’s interest is substantial, and safeguards are provided to insure that the individual’s reasonable expectation of privacy is not subjected to unregulated discretion (People v Scott, supra). In this case those requirements have not been satisfied.

Finally, we note that requiring public employees or job applicants to submit to a physical examination to demonstrate fitness is accepted and traditional. In this case the collective bargaining agreement required the teachers to take such an examination and they did so without objection. Although the School District urges that this agreement constitutes a waiver of constitutional rights with respect to the random urine test at issue here, the courts below found as a fact that this was a new test not contemplated by the contract. We therefore have no need to consider the waiver issue.

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

Simons, J.

(concurring). I agree with the majority’s conclusion that the school district policy, which requires all probationary teachers to submit to urinalysis to detect potential drug use prior to a decision on tenure, violates the proscription against unreasonable searches and seizures contained in the Fourth Amendment to the United States Constitution. Accordingly, I concur in the affirmance of the Appellate Division order.

I write separately, however, because the court’s decision reaches beyond the scope of the issues presented on appeal. Specifically, its reliance on State constitutional grounds to invalidate mandatory testing is unwarranted. The petitioner brought this article 78 proceeding in the nature of prohibition seeking primarily to enjoin the urinalysis tests as unauthorized under the terms of the teachers’ contract. The petition included a general allegation that the tests violated the teachers’ "constitutional” rights but it did not allege a violation of either the Fourth Amendment to the United States Constitution or article I, section 12 of the State Constitution. Petitioner alleges in its supporting papers only that the search violated the teachers’ Fourth Amendment rights. They did not argue the applicability of the State constitutional provision either in the courts below or before us. Under these circumstances, the court’s reliance on the State provision is not only contrary to procedural rules — too familiar to require citation —which govern this court, but is also an inappropriate imposition on the respondents and their counsel who, after defending the Board’s action against the only ground raised for some two years, now find the proceeding decided against them for reasons of which they were unaware and which they had no chance to address or refute. That amicus perfunctorily asserted on appeal petitioners’ entitlement to relief under the State Constitution adds nothing to the case; amicus cannot define the issues presented to the court. The court, by raising the argument and accepting it as controlling, has functioned as an advocate for the prevailing side rather than as a court.

I also object to the decision for a more fundamental reason. The majority’s opinion states that it relies on State constitutional grounds because the Supreme Court has not yet decided a case involving compulsory drug testing of public employees, because the lower courts which have considered the application of the Fourth Amendment to this issue have reached diverse conclusions, and because New York should appropriately apply its Constitution in the first instance to establish the standards applicable in this State, at the same time suggesting that the nature of a New York public employee’s expectation of privacy, may somehow differ from that of other citizens (majority opn, at 65). The opinion states its perception that the issue "is an important one which should be settled throughout the State and one on which resort to the Federal Constitution would not be dispositive since the practice, even if permitted by the Fourth Amendment, may not satisfy the requirements of the comparable provision of the State Constitution (NY Const, art I, § 12).” (Id.) Accordingly, the majority concludes that the order for mandatory urinalysis does not satisfy either the State or Federal Constitution (id., at 70).

Notwithstanding the general applicability of our State Constitution when it has been asserted as grounds for relief, we are governed, in the first instance, by national standards. As Justice Brennan has observed, the Federal Bill of Rights creates "a federal floor of protection and * * * the Constitution and the Fourteenth Amendment allow diversity only above and beyond this federal constitutional floor” (Brennan, Bill of Rights and the States: The Revival of State Constitutions As Guardians of Individual Rights, 61 NYU L Rev 535, 550 [1986] [emphasis in original]; see generally, Kaye, Dual Constitutionalism In Practice and Principle, 42 Rec A B City. NY 285, 304-309 [1987]). This being so, it would seem desirable, for the sake of uniformity, that we first determine that "floor” when we are asked to do so. That the issue before us has not yet been resolved by the Supreme Court and is unsettled in the lower courts is not a basis for refusing to rest our decision on the requirements of the Federal Constitution, as we perceive them (see, People v Payton, 45 NY2d 300, 312). Nor does the unsettled status of the Federal law alone permit us to invoke the State Constitution so that we may preempt the Supreme Court and avoid its upsetting our interpretation of the Federal Constitution.

I do not question that we may invoke the safeguards of the State Constitution and guarantee our citizens even greater protection than the Fourth Amendment provides under appropriate circumstances. If the issue had been raised, we would be justified in adopting a higher State standard to maintain a body of coherent and stable law — as we. sometimes, but not necessarily, do in the face of changes in Supreme Court rulings — or because of important considerations involving the legal institutions and environment in the State and our public policy process which theoretically enable us to "fashion workable rules for a narrower, more , specific range of people and situations” (Kaye, op. cit, 42 Rec A B City NY 308). In the past, we have generally refrained from reaching out to interpret article I, section 12 of our State Constitution when construing Fourth Amendment rights, however, and instead have sought to fashion search and seizure rules that promoted consistency in the interpretations given the parallel Federal and State clauses (see, People v P. J. Video, 68 NY2d 296, 303-304). We have "adopted independent standards under the State Constitution [only] when doing so best promotes 'predictability and precision in judicial review of search and seizure cases and the protection of the individual rights of our citizens’ ” (id., at 304, quoting People v Johnson, 66 NY2d 398, 407, and listing cases decided under NY Const, art I, § 12). Typically we have done so when, in our opinion, the Supreme Court has modified its prior rulings to grant citizens less protection than they previously enjoyed (see, e.g., People v P. J. Video, supra; People v Johnson, supra; People v Bigelow, 66 NY2d 417, 427). In such instances, having formulated our State’s rules relying on earlier interpretations of the Fourth Amendment, we have seen no reason to conform them again as the Supreme Court changes the national standard. I obviously believe reliance on our State Constitution is justified in such instances. It is also justified if a party has asserted a violation of rights under both Constitutions (see, e.g., People v Class, 67 NY2d 431, 63 NY2d 491). Additionally, if the scope of the claimed Fourth Amendment protection is not settled as a matter of law, we have decided the issue on State grounds, or both grounds, if they have been preserved (see, e.g., People v Hicks, 68 NY2d 234, 243). Finally, State grounds are decisive when only the State claim is raised (see, e.g., People v Gokey, 60 NY2d 309).

I recognize, as the majority’s string cites on page 66 indicate, that many older New York constitutional decisions gratuitously cited sections of the State Constitution along with the Federal grounds on which the decisions rested although the State grounds were not preserved. Those decisions were written when the Federal standard was clear or, in some instances, in a different climate, when the Supreme Court was "ahead” of the State courts. They reflect the obvious — that the Federal "floor” was controlling. The decisions are not pertinent in the context of cases such as this in which the court seeks to exercise its powers in conformity with the principles of People v P. J. Video (supra) and People v Johnson (supra) to find a State-wide standard of protection for New York’s public employees guaranteed by the State Constitution, which it anticipates may differ from the standard eventually adopted by the Supreme Court.

