author: Pigott, J. Smith, J. Read, J.

text:
    [863 NE2d 1001, 831 NYS2d 749]
    Ivey Walton et al., Appellants, v New York State Department of Correctional Services et al., Respondents.
    Argued January 9, 2007;
    decided February 20, 2007

      POINTS OF COUNSEL

      Center for Constitutional Rights, New York City (Rachel Meeropol, Barbara J. Olshansky and William Goodman of counsel), and Community Service Society {Juan Cartagena and Craig Acorn of counsel) for appellants.
    I. The courts below erred in dismissing counts II-VI as time-barred. (Neufeld v Neufeld, 910 F Supp 977; Colrick v Swinburne, 105 NY 503; General

      Precision v Ametek, Inc., 20 NY2d 898; Uline v New York Cent. & Hudson Riv. R.R. Co., 101 NY 98; Covington v Walker, 3 NY3d 287; Matter of Burke v Sugarman, 35 NY2d 39; Matter of Hacker v State Liq. Auth. of State of N.Y., 19 NY2d 177; Green v Petersen, 218 NY 280; Bullard v State of New York, 307 AD2d 676; Commack Self-Serv. Kosher Meats v State of New York, 270 AD2d 687.) II. The courts below erred in dismissing count I, seeking enforcement of the Public Service Commission order. (People ex rel. Public Serv. Commn. of State of N.Y. v New York Tel. Co., 262 App Div 440, 287 NY 803; United States v American Tel. & Tel. Co., 57 F Supp 451, affd sub nom. Hotel Astor v United States, 325 US 837.) III. The lower courts erred in failing to assess appellants’ properly pleaded and supported claims. (American Ins. Assn. v Lewis, 50 NY2d 617; Matter of Torsoe Bros. Constr. Corp. v Board of Trustees of Inc. Vil. of Monroe, 49 AD2d 461; New York Tel. Co. v City of Amsterdam, 200 AD2d 315; Jewish Reconstructionist Synagogue of N. Shore v Incorporated Vil. of Roslyn Harbor, 40 NY2d 158; Suffolk County Bldrs. Assn. v County of Suffolk, 46 NY2d 613; People ex rel. Public Serv. Commn. of State of N.Y. v New York Tel. Co., 262 App Div 440, 287 NY 803; United States v American Tel. & Tel. Co., 57 F Supp 451, affd sub nom. Hotel Astor v United States, 325 US 837; Castle Oil Corp. v City of New York, 89 NY2d 334; Greater Poughkeepsie Lib. Dist. v Town of Poughkeepsie, 81 NY2d 574; Yonkers Racing Corp. v State of New York, 131 AD2d 565.)

      Andrew Cuomo, Attorney General, Albany (Victor Paladino, Caitlin J. Halligan, Daniel Smirlock and Andrea Oser of counsel), for New York State Department of Correctional Services, respondent.
    I. All but two of petitioners’ claims are time-barred. (New York City Health & Hosps. Corp. v McBarnette, 84 NY2d 194; Matter of New York State Ch., Inc., Associated Gen. Contrs. of Am. v New York State Thruway Auth., 88 NY2d 56; Matter of Citizens For An Orderly Energy Policy v Cuomo, 78 NY2d 398; Matter of United Health Servs. v Cuomo, 180 AD2d 172; Matter of New York State Conference of Blue Cross & Blue Shield Plans v Cooper, 173 AD2d 60; Matter of Konski Engrs. v Levitt, 69 AD2d 940; Matter of Gross v Perales, 72 NY2d 231; Ozanam Hall of Queens Nursing Home v State of New York, 241 AD2d 670; Health Servs. Med. Corp. of Cent. N.Y. v Chassin, 175 Misc 2d 621, 259 AD2d 1053; Saratoga County Chamber of Commerce v Pataki, 100 NY2d 801.) II. The filed rate doctrine bars petitioners’ claims. (Bullard v State of New York, 307 AD2d 676; Matter of Cahill v Public Serv. Commn., 113 AD2d 603, 69 NY2d 265, 484 US 830; Wegoland Ltd. v NYNEX Corp., 27 F3d 17; Porr v NYNEX Corp., 230 AD2d 564, 91 NY2d 807; Marcus v AT&T Corp., 138 F3d 46; City of New York v Aetna Cas. & Sur. Co., 264 AD2d 304; Matter of KLCR Land Corp. v Public Serv. Commn. of State of N.Y., 20 AD3d 849; Matter of Independent Payphone Assn. of N.Y. v Public Serv. Commn. of State of N.Y., 5 AD3d 960, 3 NY3d 607.) III. The petition fails to state a cause of action. (Matter of Rochester Gas & Elec. Corp. v Public Serv. Commn. of State of N.Y., 135 AD2d 4, 72 NY2d 840; Matter of Rochester Gas & Elec. Corp. v Public Serv. Commn. of State of N.Y., 117 AD2d 156; Arsberry v Illinois, 244 F3d 558, 534 US 1062; Video Aid Corp. v Town of Wallkill, 85 NY2d 663; City of Rochester v Chiarella, 58 NY2d 316, cert denied sub nom. Quality Packaging Supply Corp. v City of Rochester, 464 US 828; Community Health Plan v Burckard, 3 AD3d 724; Courtroom Tel. Network LLC v State of New York, 5 NY3d 222; O’Neill v Oakgrove Constr., 71 NY2d 521; Matter of Montgomery v Coughlin, 194 AD2d 264, 83 NY2d 905; Bell v Wolfish, 441 US 520.) IV. If these claims may be maintained, only in a declaratory judgment action, petitioners’ refund claims must be dismissed for lack of subject matter jurisdiction. (Niagara Mohawk Power Corp. v City School Dist. of City of Troy, 59 NY2d 262; Parsa v State of New York, 64 NY2d 143; Guaranty Trust Co. of N.Y. v State of New York, 299 NY 295; Matter of First Natl. City Bank v City of N.Y. Fin. Admin., 36 NY2d 87; Alston v State of New York, 97 NY2d 159; Main Evaluations v State of New York, 296 AD2d 852; Ouziel v State of New York, 174 Misc 2d 900; Matter of Gross v Perales, 72 NY2d 231; Weissman v Evans, 56 NY2d 458; Morell v Balasubramanian, 70 NY2d 297.)

      Steptoe & Johnson LLP, Washington, D.C. (Anthony C. Epstein, admitted pro hac vice, of counsel), and Phillips Lytle LLP, Albany (Kelly M. Lester and William Christ of counsel), for MCI Worldcom Communications, Inc., respondent.
    I. MCI Worldcom Communications, Inc. complied with the Public Service Commission order. II. Commissions to property owners are a standard and legitimate cost of providing payphone service that telephone companies recover in their tariffed rates. (People ex rel. Public Serv. Commn. of State of N.Y. v New York Tel. Co., 262 App Div 440, 287 NY 803; United States v American Tel. & Tel. Co., 57 F Supp 451, affd sub nom. Hotel Astor v United States, 325 US 837.)

      Steven Banks, New York City, John Boston, Milton Zelermyer, Esmeralda Simmons, Brooklyn, and Robin Steinberg, Bronx, for Legal Aid Society of the City of New York and others, amici curiae.
    The decision below protects a practice that unfairly and disproportionately impacts poor or low-income individuals and families, and impairs the ability of legal services organizations to provide representation, legal advice and other assistance to prisoners. (Matter of Burke v Sugarman, 35 NY2d 39; Matter of Cahill v Public Serv. Commn., 113 AD2d 603, 69 NY2d 265; Allen v Blum, 58 NY2d 954; Matter of Zuckerman v Board of Educ. of City School Dist. of City of N.Y., 44 NY2d 336.)

      David Loftis, New York City, Barry C. Scheck and Peter J. Neufeld for Innocence Project, Inc. and another, amici curiae.
    I. The Constitution provides for the preservation of familial relationships during incarceration. (Turner v Safley, 482 US 78; Pell v Procunier, 417 US 817; Morgan v LaVallee, 526 F2d 221; Thornburgh v Abbott, 490 US 401; Roberts v United States Jaycees, 468 US 609; Kentucky Dept. of Corrections v Thompson, 490 US 454.) II. Prisoners have a First Amendment right to make telephone calls; exorbitant rates may not be charged so as to deprive access by prisoners. (Johnson v Galli, 596 F Supp 135; Washington v Reno, 35 F3d 1093; Johnson v State of Cal., 207 F3d 650; Strandberg v City of Helena, 791 F2d 744; Hutchings v Corum, 501 F Supp 1276; Moore v Janing, 427 F Supp 567; Procunier v Martinez, 416 US 396; Thornburgh v Abbott, 490 US 401; Houchins v KQED, Inc., 438 US 1; Overton v Bazzetta, 539 US 126.)

      Kramer Levin Naftalis & Frankel LLP, New York City (Eric A. Tirschwell, Keith M. Donoghue, Erin E. Oshiro and Aaron S. Fleisher of counsel), for the Sentencing Project and others, amici curiae.
    I. The return of prisoners to communities throughout the state is a recognized public policy concern of surpassing magnitude. II. Studies of recidivism uniformly demonstrate that prisoners who maintain close social ties are less likely to engage in crime following release from custody. III. Closer social ties assist former prisoners in managing a range of issues which might otherwise precipitate a return to crime, while also mitigating the effects of incarceration on families and communities. IV. Telephone calls are essential to prisoners’ preservation of social ties. (Washington v Reno, 35 F3d 1093; Tucker v Randall, 948 F2d 388.) V. The importance of prison telephone communications has occasioned calls for reform. (City of New York v State of New York, 40 NY2d 659.)

      Office of the Public Advocate for the City of New York, New York City (Mary Mastropaolo of counsel), for Betsy Gotbaum and others, amici curiae.
    The lower court rulings are in contrast with telephone customers’ constitutional and other legal rights and thereby protect a practice that unjustly affects New York City’s most vulnerable residents and communities. A careful examination clearly illustrates that New York City residents are exploited by this unlegislated tax.

      Cassie M. Pierson, San Francisco, California, for Legal Services for Prisoners with Children and others, amici curiae.
    I. Contact between incarcerated adults and their family members is difficult. II. The high cost of telephone calls has an adverse effect on parents, children and other relatives of persons incarcerated in New York State prisons.
   OPINION OF THE COURT

Pigott, J.

Petitioners are recipients of collect calls from New York State Department of Correctional Services (DOCS) inmates. They commenced suit seeking to enjoin DOCS from collecting a 57.5% commission on its 2001 contract with MCI Worldcom Communications, Inc. (MCI), damages and other relief. DOCS and MCI moved to dismiss the petition as time-barred and as failing to state a cause of action. Supreme Court dismissed all claims, and the Appellate Division affirmed. The lower courts held that the first cause of action should be dismissed on the merits and that the four constitutional claims as well as the sixth cause of action should be dismissed as time-barred. Supreme Court also held that the last claim was time-barred, while the Appellate Division rejected it on the merits. Because we find petitioners’ constitutional claims to be timely, we modify the order of the Appellate Division, reinstate those four claims, and remit the matter to Supreme Court for further proceedings not inconsistent with this opinion.

I.

Inmates in DOCS prisons who wish to make telephone calls to their family members, friends or lawyers are required to do so by placing collect calls from coinless telephones in their respective correctional facilities. Because these calls are collect, the financial obligation falls to the recipient of the telephone call. This telephone system is installed and maintained, and telephone service provided, by MCI under an exclusive contract.

DOCS and MCI signed an initial contract on April 1, 1996, and a second contract on April 1, 2001. The contracts were awarded to MCI following a competitive bidding process; DOCS specified that it should receive a commission of at least 47% of the gross revenue generated by the collect calls. Under the 1996 contract, MCI remitted 60% of its revenues from these calls to DOCS; the percentage was reduced to 57.5% in 2001. The commissions received by DOCS are placed in a “Family Benefit Fund” account used primarily for medical care and also for other programs that benefit inmates, such as a family reunion program, nursery and family development programs, basic cable television service and medical parole. Only a small percentage of the funds is used for maintenance of the telephone system.

On October 30, 1998, MCI filed a tariff with the New York State Public Service Commission (PSC), setting forth the per-minute rates and per-call surcharges applying to the inmates’ calls under the first contract, and requested that its DOCS service be treated as a unique service not subject to standard rate caps. In approving the MCI rates and surcharges, on December 17, 1998, the PSC reasoned that MCI’s service provides DOCS with security features not traditionally associated with collect calling, thus justifying, in the PSC’s view, the high call rates (1998 NY PSC Case 98-C-1765, 1998 NY PUC LEXIS 693, at *2-3).

Recipients of telephone calls from inmates at DOCS correctional facilities commenced an action in the Court of Claims on September 27, 2000, challenging the 1996 contract. They argued that DOCS, through the agreement with MCI, infringed upon their rights to due process, freedom of speech and equal protection, imposed an unlawful tax and/or regulatory fee, violated General Business Law §§ 340 and 349, and tortiously interfered with their rights to use other telephone service carriers offering lower rates. The court dismissed the claims as time-barred under Court of Claims Act § 10, and the Appellate Division affirmed in July 2003 (Bullard v State of New York, 307 AD2d 676 [2003]).

In May 2003, DOCS and MCI executed an amendment to the 2001 contract, implementing a flat rate of 16 cents per minute and a single surcharge of $3 per call. The State Comptroller approved the amendment on July 25, 2003. MCI then filed a revised tariff with the PSC on August 14, 2003. Recipients of the DOCS inmate collect calls took the opportunity to challenge the 2001 contract before the PSC. Several individuals and organizations, including two of the appellants in the present case and their counsel, filed timely comments with the PSC, arguing, among other things, that the DOCS-MCI inmate telephone system violated the constitutional rights of DOCS inmates and their families, and requested a hearing. Although no formal hearing was granted, summaries of the comments occupy some 17 pages of the PSC’s decision.

In its order, issued and effective on October 30, 2003, the PSC determined that its jurisdiction extends to MCI but not to DOCS because the latter is not a telephone corporation. The PSC declined to review the portion of the MCI rate that corresponds to the 57.5% commission retained by DOCS, but approved as just and reasonable what it called the “jurisdictional portion of the proposed rate,” corresponding to the remaining 42.5% of the surcharge and per-minute rate. The PSC directed MCI to file new tariffs separately identifying the unreviewed and the “jurisdictional” parts of its surcharge and rate, and MCI duly complied.

On February 26, 2004, petitioners commenced this combined declaratory judgment action and CPLR article 78 proceeding against DOCS and MCI in Supreme Court. Petitioners allege seven causes of action. Their first claim seeks enforcement of the PSC’s October 2003 order, interpreting it as implicitly prohibiting DOCS from collecting any commission from MCI beyond the rate the PSC expressly approved. Four causes of action allege violations of “the power to tax,” “due process rights,” “the right to equal protection,” and “free speech and association rights” under the New York State Constitution. The sixth sets forth a General Business Law § 349 claim. The seventh cause of action seeks an accounting.

We agree that petitioners’ first, sixth and seventh claims were properly dismissed. We conclude that the constitutional claims were timely, however, and should not have been dismissed. Accordingly, we modify the order of the Appellate Division, and remit the matter to Supreme Court for further proceedings.

II.

Whether petitioners’ constitutional claims are subject to the four-month statute of limitations period under CPLR article 78 or the residuary six-year limitations period of CPLR 213 (1) turns on whether the parties’ rights could have been resolved in an article 78 proceeding (Solnick v Whalen, 49 NY2d 224, 229-230 [1980]; New York City Health & Hosps. Corp. v McBarnette, 84 NY2d 194, 200-201 [1994]). While it is well established that a challenge to the validity of legislation may not be brought under article 78, this principle does not apply to the quasi-legislative acts and decisions of administrative agencies such as DOCS (see McBarnette, 84 NY2d at 204). Here, petitioners are challenging an administrative determination — DOCS’s decision to provide a collect-call-only telephone system to inmates and to require the telephone corporation it exclusively contracts with to pay it substantial commissions — by challenging the contracts making that determination binding on others. Petitioners are not disputing the validity of any legislation. They have furnished no compelling reason why article 78 review, in the nature of “mandamus to review,” should not be available to them under CPLR 7803 (3), and thus are subject to the four-month statute of limitations.