Moreover, without the benefit of a Supreme Court ruling or the argument of the parties on the subject, I am not prepared to join in the majority’s assumption that the expectation of privacy held by this State’s public employees in the act and product of urination so differs from that expectation held by other citizens of this Nation that an "independent State ground” should be invoked (see generally, 1 La Fave, Search and Seizure § 2.1, at 221-240 [1978] [discussing the. "expectation of privacy” test]). Nor does the majority advance any argument supporting its assumption that it does. If one of the justifications for applying State constitutional principles is that our State courts are in a better position to fashion workable rules responsive to the needs of our own citizens, and I accept that to be an appropriate consideration, we should await a case in which the arguments of our citizens concerning the unique circumstances in New York warranting an independent State standard are raised, rather than forestall Supreme Court determination of the national standard through reliance on an unpreserved State ground.

The traditional Federal constitutional precepts governing search and seizure require a holding in this case that the Board’s order falls below the "floor of Federal protection” and, therefore, is unconstitutional. Such a determination makes it unnecessary for the court to now determine whether the State Constitution supports an independent standard of review (compare, People v P. J. Video, 68 NY2d 296, 303-304, supra) and we should not invoke State grounds without some recognized, principled basis for doing so.

Accordingly, I concur only in that part of the majority’s holding that rests on Federal constitutional grounds.

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

Order affirmed, with costs.

       The rule of "independent State grounds” which controls the Supreme Court’s jurisdiction to review is stated in Michigan v Long (463 US 1032, 1041): "If a state court chooses merely to rely on federal precedents as it would on the precedents of all other jurisdictions, then it need only make clear by a plain statement in its judgment or opinion that the federal cases are being used only for the purpose of guidance, and do not themselves compel the result that the court has reached. In this way, both justice and judicial administration will be greatly improved. If the state court decision indicates clearly and expressly that it is alternatively based on bona fide separate, adequate, and independent grounds,- we, of course, will not undertake to review the decision” (emphasis added). This concurrence makes explicit, of course, that which appears in doubt from reading the majority opinion, i.e., this case has been decided on independent State grounds (cfi., People v Stith, 69 NY2d 313, 316).


source: Caselaw Access Project

author: Bellacosa, J. Titone, J.

license: Public Domain

text:
    Fertico Belgium S. A., Appellant, v Phosphate Chemicals Export Association, Inc., Respondent.
    Argued April 22, 1987;
    decided June 9, 1987

      POINTS OF COUNSEL

      John J. Witmeyer III, Michael L. Anania, Elizabeth M. DeCristofaro and John F. Boland for appellant.

      Charles H. Critchlow, Norman H. Seidler and Douglas F. Broder for respondent.
   OPINION OF THE COURT

Bellacosa, J.

A seller (Phoschem) breached its contract to timely deliver goods to a buyer-trader (Fertico) who properly sought cover (under the Uniform Commercial Code that means acquiring substitute goods) from another source (Unifert) in order to avoid breaching that buyer-trader’s obligation to a third-party buyer (Altawreed). The sole issue involves the applicable principles and computation of damages for breach of the Phoschem-to-Fertico contract.

We hold that under the exceptional circumstances of this case plaintiff Fertico, as a buyer-trader, is entitled to damages from seller Phoschem equal to the increased cost of cover plus consequential and incidental damages minus expenses saved (UCC 2-712 [2]). In this case, expenses saved as a result of the breach are limited to costs or expenditures which would have arisen had there been no breach. Thus, the seller Phoschem is not entitled to a credit from the profits of a subsequent sale by the first buyer-trader Fertico to a fourth party (Janssens) of nonconforming goods from Phoschem. Fertico’s letter of credit had been presented by Phoschem and honored so, under the specific facts of this case, Fertico had no commercially reasonable alternative but to retain and resell the fertilizer. This is so despite Fertico’s exercise of cover in connection with the first set of transactions, i.e., Phoschem to Fertico to Altawreed. The covering buyer-trader may not, however, as in this case, recover other consequential damages when the third party to which it made its sale provides increased compensation to offset additional costs arising as a consequence of the breach.

In October 1978 appellant Fertico Belgium S. A. (Fertico), an international trader of fertilizer, contracted with Phosphate Chemicals Export Association, Inc. (Phoschem), a corporation engaged in exporting phosphate fertilizer, to purchase two separate shipments of fertilizer for delivery to Antwerp, Belgium. The first shipment was to be 15,000 tons delivered no later than November 20, 1978 and the second was to be 20,000 tons delivered by November 30, 1978. Phoschem knew that Fertico required delivery on the specified dates so that the fertilizer could be bagged and shipped in satisfaction of a secondary contract Fertico had with Altawreed, Iraq’s agricultural ministry. Fertico secured a letter of credit in a timely manner with respect to the first shipment. After Phoschem projected a first shipment delivery date of December 4, 1978, Fertico advised Phoschem, on November 13, 1978, that the breach as to the first shipment presented "huge problems” and canceled the second shipment which had not as of that date been loaded, thus ensuring its late delivery. The first shipment did not actually arrive in Antwerp until December 17 and was not off-loaded until December 21, 1978. Despite the breach as to the first shipment, Fertico retained custody and indeed acquired title over that first shipment because, as its president testified "[w]e had no other choice” (Rec on app, at 597-598) as defendant seller Phoschem had presented Fertico’s $1.7 million letter of credit as of November 17, 1978, and the same had been honored by the issuer (see, UCC 5-114).

Fertico’s predicament from the breach by delay of even the first shipment, a breach which Phoschem does not deny, was that it, in turn, would breach its contract to sell to Altawreed unless it acquired substitute goods. In an effort to avoid that secondary breach, Fertico took steps in mid-November to cover (UCC 2-712) the goods by purchasing 35,000 tons of the same type fertilizer from Unifert, a Lebanese concern. The cost of the fertilizer itself under the Phoschem-to-Fertico contract was $4,025,000, and under the Unifert-to-Fertico contract $4,725,000, a differential of $700,000. On the same day Fertico acquired cover, November 15, 1978, Fertico’s president traveled to Baghdad, Iraq, to renegotiate its contract with Altawreed. In return for a postponed delivery date and an additional payment of $20.50 per ton, Fertico agreed to make direct inland delivery rather than delivery to the seaport of Basra. Fertico fulfilled its renegotiated Altawreed contract with the substitute fertilizer purchased as cover from Unifert.

In addition to the problems related to its Altawreed contract, Fertico was left with 15,000 tons of late-delivered fertilizer which it did not require but which it had been compelled to take because Phoschem had received payment on Fertico’s letter of credit. This aggrieved international buyer-seller was required to store the product and seek out a new purchaser. Fertico sold the 15,000 tons of the belatedly delivered Phoschem fertilizer to another buyer, Janssens, on March 19, 1979, some three months after the nonconforming delivery, and earned a profit of $454,000 based on the cost to it from Phoschem and its sale price to Janssens.

In 1981 Fertico commenced this action against Phoschem seeking $1.25 million in damages for Phoschem’s breach of the October 1978 agreement. A jury returned a verdict of $1.07 million which the trial court refused to overturn on a motion for judgment notwithstanding the verdict. The Appellate Division vacated the damage award, ordered a new trial on the damages issue only and ruled, as a matter of law, (1) that the increased transportation costs on the Altawreed contract were not consequential damages; (2) that the higher purchase price paid by Altawreed to Fertico was an expense saved as a consequence of the Phoschem breach; and (3) that the Fertico damages had to be reduced by the profits from the Janssens’ sale (Fertico Belgium v Phosphate Chems. Export Assn., 120 AD2d 401). Fertico appealed to this court on a stipulation for judgment absolute. We disagree with propositions (2) and (3) in the Appellate Division ruling, and conclude that the Uniform Commercial Code and our analysis support a modification and reinstatement of $700,000 of the damage award in a final judgment resolving this litigation between the parties.

Failure by Phoschem to make delivery on the contract dates concededly constituted a breach of the contract (White and Summers, Uniform Commercial Code § 6-2, at 207 [2d ed]). The Uniform Commercial Code § 2-711 gives the nonbreaching party the alternative of either seeking the partial self-help of cover along with recovery of damages (UCC 2-712), or of recovering damages only for the differential between the market price and the contract price, together with incidental and consequential damages less expenses saved (UCC 2-713; see also, Productora e Importadora de Papel, S.A. de C.V. v Fleming, 376 Mass 826, 383 NE2d 1129). Fertico exercised its right as the wronged buyer-trader to cover in order to obtain the substitute fertilizer it required to meet its obligation ünder its Altawreed contract (see, UCC 2-712, comment 1).

A covering buyer’s damages are equal to the difference between the presumably higher cost of cover and the contract price, plus incidental or consequential damages suffered on account of the breach, less expenses saved (UCC 2-712 [2]). Fertico is thus entitled to a damage remedy under this section because its cover purchase was made in good faith, without unreasonable delay, and the Unifert fertilizer was a reasonable substitute for the Phoschem fertilizer (UCC 2-172 [1]; Reynolds Sec. v Underwriters Bank & Trust Co., 44 NY2d 568, 572-573).

Fertico’s additional costs for delivering the fertilizer inland rather than at a seaport would usually constitute consequential damages because they resulted from Phoschem’s breach, because Phoschem knew that Fertico would incur damages under its separate contract obligation and because the damages were not prevented by the cover (UCC 2-715 [2]). The increased costs attendant to the Altawreed contract are consequential damages because they did not "arise within the scope of the immediate [Phoschem-Fertico] transaction, but rather stem from losses incurred by [Fertico] in its dealings [with Altawreed] which were a proximate result of the breach, and which were reasonably foreseeable by the breaching party at the time of contracting” (Petroleo Brasileiro, S.A. Petrobras v Ameropan Oil Corp., 372 F Supp 503, 508). Ordinarily, an award for consequential damages occasioned by the seller’s breach would be necessary to put a buyer like Fertico in as good a position as it would have been had there been no breach (UCC 1-106; see, Neri v Retail Mar. Corp., 30 NY2d 393; 3 Hawkland, Uniform Commercial Code Series § 2-715:01, at 389). Inasmuch as Altawreed compensated Fertico for the additional delivery costs, Fertico was insulated from any loss in that respect as a result of Phoschem’s breach, thereby eliminating this category of potential damages. On this question of consequential damages, the Appellate Division was correct.

The additional compensation to Fertico, an international trader, from Altawreed is not, however, an expense saved as a consequence of the seller Phoschem’s breach for which Phoschem is entitled to any credit (UCC 2-712 [2]). In most instances, and particularly in this case, saved expenses must be costs or expenditures. which would be anticipated had there been no breach (see, Productora e Importadora de Papel, S.A. de C.V. v Fleming, 376 Mass 826, 839, 383 NE2d 1129, 1137, supra). For example, if a seller were to breach a contract to deliver an unpackaged product to the buyer and the buyer were to cover with the same product prepackaged, the cost of packaging which the buyer would have had to perform is an expense saved as a consequence of the breach (see, 3 Hawk-land, Uniform Commercial Code Series § 2-712:02, at 362). The increased remuneration from Altawreed was compensation for the additional shipment responsibilities incurred by Fertico, not a cost or expenditure anticipated in the absence of a breach, and therefore was erroneously analyzed and credited in Phoschem’s favor by the Appellate Division.

The third prong of the damages analysis relates to the profit made from the independent sale of the Phoschem fertilizer to Janssens. The Appellate Division erred in offsetting this profit against the damages otherwise suffered since that court mistakenly concluded that the sale stemmed from and was dependent upon Phoschem’s breach. This offset, on these peculiar facts, would severely disadvantage Fertico, a trader in fertilizer who both buys and sells, and who would have pursued such commercial transactions had there been no breach by Phoschem. It would be anomalous to conclude that had it not been for Phoschem’s breach Fertico would not have continued its trade and upon such reasoning to counterpoise the profits from the Janssens’ sale against the damages arising from Phoschem’s breach. Inasmuch as the facts here are exceptional because Fertico met its subsale obligations with the cover fertilizer and yet acquired title and control over the late-delivered fertilizer from Phoschem, our decision does not fit squarely within the available Uniform Commercial Code remedies urged by the dissent. Thus, strict reliance on Neri v Retail Mar. Corp. (30 NY2d 393, supra) and on Hawkland’s commentary (3 Hawkland, Uniform Commercial Code Series § 2-714:05, at 384), as undertaken by the dissent, does not provide an adequate resolution to the particular problem presented in this case.