The more difficult question is when the statute of limitations began to run. A petitioner who seeks article 78 review of a determination must commence the proceeding “within four months after the determination to be reviewed becomes final and binding upon the petitioner” (CPLR 217 [1]). An administrative determination becomes “final and binding” when two requirements are met: completeness (finality) of the determination and exhaustion of administrative remedies. “First, the agency must have reached a definitive position on the issue that inflicts actual, concrete injury and second, the injury inflicted may not be . . . significantly ameliorated by further administrative action or by steps available to the complaining party” (Matter of Best Payphones, Inc. v Department of Info. Tech. & Telecom. of City of N.Y., 5 NY3d 30, 34 [2005]; see also Matter of City of New York [Grand Lafayette Props. LLC], 6 NY3d 540, 548 [2006]; Matter of Comptroller of City of N.Y. v Mayor of City of N.Y., 7 NY3d 256, 262 [2006]; Matter of Eadie v Town Bd. of Town of N. Greenbush, 7 NY3d 306, 316 [2006]).

The finality and exhaustion of remedies requirements are drawn from case law on ripeness for judicial review (see Matter of Essex County v Zagata, 91 NY2d 447, 453-454, 454 n [1998]; Church of St. Paul & St. Andrew v Barwick, 67 NY2d 510 [1986], cert denied 479 US 985 [1986]; see also Williamson County Regional Planning Comm’n v Hamilton Bank of Johnson City, 473 US 172 [1985]). The two requirements are conceptually distinct. “The focus of the ‘exhaustion’ requirement ... is not on the challenged action itself, but on whether administrative procedures are available to review that action and whether those procedures have been exhausted” (Church of St. Paul & St. Andrew, 67 NY2d at 521; see also Williamson County Regional Planning Comm’n, 473 US at 192-193). Those who wish to challenge agency determinations under article 78 may not do so until they have exhausted their administrative remedies, but once this point has been reached, they must act quickly — within four months — or their claims will be time-barred.

When a contract between a government agency and a telephone company specifies the rate the company will charge, those who wish to challenge the contract, on grounds related to the rate, have not exhausted their administrative remedies until approval by the PSC, which has exclusive authority to review and determine intrastate telephone rates. Only then does the agency determination underlying the contract become “final and binding” (CPLR 217 [1]).

The question of when the 2001 contract became ripe for review is complicated by the May 2003 amendment. The 2001 contract lowered the DOCS commission percentage to 57.5% but did not change MCI’s call rates and surcharges. The 2003 amendment, on the other hand, kept the commission percentage but changed the call rate. The Appellate Division held that DOCS’s determination became final and binding “at the latest on July 25, 2003, when the amendment to the new contract was approved by the Comptroller” (25 AD3d 999, 1001 [2006]). This would be true, were it not for the fact that the May 2003 amendment altered the call rate. Since the rate change needed to be approved by the PSC, the 2001 contract became ripe for judicial review only upon issuance of the PSC order on October 30, 2003.

While the PSC concluded that it did not have jurisdiction over DOCS, it could have determined that MCI’s call rate and surcharge as a whole were “unjust, unreasonable or unjustly discriminatory or unduly preferential or in anywise in violation of law” (Public Service Law § 97 [1]) and ordered them to be lowered. It was reasonable for petitioners to believe that the PSC could have rejected MCI’s rate and surcharges in their entirety, just as, in 1998, it had approved them in their entirety. Such a result would quite obviously have significantly ameliorated the injuries petitioners contend they have suffered as a result of the high collect call rates, and would have forced DOCS to abandon the commission structure of its inmate collect calling program.

In this manner, DOCS’s determination remained subject to corrective action by DOCS until the date of the PSC order. The present case therefore differs from Stop-The-Barge v Cahill (1 NY3d 218 [2003]). There petitioners challenged actions by the New York City Department of Environmental Protection (DEP) and the New York State Department of Environmental Conservation (DEC), giving approval to a power generator project. We held that the statute of limitations applicable to the cause of action against DEP began to run when DEP issued a conditioned negative declaration (CND), rather than when DEC issued an air permit. We reached this conclusion in part because the CND marked the point at which the review process by DEF] the agency petitioners challenged in this claim, was complete (see 1 NY3d at 223; see also Eadie, 7 NY3d at 317). A refusal by DEC to issue an air permit would not have forced DEP to reconsider its CND. Here, on the other hand, corrective action by DOCS would necessarily have followed disapproval of the MCI rates by the PSC, and therefore petitioners had not exhausted available administrative remedies until the PSC review was complete.

In deciding the point at which petitioner’s administrative remedies are exhausted, courts must take a pragmatic approach and, when it is plain that “resort to an administrative remedy would be futile” (Watergate II Apts. v Buffalo Sewer Auth., 46 NY2d 52, 57 [1978]), an article 78 proceeding should be held ripe, and the statute of limitations will begin to run. But hindsight cannot be used to determine whether administrative steps were futile. Although the PSC ultimately decided to approve the MCI call rate only in part, declining to review a percentage of the rate corresponding to the DOCS commission, petitioners could reasonably have believed that the PSC would either approve or reject the rate as a whole.

We conclude that petitioners reached the point at which the injuries they allege could no longer be ameliorated by administrative action on October 30, 2003, when PSC issued its determination, and therefore that the constitutional claims in their combined action and proceeding, commenced on February 26, 2004, are timely. The parties’ remaining arguments concerning timeliness are academic.

The lower courts, having found petitioners’ constitutional claims untimely, did not have occasion to decide whether they state a cause of action. “While this Court may consider alternative legal grounds raised at but not addressed by the Appellate Division, the preferable, more prudent corrective action is remittal” (Schiavone v City of New York, 92 NY2d 308, 317 [1998]). Therefore Supreme Court should now determine the question whether petitioners’ constitutional claims state a cause of action. We agree with the Appellate Division that petitioners’ first claim, seeking “enforcement” of the PSC order, and their last claim, seeking an accounting, were properly dismissed on the merits, and that their General Business Law § 349 claim is untimely.

Accordingly, the order of the Appellate Division should be modified, without costs, by reinstating the second through fifth causes of action and remitting to Supreme Court for further proceedings in accordance with this opinion and, as so modified, affirmed.

Smith, J.

(concurring). Here, as in State of N.Y. ex rel. Harkavy v Consilvio (7 NY3d 607, 614 [2006, R.S. Smith, J., concurring]), I find my preference for one statutory interpretation over another influenced by underlying constitutional issues.

The question of how to apply the statute of limitations here is difficult, as it often is in litigation challenging government action. The two possibilities are well presented by Judge Pigott’s majority opinion and Judge Read’s dissent. I am joining the result and reasoning of the majority opinion, in part because I doubt whether the result urged by the dissent would be constitutionally acceptable in this case.

To affirm the Appellate Division decision here would be to hold that petitioners’ constitutional claims — at least some of which, I think, are quite substantial — became time-barred four months after the DOCS-MCI contract, or the most recent amendment to it, was approved by the Comptroller. In theory, petitioners — most of them family members of New York State prisoners — could have learned of the Comptroller’s approval by perusing the public record; as a practical matter, it is highly unlikely that they did so, and unreasonable to expect them to. Thus, the Appellate Division has in effect held that claims like these can be time-barred before the people entitled to bring them knew or reasonably should have known that they existed. I understand the need of government agencies for finality and repose, but I have trouble accepting the idea that agencies can extinguish constitutional rights so easily.

It is in part to avoid the constitutional problems that this case would otherwise present that I choose the majority’s rather than the dissent’s view of when petitioners’ claims accrued for statute of limitations purposes. For that reason, I think the dissent may be right, in a sense, to suggest that our statute of limitations holding here is “sui generis” (dissenting op at 202).

Read, J.

(dissenting). I respectfully dissent. The lower courts correctly held that petitioners’ claims were time-barred, the four-month statute of limitations under CPLR article 78 having expired in 2001. Our article 78 precedent on accrual — which no one has suggested altering — simply does not lead to the result that the majority reaches.

Petitioners attack a 2001 contract between the New York State Department of Correctional Services (DOCS) and MCI Worldcom Communications, Inc. (MCI), set to expire on March 31, 2007. This contract granted MCI the exclusive right to provide collect-call only telephone service to inmates at specified rates, and required MCI to pay DOCS a commission of 57.5% of its gross receipts from its customers, the recipients of the inmate-initiated collect calls. Prison systems throughout the country have entered into similar exclusive dealing arrangements, which commonly feature stiff commissions — usually ranging between 20% and 63% with most states charging more than 45% (see Matter of Implementation of the Pay Telephone Reclassification and Compensation Provisions of the Telecommunications Act of 1996, 17 FCCR 3248, 3253 n 34, 2002 WL 252600, *3 n 34, 2002 FCC LEXIS 889, *12 n 34). And throughout the country, these contracts have been criticized as fundamentally unfair, and have proved to be hghtning rods for litigation. Indeed, the day before this appeal was argued, the Governor announced that the State would change its policy as of April 1, 2007 to make rates reflect only the costs of inmate calls. In addition to injunctive relief, however, petitioners are trying to obtain refunds as damages. Since Supreme Court may award damages in an article 78 proceeding if they are incidental to the primary relief sought (see CPLR 7806; Matter of Gross v Perales, 72 NY2d 231, 236 [1988]), we are left with the question of when the four-month statute of limitations began to run in this case, and whether petitioners’ claims are timely.