Fertico learned of Phoschem’s breach after Phoschem had negotiated Fertico’s $1.7 million letter of credit, which constituted complete payment for the first shipment. With no commercially reasonable alternative, Fertico took custody of the first shipment but canceled the second (UCC 2-601 [c]), having previously notified Phoschem of its breach (UCC 2-607). The loss resulting to Fertico by having to acquire cover, even in the face of its acceptance of a late-delivered portion of the fertilizer, is properly recoverable under section 2-714 (1) (3 Hawkland, Uniform Commercial Code Series § 2-714:05, at 384-385). At the same time, Uniform Commercial Code § 1-106 directs that the remedies provided by the Uniform Commercial Code should be liberally administered so as to put the aggrieved party in as good a position as if the other party had fully performed. Had Phoschem fully performed, Fertico would have had the benefit of the Altawreed transaction and, as a trader of fertilizer, the profits from the Janssens’ sale as well. "Gains made by the injured party on other transactions after the breach are never to be deducted from the damages that are otherwise recoverable, unless such gains could not have been made, had there been no breach” (5 Corbin, Contracts § 1041, at 256; see also, Steen Indus. v Richer Communications, 226 Pa Super Ct 219, 314 A2d 319). Fertico’s profit made on the sale of a nonspecific article such as fertilizer, of which the supply in the market is not limited, should not therefore be deducted from the damages recoverable from Phoschem (5 Corbin, Contracts § 1041, at 258-260; see also, Neri v Retail Mar. Corp., 30 NY2d 393, 401, supra).

Fertico was concededly wronged by Phoschem’s breach and Fertico resorted to Uniform Commercial Code remedies which are rooted in what we perceive to be the realities of the marketplace. Fertico did what reasonable traders would do. and would like to do in mitigating risks inflicted in this case by Phoschem and in exerting its commercial resourcefulness. That is, it took steps to save its business, its customers, its good will and its deals and ultimately to also recover appropriate damages from a wrongdoer. That did not produce a "windfall” or a "double benefit” to the aggrieved party as the dissenting opinion asserts. The result we reach today countenances no such thing. On the contrary, to deprive the buyer-trader Fertico of its rightful differential damages of $700,000 and to credit this transactionally independent profit to Phoschem would perversely enrich the wrongdoer at the expense of the wronged party, a result those in the marketplace would find perplexing and a result which the generous remedial purpose of the Uniform Commercial Code does not compel or authorize. The dissent’s characterization of the recovery by an injured party of damages for a breach of contract as a "benefit” is wrong, since that functionally attributes a kind of lien against the independently pursued benefit derived out of that separate transaction.

Accordingly, the order of the Appellate Division affirming liability but vacating, on the law, the damage award and remanding the matter for a new trial on the issue of damages, as appealed to this court on a stipulation for judgment absolute, should be modified and damages awarded to Fertico in the amount of $700,000 in accordance with this opinion.

Titone, J.

(dissenting). At issue in this appeal is the relationship among the various remedies that article 2 of the Uniform Commercial Code provides for buyers aggrieved by sellers’ defaults. Central to the analysis is the principle that the Code’s remedies "shall be liberally administered to the end that the aggrieved party may. be put in as good a position as if the other party had fully performed” (UCC 1-106 [1] [emphasis supplied]). Here, the majority has concluded that the aggrieved buyer may retain both cover damages and the profit from the resale of the late-delivered goods, in effect, securing the benefit of its bargain twice. Since that result is not required by, and indeed is not even consistent with, the purpose of Code’s generous remedial provisions, I must respectfully dissent.

I begin with the premise that an aggrieved buyer who has purchased substitute goods and sued for "cover” damages under UCC 2-712 has impliedly rejected the seller’s nonconforming performance and, consequently, holds the seller’s goods only as security for any prepayments made to the seller (see, UCC 2-706 [6]; 2-711 [3]). I find the contrary position— that an aggrieved buyer may compatibly resort to cover and also retain and resell the nonconforming goods for its own account — to be legally insupportable and economically unsound. The "cover” remedy represents a recognition by the Code’s drafters that a buyer aggrieved by a breach or repudiation "may not be made whole by the mere recovery of damages, because he is left, thereby, in a position in which he does not have the goods he wants” (3 Hawkland, Uniform Commercial Code Series § 2-712:01, at 360). The Code’s "cover” provision, which authorizes the buyer to purchase equivalent goods in the open market and then sue the breaching seller for any price differential (see, UCC 2-712), was intended as a practical method of furnishing the buyer with a fair substitute for the goods it bargained for but did not receive. Thus, from an economic standpoint, the buyer receives the full benefit of his bargain when he obtains cover damages under UCC 2-712. Allowing the buyer to retain and resell the goods in addition obviously leads to a windfall, since the .buyer is receiving more than the benefit of the transaction it bargained for.

Moreover, the language óf the Code makes clear that the buyer cannot both sue for cover and accept the goods. UCC 2-712 (1) defines "cover” as a purchase of goods "in substitution for those due from the seller” (emphasis supplied) and authorizes an aggrieved buyer to resort to cover only "[a]fter a breach within [UCC 2-711 (1)],” which specifically states that cover "under [UCC 2-712 (1)]” is available when "the seller fails to make delivery * * * or the buyer rightfully rejects or justifiably revokes acceptance” (UCC 2-711 [1]). Finally, any doubt about the applicability of the cover remedy referred to in UCC 2-711 is dispelled by comment 1: "The remedies listed here are those available to a buyer who has not accepted the goods or who has justifiably revoked his acceptance” (emphasis supplied).

In short, consistent with its purpose, the cover remedy is, by its terms, available only in situations where the buyer either does not have the needed goods because of nondelivery or cannot use the goods that were delivered because of a defect in the seller’s performance. In all other situations, the aggrieved buyer must resort to the remedies provided in UCC 2-714, which concerns nonconforming goods that have been accepted (see, UCC 2-711, comment 1). While there are instances in which an accepting buyer may also seek cover damages under UCC 2-714 (1), even the commentary the majority cites makes clear that the cover remedy is not intended to be used with respect to those nonconforming goods that the buyer has received and accepted; rather, the remedy is properly used only to replace the portion of needed goods the buyer either does not have or does not take (3 Hawkland, op. cit. § 2-714:05, at 384-3S5).

Viewed within the framework of these basic principles, cases such as this one involving late delivery are not difficult to resolve. As in cases where there has been a total failure to deliver, the buyer in late-delivery cases may reject the untimely performance and cover with substitute goods. Additionally, unlike the buyer aggrieved by a total failure to deliver, the buyer aggrieved by a late delivery has the alternative option of accepting the belatedly delivered goods and retaining for itself any profit realized on resale. However, contrary to Fertico’s claims, the aggrieved buyer may not pursue both courses simultaneously, since it would then benefit twice from what was a single bargain — a result that is unacceptable under UCC 1-106 (see, Melby v Hawkins Pontiac, 13 Wash App 745, 537 P2d 807 [alternative remedies may be pursued under UCC, but not where double recovery would result]).