The majority holds that they are indeed timely because

“[w]hen a contract between a government agency and a telephone company specifies the rate the company will charge, those who wish to challenge the contract, on grounds related to the rate, have not exhausted their administrative remedies until approval by the [Public Service Commission], which has exclusive authority to review and determine intrastate telephone rates. Only then does the agency determination underlying the contract become ‘final and binding’ (CPLR 217 [1])” (majority op at 195).

But the facts of this case do not fit this rule, which, at least as applied here, is at odds with recent precedent, notably our decision in Stop-The-Barge v Cahill (1 NY3d 218 [2003]).

The rates charged in the 2001 contract, based on time-of-day and distance, were exactly the same as the rates charged in a predecessor contract between DOCS and MCI, effective April 1, 1996. The Public Service Commission (PSC) approved these rates on December 17, 1998, a determination that was never challenged. The 2001 contract reduced the commission from 60% to 57.5% but did not tamper with the approved rates. In other words, MCI was charging its customers the same rates under the 2001 contract as it had charged under the 1996 contract, but was paying DOCS a lesser percentage of its gross receipts. Accordingly, the 2001 contract did not prompt MCI to seek approval from the PSC of the rates set forth in the contract: they had already been approved in 1998. Under the majority’s own rule, then, petitioners’ lawsuit was five years too late to challenge DOCS’ determination to require a commission, as embodied in its 1996 contract, because they should have sued within four months after the PSC in 1998 approved the rates incorporating the commission. Under the majority’s own rule, petitioners were also almost three years too late to challenge this determination as embodied in the 2001 contract. That is, since DOCS’ determination in 2001 did not require MCI to seek follow-up rate approval from the PSC, petitioners should have sued within four months after the 2001 contract took effect.

Of course, in 2003 DOCS and MCI amended the 2001 contract. The amendment, however, only changed the structure of the rates from time-of-day and distance to a flat rate. It did not modify or change or in any way affect DOCS’ final and binding determination made in 2001 to require a 57.5% commission, which is what petitioners attack. The majority essentially concludes, however, that petitioners’ otherwise time-barred claims were somehow revived when the PSC approved the modified rate structure on October 30, 2003, even though the commission that petitioners challenge was not affected by the restructuring. Indeed, the PSC took the position in its 2003 determination that it did not even have jurisdiction over the commission. The PSC’s disavowal of jurisdiction may have come as a complete surprise to petitioners, but we do not usually relax the statute of limitations to give a break to sympathetic litigants whose view of the law is arguably well-founded or plausible, but nonetheless mistaken.

Under our traditional rules of accrual, petitioners had only two choices in 2003: to sue DOCS to challenge the rate restructuring (not the commission) within four months after the contract amendment embodying the restructured rates took effect; or, to sue the PSC within four months after its decision to approve the modified rate structure. They did neither. Instead, they sued DOCS within four months after the PSC’s determination, and did not sue the PSC at all. Moreover, in an article 78 proceeding brought against the PSC, petitioners certainly could have argued that whether or not the PSC has jurisdiction over DOCS, the Public Service Law nonetheless required the PSC to determine whether the restructured rates filed by MCI were just and reasonable as a whole. After all, although the PSC only reviewed the so-called jurisdictional portion of MCI’s rate, it ordered MCI to file a tariff with a total rate that included both the jurisdictional component and the commission, and thereby authorized MCI to charge this total rate. Indeed, this was the only rate that MCI could legally charge (see Public Service Law § 92 [2] [d]).

Next, this case cannot be distinguished from Stop-The-Barge. According to the majority, the two cases differ because

“[a] refusal by [the New York State Department of Environmental Conservation] to issue an air permit would not have forced [the New York City Department of Environmental Protection] to reconsider its [conditioned negative declaration]. Here, on the other hand, corrective action by DOCS would necessarily have followed disapproval of the MCI rates by the PSC, and therefore petitioners had not exhausted available administrative remedies until the PSC review was complete” (majority op at 196).

The majority is incorrect on both scores. In Stop-The-Barge, a company was seeking the necessary regulatory approvals to install a power generator on a floating barge in Brooklyn, which required State Environmental Quality Review Act (SEQRA) approval from the New York City Department of Environmental Protection (DEP), and an air permit from the New York State Department of Environmental Conservation (DEC). Whether DEC’s “refusal” of the company’s application for an air permit would have forced DEP to reconsider its conditioned negative declaration (CND) under SEQRA would have depended entirely on the terms of the rejection. Theoretically, I suppose, DEC could have outright refused to issue an air permit to the company, or might have attached conditions so onerous that the company decided to scrap the project altogether. Under these circumstances, DEP would never have reconsidered the CND because the project would have been abandoned. More likely, however, DEC would have attached conditions to its approval, which, depending on their terms, might well have required the company to ask DEP to revise the CND’s provisions. Similarly, in this case, what further action DOCS might or might not have been forced to take would have depended entirely on the terms of any PSC “disapproval.” For example, the PSC might have disapproved the rate restructuring for reasons wholly unrelated to the commission. Indeed, since the PSC took the position that it had no jurisdiction over the commission in the first place, this would have to have been the case. In that event, it is probable that the existing rates — the rates that the PSC approved in 1998 and which were never challenged and which, of course, included the commission — would have stayed in effect while the PSC sorted out what changes it might require MCI to make to its proposed new tariff filing (see Public Service Law § 92 [2] [e], [g]). There is no way to predict what, if any, “corrective action” DOCS might have eventually taken as a result of a hypothesized PSC disapproval.

What all of this shows, of course, are the ambiguities and difficulties inherent in trying to craft an exception to our usual claims-accrual rule — as the majority does in this case — so as to make a challenge to an administrative agency’s final and binding determination accrue (or, more accurately, revive) on the date when another administrative agency makes a corollary determination with respect to the same contract or project. It is almost always possible for a party to argue — as petitioners do here — that some action the second agency (here, the PSC) might have taken might have caused the first agency (here, DOCS) to revisit the complained-about decision in whole or in part, or that the party had a good-faith belief that this was so. But this does not make the first agency’s determination any less final and binding. Moreover, such an approach is antithetical to the finality and certainty that the four-month statute of limitations under CPLR article 78 is intended to achieve. I do not for a moment think that my colleagues intend to push our law in this direction any further than the facts of this case.

I note also that we have consistently sought over the past several years to encourage parties who seek to challenge an agency determination to do so at the earliest possible date (see Matter of City of New York [Grand Lafayette Props. LLC], 6 NY3d 540 [2006] [city planning commission’s determination to approve condemnation of property final and binding after expiration of 20-day city council call-up period notwithstanding fact that mayor’s office subsequently approved project]; Matter of Best Payphones, Inc. v Department of Info. Tech. & Telecom. of City of N.Y., 5 NY3d 30 [2005] [agency letter denying franchise starts statute of limitations notwithstanding fact that letter is conditional and gives applicant 60 days to cure]; Stop-The-Barge v Cahill, supra [under SEQRA, CND is final agency determination that starts statute of limitations notwithstanding fact that other administrative proceedings will take place]). I do not believe that my colleagues intend to retract our strong message that litigants should risk suing prematurely rather than too late. Again, this case simply has to be chalked up as sui generis. I also note that the majority opinion says nothing about the merits of petitioners’ constitutional claims, or about whether an aggrieved ratepayer may recover a component of a filed tariff in litigation against any party. These issues, and perhaps others, are left for the lower courts to tackle in the first instance.

Finally, the concurrence suggests that the constitutional nature of petitioners’ claims controls the date of accrual, and (apparently) that while it may be unreasonable to expect the family members to have learned of the Comptroller’s approval by “perusing the public record” (concurring op at 198), it was not unreasonable to expect them to have known about the PSC’s order from the public record. While we have often adjudicated constitutional claims under CPLR article 78 (see e.g. Matter of Texas E. Transmission Corp. v Tax Appeals Trib., 95 NY2d 323 [2000] [adjudicating Commerce Clause claim in article 78 proceeding]), we have never keyed accrual to the nature of the claim. All petitioners are subject to the same four-month statute of limitations, which accrues when the agency’s determination is final and binding, whether they allege a constitutional violation or some other error of law.