The majority has attempted to rationalize that result here by relying on a damages rule that has previously been applied only to aggrieved sellers. The rule permits a seller who regularly deals in goods of a particular type to sue the breaching buyer for lost profit even though the wrongfully rejected goods have been sold to another buyer without loss. The rule applies only where the seller has an unlimited supply of standard-price goods (see, Neri v Retail Mar. Corp., 30 NY2d 393, 399-400; 3 Hawkland, op. cit. § 2-708:04, at 331-332). In those situations, "it may safely be assumed that” the seller would have made two sales instead of one if the buyer had not breached, and, consequently, it can fairly be said that the buyer’s breach deprived the seller of an opportunity for additional profit (3 Hawkland, op. cit., at 332). Thus, traditional remedies such as resale or market price differential are "inadequate to put the seller in as good a position as performance would have done”, and the seller may sue for the lost profit (UCC 2-708 [2]).

The Code, however, does not contain an analogous provision allowing aggrieved buyers to recover profits from lost sales, and there is good reason for that omission, since neither of the conditions necessary for application of the sellers’ lost-profit remedy may be satisfied in the case of an aggrieved buyer. First, a party in the position of a buyer cannot, by definition, be said to have an unlimited supply of the goods at his disposal for resale; even where the goods are fungible, the buyer who intends to resell must go into the marketplace to acquire the goods in the first instance. Second, a buyer who must go into the market to obtain goods will ordinarily not be able to rely on the availability of a "standard price”; rather, unlike the seller who has ah unlimited supply of standard-price goods in its inventory, the reselling buyer remains at the mercy of the wholesale market’s price fluctuations. Because of these differences, it cannot "be safely assumed” that the aggrieved buyer-dealer would have made a second sale at a particular profit were it not for the seller’s breach. To the contrary, the occurrence of and profit on a second transaction would depend on such other, unrelated variables as the availability and wholesale market price of the goods at the time the buyer-dealer went into the market to acquire them. Thus, the rationale for the seller-dealer’s lost-profit remedy is simply inapplicable to buyer-dealers.

Indeed, this case illustrates the difficulty of applying the seller’s lost-profit remedy to aggrieved buyers. Were it not for Phoschem’s breach, Fertico would have delivered the 15,000 tons of fertilizer it had purchased from Phoschem to Altawreed and would have had to go into the marketplace again to acquire an additional 15,000 tons if it wished to make a second sale to Janssens. In this respect, Fertico’s position here is really no different in principle from that of an aggrieved seller which had only one set of goods at its immediate disposal. In both instances, the breach of a prior agreement is what has made the goods available for a second sale (cf, 5 Corbin, Contracts § 1041, at 256). And, while a second sale may have been theoretically possible even without the breach, the uncertainties occasioned by the buyer/seller’s need to return to the marketplace for more goods of the same kind preclude the assumption, implicit in the majority’s holding (see also, Neri v Retail Mar. Corp., supra), that the second sale and its accompanying profit would have been made on the same terms even if no breach had occurred.

Finally, I cannot agree with the majority’s reliance on the supposedly "exceptional” circumstance that Fertico both "met its subsale obligations with the cover fertilizer and * * * acquired title and control over the late-delivered fertilizer” (majority opn, at 83). First, the basis for and significance of the majority’s conclusion that Fertico acquired title to the goods is left unclear. Certainly, the fact that Fertico had already paid for the goods cannot be controlling, since the Code clearly does not equate payment and receipt of the goods with passage of title. To the contrary, the Code expressly contemplates and accounts for these situations by permitting a wronged buyer who has rejected to retain and resell the goods in its possession to recover any down payment (UCC 2-706 [6]; 2-711 [3]). The Code also requires in these situations, however, that the buyer account to the breaching seller for any additional profit it has made on the resale (UCC 2-706 [6]). Nothing in the majority opinion satisfactorily explains why this remedy is insufficient.

Furthermore, the majority’s emphasis on the asserted "exceptional facts” is unpersuasive because under the terms of the majority’s holding the outcome in a given case would turn, in large measure, on the fortuity of which party had possession of the goods after the breach. In the case of a simple late delivery the buyer will ordinarily have possession after the breach. Under the majority’s holding, that buyer may both obtain cover damages and resell the seller’s goods, retaining any profit for itself. In the case of a complete failure to deliver, however, the seller will ordinarily have possession of the goods after the breach. Under the Code, the buyer in such a case may obtain either cover damages or the goods (if they have been specifically identified to the contract), but not both (UCC 2-716 [3]). Thus, the buyer aggrieved by a late delivery is placed in a substantially better position than a buyer aggrieved by a complete failure to deliver, although there is no apparent legal or commercial justification for the distinction. Even more seriously, a seller who completely repudiates is placed in a more advantageous position than one who merely delivers late. While both must pay cover damages, the repudiating seller may resell the undelivered goods in its possession for its own account — an option unavailable to the seller who has delivered, albeit late. Since I cannot agree with a rule of law that ultimately imposes a greater penalty on the less serious of two similar breaches, I dissent and vote to affirm.

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

Order modified, with costs to appellant, in accordance with the opinion herein and, as so modified, affirmed.

      . My disagreement with the majority lies only in its conclusion that the Appellate Division erred by offsetting Fertico’s damage award against the profit Fertico obtained on the resale of Phoschem’s goods. I agree completely with the majority’s conclusion concerning the proper application of the $20.50 per ton additional reimbursement that Fertico obtained from Altawreed.

      . The commentary cited by the majority states, in pertinent part:
      "Where the buyer accepts goods that are nonconforming because of a deficiency in quantity or a late delivery, subsection 2-714 (1) gives him the right to damages for 'the loss resulting in the ordinary course of events from the seller’s breach as determined in any manner which is reasonable.’

        "In the case of a shortage of quantity, the buyer usually will establish his damages by covering. That is to say, he will go into the market and buy goods to substitute for those that the seller wrongfully failed to deliver * ** * In the case of a late shipment that otherwise conforms to the contract, the accepting buyer has no need to cover” (3 Hawkland, Uniform Commercial Code Series § 2-714:05, at 384-385 [emphasis supplied]).
      In other words, while cover is not precluded when there has been a partial acceptance of a nonconforming shipment, it is used only to replace goods that were either not delivered or not accepted.

      . Indeed, it seems somewhat ironic to recognize, on the one hand, the buyer’s right to go into the marketplace and acquire "cover” goods at an increased cost and, on the other hand, treat the buyer as a party in the position of a seller with an unlimited supply of goods at its disposal.

      . That retention and resale of Phoschem’s goods was the most "commercially reasonable alternative” (majority opn, at 79) does not alter Fertico’s obligation under the Code to hold any profits made on the resale for Phoschem’s account (UCC 2-706 [6]; 2-711 [3]).


author: Per Curiam.

text:
    In the Matter of Monarch Electrical Contracting Corp., Appellant, v Lillian Roberts, as Commissioner of Labor of the State of New York, Respondent. In the Matter of Eugene Iovine, Inc., Appellant, v Lillian Roberts, as Commissioner of Labor of the State of New York, Respondent.
    Argued April 23, 1987;
    decided June 11, 1987

      POINTS OF COUNSEL

      Alan M. Pollack for appellants.