Chief Judge Kaye and Judges Ciparick and Smith concur with Judge Pigott; Judge Smith concurs in a separate opinion; Judge Read dissents in another opinion in which Judge Graffeo concurs; Judge Jones taking no part.

Order modified, etc.

      . MCI Worldcom Communications, Inc. is now known as MCI Communications Services, Inc., doing business as Verizon Business Services.

      . MCI provides DOCS with various security mechanisms, including call monitoring equipment, call blocking capability, personal identification numbers for inmates and calling protocols alerting a recipient that the collect call is from an inmate.

      . A companion action was filed in the United States District Court for the Southern District of New York (see Byrd v Goord, 2005 WL 2086321, 2005 US Dist LEXIS 18544 [SD NY, Aug. 29, 2005]).

      . Three of the petitioners are family members of DOCS inmates and the other two are nonprofit corporations providing legal defense services.

       DOCS estimated that the new rate structure would likely increase the phone bills of the families of the 17% of the inmates incarcerated closest to their relatives’ homes, but would create a savings for the families of the remaining 83% of the inmates’ families. The rate change was expected to be revenue-neutral.


source: Caselaw Access Project

author: Graffeo, J.

license: Public Domain

text:
    [863 NE2d 1012, 831 NYS2d 760]
    Paul Sperry, on Behalf of Himself and All Others Similarly Situated, Appellant, v Crompton Corporation et al., Respondents, et al., Defendants.
    Argued January 10, 2007;
    decided February 22, 2007

      POINTS OF COUNSEL

      Milberg Weiss Bershad, & Schulman LLP, New York City (J. Douglas Richards and Michael M. Buchman of counsel), Carey & Danis LLP, St. Louis, Missouri (Michael J. Flannery and James J. Rosemergy of counsel), Lerach Coughlin Stoia Geller Rudman & Robbins LLP, San Diego, California (Bonney E. Sweeney of counsel), Robbins Umeda & Fink, LLP {Brian J. Robbins of counsel), and Maricic & Goldstein LLP, Rancho Cucamongo, California {David M. Goldstein of counsel), for appellant.
    I. The dismissal below of plaintiffs Donnelly Act claim was incorrect and should be reversed. (Cox v Microsoft Corp., 290 AD2d 206; Paltre v General Motors Corp., 26 AD3d 481; Anheuser-Busch, Inc. v Abrams, 71 NY2d 327; Bogartz v Astor, 293 NY 563; Sicolo v Prudential Sav. Bank of Brooklyn, N.Y., 5 NY2d 254; Bertha Bldg. Corp. v National Theatres Corp., 269 F2d 785; Matter of Gaines v New York State Div. of Hous. & Community Renewal, 90 NY2d 545; Gunther v Abrams, 189 AD2d 607; Feder v Caliguira, 8 NY2d 400; Ethicon, Inc. v Aetna Cas. & Sur. Co., 737 F Supp 1320.) II. The dismissal below of plaintiff’s unjust enrichment claims also was incorrect and should be reversed. (Cox v Microsoft Corp., 8 AD3d 39; Brooklyn Union Gas Co. v New York State Human Rights Appeal Bd., 41 NY2d 84; Manufacturers Hanover Trust Co. v Chemical Bank, 160 AD2d 113; In re K-Dur Antitrust Litig., 338 F Supp 2d 517; Dubai Islamic Bank v Citibank, N.A., 126 F Supp 2d 659; In re Cardizem CD Antitrust Litig., 105 F Supp 2d 618; Muehlbauer v General Motors Corp., 431 F Supp 2d 847; Kagan v K-Tel Entertainment, 172 AD2d 375; Heller v Kurz, 228 AD2d 263; Outrigger Constr. Co. v Bank Leumi Trust Co. of N.Y., 240 AD2d 382.)

      OMelveny & Myers LLP, Washington, D.C. and New York City {Ian Simmons, Jonathan D. Hacker, Benjamin G. Bradshaw, Mark Davies, Matthew Cosgrove and Nilam A. Sanghvi of counsel), Gibson, Dunn & Crutcher LLP, Los Angeles, California and Washington, D.C. {Daniel G. Swanson, D. Jarrett Arp and Cynthia E. Richman of counsel), Covington & Burling LLP, Washington, D.C. (William D. Iverson and Michael J. Fanelli of counsel), and Jones Day, New York City and Washington, D.C. (J. Andrew Read and Catherine M. Ferrara-Depp of counsel), for respondents.
    I. Plaintiff cannot bring a class action suit under the Donnelly Act. (Sega v State of New York, 60 NY2d 183; Cunningham v Bayer AG, 24 AD3d 216; Cox v Microsoft Corp., 290 AD2d 206; Asher v Abbott Labs., 290 AD2d 208; Lennon v Philip Morris Cos., 189 Misc 2d 577; Russo & Dubin v Allied Maintenance Corp., 95 Misc 2d 344; Leider v Ralfe, 387 F Supp 2d 283; Fults v Munro, 202 NY 34; Lyke v Anderson, 147 AD2d 18; Leh v General Petroleum Corp., 330 F2d 288.) II. Plaintiff cannot bring a class action suit based on New York unjust enrichment law. (Bradkin v Leverton, 26 NY2d 192; Miller v Schloss, 218 NY 400; Southern Pacific Co. v Darnell-Taenzer Lumber Co., 245 US 531; Palsgraf v Long Is. R.R. Co., 248 NY 339; Blue Cross & Blue Shield of N.J., Inc. v Philip Morris USA Inc., 3 NY3d 200; Van Dussen-Storto Motor Inn v Rochester Tel. Corp., 63 AD2d 244; Joan Hansen & Co. v Everlast World’s Boxing

      Headquarters Corp., 296 AD2d 103; Shortcuts Editorial Servs. v Kaleidoscope Sports & Entertainment, 183 Misc 2d 334; Cox v Microsoft Corp., 8 AD3d 39; Manufacturers Hanover Trust Co. v Chemical Bank, 160 AD2d 113.)

      Andrew Cuomo, Attorney General, New York City (Caitlin J. Halligan, Michelle Aronowitz, Jay L. Himes, Daniel Chepaitis and Sarah Hubbard of counsel), for State of New York, amicus curiae.
    I. An action brought pursuant to General Business Law § 340, which the Legislature explicitly denominated an “action to recover damages,” is not an “action to recover a penalty” within the meaning of CPLR 901 (b). (Cox v Microsoft Corp., 290 AD2d 206; Asher v Abbott Labs., 290 AD2d 208; Paltre v General Motors Corp., 26 AD3d 481; Cunningham v Bayer AG, 24 AD3d 216; Matter of Sackolwitz v Hamburg & Co., 295 NY 264; Bogartz v Astor, 293 NY 563; Cox v Lykes Bros., 237 NY 376; Pruitt v Rockefeller Ctr. Props., 167 AD2d 14; Matter of Charter Dev. Co., L.L.C. v City of Buffalo, 6 NY3d 578; Illinois v Harper & Row Pubis., Inc., 301 F Supp 484.) II. It is well established that unjust enrichment may exist without privity between defendant and plaintiff. (Farash v Sykes Datatronics, 59 NY2d 500; Goldman v Metropolitan Life Ins. Co., 5 NY3d 561; Cox v Microsoft Corp., 8 AD3d 39; Parsa v State of New York, 64 NY2d 143; Bradkin v Leverton, 26 NY2d 192; State of New York v Barclays Bank of N.Y., 76 NY2d 533; 3105 Grand Corp. v City of New York, 288 NY 178; Whiting v Hudson Trust Co., 234 NY 394; Simonds v Simonds, 45 NY2d 233; Kagen v K-Tel Entertainment, 172 AD2d 375.)

      Kirby Mclnerney & Squire, LLP, New York City (Daniel Hume of counsel), for American Antitrust Institute, amicus curiae.
    I. The issue is crucial to the enforcement of the antitrust laws. (Illinois Brick Co. v Illinois, 431 US 720; Rand v Monsanto Co., 926 F2d 596.) II. Antitrust “treble” damages actions are not a penalty. (Reiter v Sonotone Corp., 442 US 330.) III. Antitrust “treble” damages, when viewed correctly, are actually only single damages, and therefore are not a penalty. IV Permitting indirect purchaser suits would not lead to over deterrence.