      Robert Abrams, Attorney-General (Jane Lauer Barker, O. Peter Sherwood, Lawrence S. Kahn and Carlin Meyer of counsel), for respondent.

      Paul Schachter, Madeline Kochen, Amy Adelson, Jill Kahn, Stan Mark, Frank Deale, Thomas Stoddard, Lester Kleckley, Gerald Horne, Barbara Rochman, Richard Hiller, Michael Armstrong, Michael Neff and Bruce L. Bozeman for Fightback and others, amici curiae.

      Doron Gopstein, Acting Corporation Counsel (Michael D. Young, Lin Saberski and Myles Kuwahara of counsel), for the City of New York, amicus curiae.

      Robert J. Fink for the New York Plan for Training, Inc., amicus curiae.

   OPINION OF THE COURT

Per Curiam.

Petitioners are contractors who appeal from a judgment which confirmed orders of respondent, Commissioner of Labor, finding that they had violated section 220 of the Labor Law by failing to pay prevailing wages and supplements to employees engaged by them on a State-funded project of the New York State Facilities Development Corporation at the Manhattan Psychiatric Center. The orders were based upon determinations made by a Department of Labor Hearing Officer who found that petitioners had hired "trainee” electricians and paid them less than the prevailing wage rates for journeymen electricians. Accordingly, the Hearing Officer recommended payment of wages and supplements to the trainees in an amount sufficient to compensate them during the period of employment as journeymen, plus interest, and also imposition of a civil penalty on petitioners. Respondent adopted the Hearing Officer’s findings and directed that the compensation and penalty be paid from moneys the State owed petitioners under the construction contracts.

Section 220 of the Labor Law and article I, section 17 of the New York Constitution require that laborers, workers and mechanics be paid the statutorily determined prevailing rate of wages. As originally enacted, the prevailing wage law contained no provision regulating the employment of apprentices on public works projects. In 1966, however, the Legislature amended Labor Law § 220 (3) to provide that: "The wages to be paid for a legal day’s work * * * to laborers, workmen or mechanics upon such public works, shall be not less than the prevailing rate of wages * * * Serving laborers, helpers, assistants and apprentices shall not be classified as common labor and shall be paid not less than the prevailing rate of wages * * * No employee shall be deemed to be an apprentice unless he is individually registered in an apprenticeship program which is duly registered with the industrial commissioner in conformity with the provisions of article twenty-three of this chapter” (L 1966, ch 976 [emphasis added]). The following year the Legislature added section 220 (3-e), to expressly prohibit working as an apprentice on a public works project unless a person is individually registered in a State-approved apprenticeship program, and to regulate the allowable ratio of apprentices to journey-level workers (L 1967, ch 503).

These amendments were enacted to prevent subversion of the prevailing wage law, which itself was intended to thwart what had become a widespread competitive practice among contractors of exploiting the labor force in order to submit the lowest bid for public work (Matter of Action Elec. Contrs. Co. v Goldin, 64 NY2d 213, 222). Prior to the amendments, contractors could set up sham training programs which were not supervised by the State, classify persons as apprentices regardless of skill level, and pay them less than journey-level wages (see, Governor’s Bill Jacket for L 1966, ch 976, Mem of Senator Thomas Láveme). The amendments sought to provide a clear, fixed, objective standard by which to measure whether a particular person employed as an apprentice and paid as an apprentice on a public works project was an apprentice, or in fact a skilled worker employed at less than a journey-level wage. They also sought to equalize "minimum labor costs between union contractors and nonunion employers who held an unfair advantage through lower labor costs” (Associated Bldrs. & Contrs. v City of Rochester, 67 NY2d 854, 856). Moreover, the amendments were intended to prevent employers from cutting standards of construction work by hiring an excessive number of unskilled employees, and to ensure that learning-level workers receive approved, supervised training (see, Governor’s Bill Jacket for L 1966, ch 976, Mem of Senator Thomas Laverne).

Respondent has interpreted Labor Law §220, as amended, with judicial approval, to require classification of workers by status — as either journeymen or apprentices — and by expertise, as carpenters, ironworkers, roofers, etc., and to require that all covered workers be paid a journeyman’s prevailing wage for their occupation unless they are apprentices registered in accordance with the statute (see, e.g., Matter of TAP Elec. Contr. Serv. v Roberts, 104 AD2d 548; Matter of G & G Erectors v Levine, 48 AD2d 960).

In the case before us, petitioners are members, along with approximately 85 other contractors, of United Construction Contractors Association. The Association is signatory to a collective bargaining agreement with Local 363, Allied and Industrial Trade Workers, international Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America and, pursuant to the agreement, the Joint Apprenticeship and Training Council was created to maintain and supervise both an apprentice program registered with the State of New York, and a trainee program registered with the United States Department of Labor. Petitioners do not dispute that Labor Law § 220 has been construed in the past as recognizing only two categories of workers — journeymen and State-registered apprentices. Nor do they dispute that the employees here in question did not qualify for either category. Rather, petitioners contend that the trainee programs registered with the United States Department of Labor are functionally identical to the State-approved apprentice programs, and are designed to encourage participation by those traditionally excluded from the skilled trades such as women, members of minority groups, and the disadvantaged. Therefore, they argue, respondent should recognize these trainees as equivalent to, and payable at the same rate as, apprentices enrolled in State programs.

It is beyond dispute that the construction industry is, and has been, an area of employment discrimination, which has proven difficult to remedy (see, Sheet Metal Workers v Equal Employment Opportunity Commn., 478 US 421; Steelworkers v Weber, 443 US 193; Grant v Bethlehem Steel Corp., 635 F2d 1007; United States v International Union of Elevator Constructors, 538 F2d 1012; Associ ated Gen. Contrs. v Altshuler, 490 F2d 9; Southern III. Bldrs. Assn. v Ogilvie, 471 F2d 680; Contractors Assn. v Secretary of Labor, 442 F2d 159; Local 53 of Intl. Assn. of Heat & Frost Insulators & Asbestos Workers v Vogler, 407 F2d 1047). The United States Supreme Court has observed that the "[¡judicial findings of exclusion from crafts [unions] on racial grounds are so numerous as to make such exclusion a proper subject for judicial notice” (Steelworkers v Weber, 443 US 193, 198, n 1, supra). In an effort to remedy the effects of this long-standing discrimination, the United States Department of Labor and the City of New York Bureau of Labor Services joined in a cooperative effort to establish organized trainee programs pursuant to the Federal prevailing wage law. (See, Davis-Bacon Act, 40 USC § 276a et seq.; 29 CFR part 29, "Labor Standards for Registration of Apprenticeship Programs”; 29 CFR part 5, "Labor Standards Provisions Applicable to Contracts Covering Federally Financed and Assisted Construction”; see also, City of New York Executive Order No. 50, promulgated pursuant to above-mentioned Federal regulations.) As found by the Hearing Officer, the Federally registered trainee programs and the State registered apprenticeship programs are virtually identical in wages, on-the-job training and related classroom instruction. The only significant difference between them is in the entrance requirements. The requirements of the trainee programs are job-related and much less stringent than those of State-approved apprentice programs, having been designed to promote minority group participation.

Notwithstanding the compelling policy of eradicating discrimination from our construction industry that is served by the trainee programs, we are constrained to affirm respondent’s interpretation of the statute. We find the statute unambiguous in its recognition of only two classifications of workers —apprentices and journey-level employees — and in its requirement that, to be paid apprentice-level wages, individuals must be in an apprenticeship program registered with the New York State Department of Labor. Notwithstanding that both programs are essentially identical, and that the trainee programs reduce discrimination in the construction industry, the Labor Law, as written and as consistently interpreted, recognizes only apprentices registered with the State Department of Labor. Respondent applied its plain meaning to petitioners when she held that the trainees must be registered in a State-registered apprenticeship program to work as apprentices, failing which they must be paid as journeymen. Whether or not petitioners were acting in bad faith, by using the trainee programs they were able to double the number of learning-level employees by hiring one trainee in addition to one apprentice, thereby halving the allowable ratio of learning-level employees to journeymen. It was to avoid just such duplication of unskilled employees that the Legislature limited the permissible ratio of apprentices relative to trained journeymen, on any job. Thus, accepting petitioners’ contention would result in the wage debasement that the statute was enacted to avoid by permitting the displacement of skilled workers with learning-level workers.

We emphasize nonetheless that the trainee programs successfully attempt to combat discriminatory practices in this area consistent with the State’s commitment to providing equal employment opportunities in the construction industry (see, e.g., Labor Law §815 . [5] [discrimination in selection to apprenticeship programs prohibited]; § 811 [1] [i] [Commissioner must cooperate with Federal Government in administering its apprenticeship programs]; § 811 [1] [k] [Commissioner authorized to perform such duties as are necessary to give full effect to the policies of the State]). As found by the Hearing Officer, and confirmed by the Commissioner, the State Department of Labor has been "involved in” the trainee programs established in New York City, and has not challenged the use of trainees on certain projects assisted by Federal funds. To the extent that a corollary purpose of the 1966-1967 amendments is to ensure standard, monitored training and supervision of apprentices, the trainee programs approved by the United States Department of Labor would appear to serve this purpose.

Although the Legislature clearly intended, in enacting the 1966-1967 amendments, to prohibit the use of sham training programs that were subverting the purpose of the prevailing wage law, it did not likely foresee that bona fide, federally approved trainee programs, which are consistent with the purposes of these amendments, would be rejected as acceptable alternative pools of learning-level workers. Nor could it have foreseen that, by prohibiting the payment of apprenticeship wages to unregistered apprentices, it was also prohibiting the payment of apprenticeship wages to "trainees” enrolled in these federally administered programs, and thus anomalously requiring that these "trainees” be paid a wage four times greater than that paid to their counterpart "apprentices”.

In view of the threat presented by respondent’s interpretation to the future operation of trainee programs in this State, we believe it would be highly desirable for the Legislature to reexamine Labor Law § 220 in the light of 20 years’ experience, for it appears that its application today unexpectedly frustrates the very important policy of reducing discrimination in the construction labor force.

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

Chief Judge Wachtler and Judges Simons, Kaye, Alexander, Titone, Hancock, Jr., and Bellacosa concur in Per Curiam opinion.

Judgment affirmed, with costs.


author: Alexander, J.

text:
    In the Matter of State Division of Human Rights, on Complaint of Peter Granelle. City of New York et al., Respondents, v State Division of Human Rights, on Complaint of Peter Granelle, Appellant.
    Argued April 22,1987;
    decided June 11, 1987

      POINTS OF COUNSEL

      Margarita Rosa, General Counsel (Rosamond Prosterman of counsel), for appellant.

      Peter L. Zimroth, Corporation Counsel (Patricia A. O’Malley and Leonard Koerner of counsel), for respondents.

      Paula L. Ettelbrick and Mark Barnes for Lambda Legal Defense and Education Fund, Inc., amicus curiae.

   OPINION OF THE COURT

Alexander, J.

The City has disqualified Peter Granelle from employment as a New York City police officer because of a presently asymptomatic back condition known as spondylolisthesis. In this proceeding, Granelle contends that the City’s disqualification of him constituted unlawful discrimination because of a disability prohibited by the Human Rights Law (Executive Law art 15). The State Division of Human Rights (Division) found in Granelle’s favor but a divided Appellate Division annulled the determination of the Division and dismissed Granelle’s complaint. We now reverse the order of the Appellate Division and reinstate the determination of the Division.

In 1979 Peter Granelle was a candidate for appointment to the New York City Police Department. He passed both a written civil service examination and an "agility” test but during a preappointment medical examination, X rays revealed that he had a spinal condition known as spondylolisthesis. Pursuant to regulations promulgated by the New York City Department of Personnel, Granelle was automatically disqualified from employment with the police department because of this condition. After exhausting his administrative remedies under the Civil Service Law, Granelle commenced a proceeding with the New York State Division of Human Rights alleging that the City had unlawfully discriminated against him because of a physical disability.

The Division conducted an investigation, made a finding of probable cause, and held a hearing before an Administrative Law Judge. Granelle testified that in the previous 10 years, his employment history consisted of various jobs in the heavy construction industry, including installation of cesspool systems which required lifting of cesspool covers weighing approximately 150 pounds. Granelle had also worked as a laborer and a truck driver, and at the time of the hearing was employed as a mason for the New York City Transit Authority. Granelle testified that, other than a pulled back muscle in 1976 or 1977, which did not cause him to miss any work, he never had any problems with his back and never failed to perform required tasks because of a physical disability. Granelle also testified that he was a volunteer fireman and never experienced any problems with his back while fulfilling his responsibilities as a fireman. He introduced into evidence a letter from his personal physician, Dr. Victor Gold, which acknowledged that X rays of Granelle revealed spondylolisthesis but noted that this condition is present in approximately 10% of the general population. It was Dr. Gold’s opinion that Granelle "would have no difficulty in performing the duties required of a New York City Police Officer.”