      Mayer, Brown, Rowe & Maw LLP New York City (Philip Allen Lacovara, Lauren R. Goldman and Daniel B. Kirschner of counsel), and National Chamber Litigation Center, Inc., Washington, D.C. (Robin S. Conrad and Amar D. Sarwal, admitted pro hac vice, of counsel), for Chamber of Commerce of the United States of America, amicus curiae.
    I. The Legislature’s decision not to authorize individual class actions under the Donnelly Act was a sound policy choice that is entitled to deference. (Paltre v General Motors Corp., 26 AD3d 481; Cox v Microsoft Corp., 290 AD2d 206; Asher v Abbott Labs., 290 AD2d 208; Lennon v Philip Morris Cos., 189 Misc 2d 577; Russo & Dubin v Allied Maintenance Corp., 95 Misc 2d 344; Leider v Ralfe, 387 F Supp 2d 283; Illinois Brick Co. v Illinois, 431 US 720; California v ARC America Corp., 490 US 93; In re Lorazepam & Clorazepate Antitrust Litig., 289 F3d 98; Castano v American Tobacco Co., 84 F3d 734.) II. Allowing plaintiff to maintain his unjust enrichment claim would permit an end run around the Donnelly Act’s limitations and distort general principles of standing. (Associated Gen. Contractors of Cal., Inc. v Carpenters, 459 US 519; Holmes v Securities Investor Protection Corporation, 503 US 258; Goldman v Metropolitan Life Ins. Co., 5 NY3d 561; Cox v Microsoft Corp., 8 AD3d 39; 3105 Grand Corp. v City of New York, 288 NY 178; Whiting v Hudson Trust Co., 234 NY 394; Simonds v Simonds, 45 NY2d 233; A.O. Fox Mem. Hosp. v American Tobacco Co., 302 AD2d 413; Van Dussen-Storto Motor Inn v Rochester Tel. Corp., 63 AD2d 244.)

      Labaton Sucharow & Rudoff LLP, New York City (Bernard Persky and Kellie Safar of counsel), Michael Schuster, Washington, D.C., Stacy J. Canan, Sarah Lenz Lock and Bruce Vignery for AAKE1 amicus curiae.
    The lower court erred by dismissing the suit based on its statutory interpretation that the treble damages provision of the Donnelly Act constitutes a penalty under CPLR 901 (b). In so doing, it failed to consider the legislative history of the 1998 amendment to the Donnelly Act granting antitrust standing to indirect purchasers, reflecting the obvious intention of the Legislature to allow consumer class actions. Alternatively, assuming, arguendo, that the Donnelly Act’s treble damages provision is a penalty, the lower court erred by disregarding the plain language and legislative history of CPLR 901 (b) itself, which allows a representative plaintiff to waive a penalty in order to bring a class action. (In re Cardizem CD Antitrust Litig., 391 F3d 812; Friar v Vanguard Holding Corp., 78 AD2d 83; Trump v Trump, 179 AD2d 201; Brzychnalski v Unesco, Inc., 35 F Supp 2d 351; Pesantez v Boyle Envtl. Servs., 251 AD2d 11; Ridge Meadows Homeowners’ Assn. v Tara Dev. Co., 242 AD2d 947; Cox v Microsoft Corp., 8 AD3d 39; Super Glue Corp. v Avis Rent A Car Sys., 132 AD2d 604; Weinberg v Hertz Corp., 116 AD2d 1; Hauptman v Helena Rubinstein, Inc., 114 Misc 2d 935.)
   OPINION OF THE COURT

Graffeo, J.

Because we conclude that the treble damages provision in General Business Law § 340 serves as a penalty for purposes of CPLR 901 (b), such damages are not recoverable in a class action. We therefore affirm the order of the Appellate Division so holding.

Defendants Crompton Corporation, Uniroyal Chemical Company, Inc., Uniroyal Chemical Company, Ltd., Flexsys NV, Flexsys America LI] Bayer AG, Bayer Corporation, Rhein Chemie Rheinau GmbH and Rhein Chemie Corporation produce and sell rubber-processing chemicals that improve the durability, color control and heat resistance of rubber products, including tires, belts, hoses and footwear. Defendants do not manufacture or sell these end products.

In 2002, plaintiff Paul Sperry commenced this purported class action against defendants seeking damages on behalf of himself and all other consumers “who purchased tires, other than for resale, that were manufactured using rubber-processing chemicals sold by defendants since 1994. ” Sperry alleged that defendants entered into a price-fixing agreement, overcharging tire manufacturers for the chemicals, and that the overcharges trickled down the distribution chain to consumers.

The complaint set forth three causes of action. First, Sperry claimed, that defendants violated New York’s antitrust statute (General Business Law § 340 et seq.) — commonly known as the Donnelly Act — by engaging in an arrangement that restrained “[Competition or the free exercise of any activity in the conduct of any business, trade or commerce” (General Business Law § 340 [1]). Relying on the indirect purchaser provision of the Donnelly Act (General Business Law § 340 [6]), Sperry sought “three-fold the actual damages,” costs and attorneys’ fees pursuant to General Business Law § 340 (5). Second, Sperry asserted that defendants’ arrangement constituted a deceptive practice in violation of General Business Law § 349. Third, Sperry requested recovery on an unjust enrichment theory. Defendants moved to dismiss the complaint under CPLR 3211.

Supreme Court granted the motion and dismissed the complaint in its entirety. The court held that CPLR 901 (b), which precludes a class action to collect a penalty unless specifically authorized by statute, barred the Donnelly Act claim. The court determined that the General Business Law § 349 cause of action failed to state a claim because the allegations in the complaint did not come within the scope of that statute. It also dismissed the unjust enrichment claim because the parties lacked a sufficient relationship. The Appellate Division affirmed and we granted Sperry leave to appeal.

Relying on our decisions in Cox v Lykes Bros. (237 NY 376 [1924]), Bogartz v Astor (293 NY 563 [1944]) and Sicolo v Prudential Sav. Bank of Brooklyn, N.Y. (5 NY2d 254 [1959]), Sperry argues that the Donnelly Act’s treble damages provision is not a penalty under CPLR 901 (b). He also cites to federal precedents indicating that federal antitrust treble damages are primarily remedial in nature. Defendants counter that the courts below properly concluded that state antitrust treble damages are a penalty within the meaning of CPLR 901 (b).

General Business Law § 340 (5) provides that a successful antitrust plaintiff “shall recover three-fold the actual damages sustained thereby, as well as costs not exceeding ten thousand dollars, and reasonable attorneys’ fees.” The Donnelly Act, however, does not address private class actions. The main issue here is whether treble damages relief is available to class action plaintiffs or is barred by the application of CPLR 901 (b).

The Legislature enacted CPLR article 9 (§§ 901-909) in 1975 to replace CPLR 1005, the former class action statute. The prior class action provision, which remained largely unchanged through its various incarnations dating back to the Field Code of Procedure (see L 1849, ch 438, § 119), had been judicially restricted over the years and was subject to inconsistent results (see generally Moore v Metropolitan Life Ins. Co., 33 NY2d 304, 313 [1973] [noting “the general and judicial dissatisfaction with the existing restrictions on class action”]). Consequently, in 1975, the Judicial Conference proposed a new class action statute that was designed “to set up a flexible, functional scheme whereby class actions could qualify without the present undesirable and socially detrimental restrictions” (13th Ann Report of Jud Conf on CPLR, reprinted in 1975 McKinney’s Session Laws of NY, at 1493). To that end, the Judicial Conference recommended the enactment of CPLR 901 (a), which specified the five prerequisites of numerosity, predominance, typicality, adequacy of representation and superiority.