The City tendered the testimony of Dr. Schein, an appeals examiner for the New York City Personnel Department, who concluded, based on his review of Granelle’s medical reports and X rays, that Granelle suffered from spondylolisthesis, a congenital widening of two vertebrae probably caused by a defect in the neural arch. Dr. Schein did not conduct a physical examination of Granelle. He indicated that in the early stages of the defect, there may be no clinical manifestations of its existence but that in his opinion there was a great likelihood of low back disability developing in the future. Dr. Schein admitted, however, that there were no reliable statistics regarding the likelihood of disability developing from spondylolisthesis and that it was very difficult to establish such statistics because a person with this particular condition would be asymptomatic in the early stages and would have no reason to know that the defect existed. Indeed, he conceded that in a certain percentage of individuals, disability may never develop. Dr. Schein referred to an Israeli study which concluded that persons with spondylolisthesis were more likely to suffer subsequent low back disability than were persons without the condition. Conceding that his opinion was not based on objective statistics, Dr. Schein nevertheless concluded that there was a 25%-50% higher probability of low back disability occurring in persons who suffer from this defect than in individuals without the defect. Dr. Schein offered the further opinion that if the disability was going to develop, it usually would occur within 10 to 20 years after discovery of the condition through X rays, and that the symptoms are most likely to start when a person is in his late twenties or early thirties. Dr. Schein agreed that up to 6% of the adult population has spondylolisthesis and that medical science did not know why the defect occurred or why symptoms develop in some but not all those afflicted. He also conceded that a person who could pass the "agility” test was presently able to assume the duties of a police officer.

By stipulation of the parties, an independent orthopedist, Dr. Stanley Liebowitz, examined Granelle "to determine whether he is physically fit to perform police duty for the New York City Police Department”. Dr. Liebowitz’s report, which was received in evidence as a joint exhibit, found that the strength of Granelle’s extremities was normal as was the mobility of his back. It also confirmed that Granelle had spondylolisthesis, and thus "a statistically higher probability of symptoms developing compared to a similar person with normal back x-rays”. Dr. Liebowitz pointed out, however, that he could not make a specific prediction for Granelle although he opined that performing police functions would tend to aggravate the condition.

The Administrative Law Judge (ALJ) sustained the complaint. She concluded that Granelle was a person disabled under the Human Rights Law and that there was no evidence in the record showing that Granelle, at the time of his disqualification or thereafter, was unable to perform the duties of a police officer, or that Granelle’s condition was an impediment to his performing those duties in a reasonable manner or that Granelle could not perform the duties of a police officer for an indefinite period of time and in a safe manner. Thus the ALJ held that the City failed to establish "a relationship between [Granelle’s] condition and his ability to engage, in a reasonable manner, [in] the activities of a police officer at the time of his disqualification, or thereafter”. The Commissioner of the Division subsequently adopted the findings and recommendations of the AU. In this proceeding commenced pursuant to Executive Law § 298, a divided Appellate Division annulled the Division’s determination and dismissed the complaint.

Initially, we note that the scope of judicial review under the Human Rights Law is extremely narrow and is confined to the consideration of whether the Division’s determination is supported by substantial evidence in the record. Courts may not weigh the evidence or reject the Division’s determination where the evidence is conflicting and room for choice exists. Thus, when a rational basis for the conclusion adopted by the Commissioner is found, the judicial function is exhausted (Executive Law § 298; Matter of CUNY-Hostos Community Coll. v State Human Rights Appeal Bd., 59 NY2d 69, 75 [and cases cited therein]). The question, thus, is not whether we find the proof of discrimination convincing, but whether the Commissioner could do so (id., at 81 [Wachtler, J., dissenting]). Our review, therefore, is limited to determining whether the Commissioner’s finding of employment discrimination in this case is supported by substantial evidence in the record.

The Human Rights Law prohibits employers from discriminating against employees or job applicants because of a disability (Executive Law § 296). Here, there is no dispute that Granelle suffers from a disability as that term is defined under the Human Rights Law (see, Executive Law § 292 [21]; State Div. of Human Rights [McDermott] v Xerox Corp., 65 NY2d 213, 219). He may not be subjected to discriminatory action based upon his disability, unless that disability renders him incapable of performing in a reasonable manner the activities involved in the job or occupation sought (Executive Law § 292 [21]; § 296). As we pointed out in Matter of Miller v Ravitch (60 NY2d 527, 532), the Legislature, in amending the Human Rights Law in 1979, specifically imposed an "individualized standard” such that the employer must demonstrate that the disability is such as would "prevent the complainant from performing in a reasonable manner the activities involved in the job or occupation sought”, failing which, the disability may not be the basis for rejecting the applicant (see also, Matter of Westinghouse Elec. Corp. v State Div. of Human Rights, 49 NY2d 234, 238).

The City, conceding that Granelle is presently able to perform the duties of a police officer in a reasonable manner, seeks to justify disqualifying him pursuant to Civil Service Law § 50 (4) (b) based upon an asserted reasonable expectation that he will be unfit to perform the duties of a police officer some time in the future. The Division concluded that the City had failed to present sufficient evidence to establish a reasonable expectation that Granelle would be unable to perform his duties in the future. We agree.

All the evidence in this record indicates that Granelle is presently able to reasonably perform the duties of a police officer and will be able to do so for the foreseeable future. Any questions concerning his present physical ability to perform police duties were answered by his satisfactory performance of the "agility” test, and his prior employment as a laborer without significant back problems. The City’s assertion that there was a reasonable expectation that Granelle would be unable to reasonably perform such duties in the future finds no support in this record. At best, there was speculation that a person with spondylolisthesis had a greater statistical probability of suffering low back disability than a person with normal back X rays. Even the City’s expert conceded, however, that there are no reliable statistics concerning the incidence of disability resulting from an asymptomatic condition of spondylolisthesis. Thus, this record is barren of any satisfactory medical evidence to support a reasonable expectation that Granelle, in light of his particular medical history and present condition, will become unfit to reasonably perform the duties of a policeman in the future. Employment may not be denied based on speculation and mere possibilities, especially when such determination is premised solely on the fact of an applicant’s inclusion in a class of persons with a particular disability rather than upon an individualized assessment of the specific individual.

Accordingly, the order of the Appellate Division should be reversed, and the determination of the State Division of Human Rights should be reinstated, with costs.

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

Order reversed, etc.

      . Civil Service Law §50 (4) (b) provides, in relevant part, that an applicant may be disqualified if he is "found to have a physical or mental disability which renders him unfit for the performance of the duties of the position in which he seeks employment, or which may reasonably be expected to render him unfit to continue to perform the duties of such position”.

      . Because we find substantial evidence to support the determination of the Division, we find it unnecessary to consider whether a reasonable expectation that Granelle will be unfit to continue to perform the duties of a police officer, if established, would be a valid basis for employment disqualification under the Human Rights Law.