While the Legislature considered the Judicial Conference report, various groups advocated for the addition of a provision that would prohibit class action plaintiffs from being awarded a statutorily-created penalty or minimum measure of recovery, except when expressly authorized in the pertinent statute (see Legislation Report No. 15 of Banking Law Comm, Business Law Comm and Comm on CPLR of NY St Bar Assn. Bill Jacket, L 1975, ch 207; Legislation Report No. 1 of Banking Law Comm of NY St Bar Assn. Bill Jacket, L 1975, ch 207; Mem in Opposition of Empire St Chamber of Commerce, Feb. 14, 1975, Bill Jacket, L 1975, ch 207). These groups feared that recoveries beyond actual damages could lead to excessively harsh results, particularly where large numbers of plaintiffs were involved. They also argued that there was no need to permit class actions in order to encourage litigation by aggregating damages when statutory penalties and minimum measures of recovery provided an aggrieved party with a sufficient economic incentive to pursue a claim. Responding to these concerns, the Legislature amended the legislation to include a new subdivision — CPLR 901 (b), which reads: “Unless a statute creating or imposing a penalty, or a minimum measure of recovery specifically authorizes the recovery thereof in a class action, an action to recover a penalty, or minimum measure of recovery created or imposed by statute may not be maintained as a class action.” Assemblyman Stanley Fink, the bill’s sponsor, explained the purpose of section 901 (b):

“The bill, however, precludes a class action based on a statute creating or imposing a penalty or minimum measure of recovery unless the specific statute allows for a class action. These penalties or ‘minimum damages’ are provided as a means of encouraging suits where the amounts involved might otherwise be too small. Where a class action is brought, this additional encouragement is not necessary. A statutory class action for actual damages would still be permissible” (Sponsor’s Mem, Bill Jacket, L 1975, ch 207).

Hence, the final bill, which was passed by the Legislature and approved by the Governor on June 17, 1975, was the result of a compromise among competing interests.

Within weeks of passage of the class action statute, the Legislature undertook to amend the Donnelly Act. Before 1975, General Business Law § 340 (5) permitted only the recovery of actual damages. After a report was issued by a special grand jury investigating the anticompetitive practices of the petroleum industry in the early 1970’s, the Attorney General recommended a bill increasing penalties for violations of the Donnelly Act (see Mem of Dept of Law, Bill Jacket, L 1975, ch 333). Specifically, the bill added the treble damages provision and provided for costs and attorneys’ fees in General Business Law § 340 (5), while increasing the fines and criminal punishment measures contained in General Business Law § 341. According to the Attorney General:

“The provision for the recovery of treble damages in civil actions will not only serve as an additional deterrent to violations, and increase recoveries by public agencies, but will also eliminate the additional expense and cumbersome duplication of effort involved in bringing separate actions under the federal antitrust laws after a violation of the Donnelly Antitrust Act has been established (for example, by a criminal conviction)” (id.).

The legislation amending section 340 (5) and section 341 was enacted on July 1, 1975.

Although we have never construed the term “penalty” within the meaning of CPLR 901 (b), nor have we had occasion to characterize the treble damages provision of the Donnelly Act, we have articulated various rules regarding the identification of penalties in other contexts. For example, this Court has stated that, where a statute expressly denominates an enhanced damages provision to be compensatory in nature, it will not be deemed a penalty (see Bogartz v Astor, 293 NY 563, 565 [1944] [double payment recoverable under Workmen’s Compensation Law § 14-a not a penalty because the statute referred to “double compensation”]; Cox v Lykes Bros., 237 NY 376, 379 [1924] [double payment available to seamen for late wages under federal statute not a penalty because the statute expressly provided that such compensation “shall be recoverable as wages”]). Furthermore, we have found that when used in a statute of limitations, “[t]he words ‘penalty or forfeiture’ . . . refer to something imposed in a punitive way for an infraction of a public law and do not include a liability created for the purpose of redressing a private injury, even though the wrongful act be a public wrong and punishable as such” (Sicolo v Prudential Sav. Bank of Brooklyn, N.Y., 5 NY2d 254, 258 [1959]).

We have also indicated that the determination of whether a certain provision constitutes a penalty may vary depending on the context. In Cox, then-Judge Cardozo wrote: “We are to remember that the same provision may be penal as to the offender and remedial as to the sufferer. The nature of the problem will determine whether we are to take one viewpoint or the other” (Cox, 237 NY at 380 [citations omitted]; see also Life & Casualty Ins. Co. of Tenn. v McCray, 291 US 566, 574 [1934, Cardozo, J.] [“ ‘Penalty’ is a term of varying and uncertain meaning”]).

Judge Cardozo’s observations in Cox are particularly relevant to this case. It is evident that by including the penalty exception in CPLR 901 (b), the Legislature declined to make class actions available where individual plaintiffs were afforded sufficient economic encouragement to institute actions (through statutory provisions awarding something beyond or unrelated to actual damages), unless a statute expressly authorized the option of class action status. This makes sense, given that class actions are designed in large part to incentivize plaintiffs to sue when the economic benefit would otherwise be too small, particularly when taking into account the court costs and attorneys’ fees typically incurred. Therefore, the term “penalty,” as used for purposes of the class action scheme, has broader application than that given in Sicolo for statute of limitations purposes.

The antitrust treble damages statute also does not state that such damages are compensatory (compare Bogartz, 293 NY at 565). Nor does its legislative history clearly indicate a compensatory purpose. Read together, we conclude that Donnelly Act threefold damages should be regarded as a penalty insofar as class actions are concerned. Although one third of the award unquestionably compensates a plaintiff for actual damages, the remainder necessarily punishes antitrust violations, deters such behavior (the traditional purposes of penalties) or encourages plaintiffs to commence litigation — or some combination of the three. But we need not break down the remaining damages into specific categories for purposes of determining whether it is a penalty under CPLR 901 (b). Where a statute is already designed to foster litigation through an enhanced award, CPLR 901 (b) acts to restrict recoveries in class actions absent statutory authorization.

It is notable that the Legislature added the treble damages provision to the Donnelly Act shortly after having adopted CPLR 901 (b). Clearly, the Legislature was aware of the requirement of making express provision for a class action when drafting penalty statutes, and could have included such authorization in General Business Law § 340. In sum, it lies with the Legislature to decide whether class action suits are an appropriate vehicle for the award of antitrust treble damages. Indeed, the Legislature has contemplated adding such authorization on a number of occasions.

We are not persuaded that the outcome of this case is controlled by statements in United States Supreme Court decisions describing the federal antitrust treble damages counterpart as being remedial in nature (see e.g. American Soc. of Mechanical Engineers, Inc. v Hydrolevel Corp., 456 US 556, 575 [1982]; Brunswick Corp. v Pueblo Bowl-O-Mat, Inc., 429 US 477, 485-486 [1977]; but see Texas Industries, Inc. v Radcliff Materials, Inc., 451 US 630, 639 [1981] [“The very idea of treble damages reveals an intent to punish past, and to deter future, unlawful conduct, not to ameliorate the liability of wrongdoers.”]). Although we generally construe the Donnelly Act in light of federal antitrust case law, it is also well settled that we will interpret our statute differently “where State policy, differences in the statutory language or the legislative history justify such a result” (Anheuser-Busch, Inc. v Abrams, 71 NY2d 327, 335 [1988]). To the extent there is any conflict, this case highlights such distinctions.

As an initial matter, none of these United States Supreme Court decisions considered whether treble damages should be considered a “penalty” for purposes of a particular statute. More importantly, Federal Rules of Civil Procedure rule 23, the federal class action provision, does not contain a limitation similar to that found in CPLR 901 (b). Since this appeal requires us to view General Business Law § 340 (5)’s treble damages provision in light of the limitation in CPLR 901 (b), we are presented with a state law question that federal precedent is not very helpful in resolving.

Finally, we decline to reach the issue of whether Sperry may maintain a class action under the Donnelly Act by forgoing treble damages in favor of actual damages. This issue is not properly before us because Sperry has consistently sought treble damages throughout this litigation and has not previously attempted to waive them to pursue only actual damages.

Turning to the unjust enrichment cause of action, Sperry argues that the courts below erred in dismissing this cause of action on the basis that no privity existed between Sperry and defendants. It is well settled that “[t]he essential inquiry in any action for unjust enrichment or restitution is whether it is against equity and good conscience to permit the defendant to retain what is sought to be recovered” (Paramount Film Distrib. Corp. v State of New York, 30 NY2d 415, 421 [1972], cert denied 414 US 829 [1973]). While we agree with Sperry that a plaintiff need not be in privity with the defendant to state a claim for unjust enrichment, we nevertheless conclude that such a claim does not lie under the circumstances of this case. Here, the connection between the purchaser of tires and the producers of chemicals used in the rubber-making process is simply too attenuated to support such a claim. Additionally, in this situation it is not appropriate to substitute unjust enrichment to avoid the statutory limitations on the cause of action created by the Legislature.

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

Chief Judge Kaye and Judges Ciparick, Read, Smith and Pigott concur; Judge Jones taking no part.

Order affirmed, with costs.

      . Uniroyal Chemical Company, Inc. and Uniroyal Chemical Company, Ltd. are wholly owned subsidiaries of Crompton Corporation, now known as Chemtura Corporation. Bayer AG and its associated companies, Bayer Corporation, Rhein Chemie Rheinau GmbH and Rhein Chemie Corporation are no longer parties to this appeal.

      . The lawsuit has not yet been certified as a class action under CPLR article 9.

      . Sperry no longer seeks recovery under General Business Law § 349.

      . Before the 1975 amendment, General Business Law § 341 provided that an individual convicted of violating the Donnelly Act was guilty of a misdemeanor, punishable by a fine not exceeding $20,000 and/or imprisonment for not longer than one year. A corporation was punishable by a fine of not more than $50,000. Under the amendment, convicted individuals would be guilty of a class E felony and punished by a fine not exceeding $100,000 and/or imprisonment for up to four years. A corporation would face a fine of up to $1 million. While these fines are clearly penalties, they are not the types of penalties contemplated by CPLR 901 (b) because they are not recoverable in a private civil action.

      . Federal antitrust provisions, since their inception in 1890, have always provided for the recovery of threefold damages in civil lawsuits (see Clayton Act § 4 [15 USC § 15]; see also Brunswick Corp. v Pueblo Bowl-O-Mat, Inc., 429 US 477, 486 n 10 [1977]). In contrast, although the Donnelly Act dates back to 1899, treble damages were not added until much later.

      . Former Civil Practice Act § 49 (3) provided a three-year statute of limitations for penalties or forfeitures.

      . Although General Business Law § 342-b contemplates that the Attorney General may bring class actions on behalf of governmental entities, General Business Law § 340, in contrast, makes no reference to class actions for private litigants.

      . In 1973 and 1974, bills died in committee that would have permitted class actions for the recovery of treble damages (see 1973 NY Senate-Assembly Bill S 3544, A 4832; 1974 NY Senate-Assembly S 3544, A 4832). Similarly, in 1975, while the Legislature was considering the treble damages bill that was eventually enacted, a separate proposal (1975 NY Assembly Bill A 1215) would have expressly permitted class actions. More recently, bills to amend the Donnelly Act to create a class action provision in General Business Law § 340 (7) have been considered a number of times (see 2002 NY Assembly Bill A 11124; 2003 NY Assembly Bill A 5158; 2005 NY Assembly Bill A 663). The same proposal is currently pending (see 2007 NY Assembly Bill A 396). Under the proposed amendment, General Business Law § 340 (7) would provide: “Any damages recoverable pursuant to this section may be recovered in any action which a court may authorize to be brought as a class action pursuant to article nine of the civil practice law and rules.”


author: Chief Judge Kaye. Smith, J.

text:
    [864 NE2d 44, 832 NYS2d 120]
    The People of the State of New York, Appellant, v Jimmy Tzitzikalakis, Respondent.
    Argued January 2, 2007;
    decided February 15, 2007

      POINTS OF COUNSEL

      Robert M. Morgenthau, District Attorney, New York City (Paula-Rose Stark and Mark Dwyer of counsel), for appellant.
    Since defendant fraudulently induced payment of $950,136 from the City, he stole that entire amount. In restitution, defendant was not entitled to any credit to offset that amount except to the extent that he was able to document his actual expenditures. (People v Horne, 97 NY2d 404; People v Consalvo, 89 NY2d 140; People v Fuller, 57 NY2d 152; People v Thigpen, 60 AD2d 860; People v Feldman, 204 AD2d 347; People v Kim, 91 NY2d 407; People v Francis L.M., 278 AD2d 919; People v David N., 140 AD2d 460; People v Bennett, 79 NY2d 464; Smith v Brady, 17 NY 173.)

      Law Offices of Gerald L. Shargel, New York City (Ross M. Kramer, Gerald L. Shargel and Henry E. Mazurek of counsel), for respondent.
    I. The hearing court violated Mr. Tzitzikalakis’ due process rights by failing to follow the substantive and procedural requirements for determining restitution under Penal Law § 60.27 and Criminal Procedure Law § 400.30. (People v Young, 163 Misc 2d 72; People v Consalvo, 89 NY2d 140; People v Ashley, 162 AD2d 883; People v Fuller, 57 NY2d 152; People v Thigpen, 60 AD2d 860; People v Horne, 97 NY2d 404; People v Lambert, 221 AD2d 1015; People v Stacey, 173 AD2d 960; People v Kom, 120 Misc 2d 630; People v Crossley, 134 Misc 2d 742.) II. The trial court violated Penal Law § 60.27 by not requiring the People to prove the value of actual loss sustained by the City, accounting for the value of materials and services provided by defendant, and by precluding defendant from introducing his own evidence of the goods and services provided. (People v Young, 163 Misc 2d 72; People v Consalvo, 89 NY2d 140; People v Calvi, 224 AD2d 705.)
   OPINION OF THE COURT

Chief Judge Kaye.

Defendant was the principal of Foundation Construction Consultants, a company that completed a number of projects for the City of New York pursuant to a contract with the city’s Department of Citywide Administrative Services (DCAS). These projects included courtroom construction at the Queens Criminal Court and lighting work at Two Lafayette Street in Manhattan. Between 1996 and 1998, the city paid Foundation approximately $2,700,000 for its work under the contract. A subsequent investigation, however, revealed that defendant had submitted numerous false invoices purportedly reflecting amounts billed by subcontractors.

Defendant was charged with grand larceny in the second degree, attempted grand larceny in the second degree, and 26 counts of both criminal possession of a forged instrument in the second degree and falsifying business records in the first degree. Defendant pleaded guilty to grand larceny in the second degree and one count of falsifying business records in the first degree, in full satisfaction of the indictment. Supreme Court sentenced him to 1 to 3 years for grand larceny and ordered restitution with a conditional discharge for falsifying business records.

At a restitution hearing to determine the amount of the city’s out-of-pocket loss, the sole witness was Christine Carl, a confidential investigator for the city Department of Investigation. Carl testified that, in order to be paid under the DCAS contract, defendant had to submit periodic payment requests with supporting invoices from subcontractors. Once a payment request with supporting documentation was received, the DCAS resident engineer would review the request and certify that the work had been completed and the materials supplied. If the engineering unit signed off on the request, the audits and accounts unit would review the request to ensure that the total payment matched the supporting documentation, and payment would be made.

Carl further explained that, as a result of her investigation, she determined that a number of defendant’s invoices were falsified. In calculating the city’s loss, she subtracted from the face amount of these invoices the actual costs reported to her by the subcontractors; where the subcontractor provided her with a range of actual costs (for example, $40,000 to $50,000), she subtracted the higher amount. However, in the case of two of the subcontractors — Vack Electric and Essex Glass — Carl included the full face amount of the invoices because neither company existed at the time it allegedly provided the goods or services reflected on the invoices. By Carl’s calculations, the city’s out-of-pocket loss was $340,143.

On cross-examination, defendant attempted to inquire as to whether the work and materials reflected on the invoices had in fact been provided, but the court precluded this inquiry. The court also refused to allow defendant’s evidence of the fair market value of the materials shown on the invoices, explaining that it would accept only evidence documenting defendant’s actual expenditures in connection with completing those projects. The court reasoned that the People were required to show only the face amount of the falsified invoices the city paid. The burden of proving offsets then fell to defendant and could be satisfied only through evidence documenting costs actually incurred. Thus, according to the hearing court, the prosecution’s allowance of setoffs for the subcontractors’ costs was an act of generosity, not a legal requirement.

Following the hearing, the court issued a written decision adopting the restitution amount proffered by the prosecution, $340,143. In that decision, the court reiterated its view that the People’s burden of proof does not require any recognition of the value of goods or services actually delivered by defendant. That burden fell to defendant and was not satisfied. On appeal, defendant argued that the hearing court violated Penal Law § 60.27 and CPL 400.30 by improperly shifting the burden of proving the city’s out-of-pocket loss to him. He also asserted that the court erred in precluding evidence of the fair market value of the goods and services he provided to the city under the contract. The Appellate Division agreed and ordered a new restitution hearing, noting that the result was dictated by the plain statutory language assigning the burden of proof to the People. We now affirm.

Restitution — seeking to ensure that an offender’s punishment includes making the victim whole — has been a part of New York’s criminal justice system since at least 1910 (see People v Amorosi, 96 NY2d 180, 183 [2001]; People v Fuller, 57 NY2d 152, 157 [1982]). While long available to crime victims, restitution has become more prevalent over the past quarter-century (see People v Hall-Wilson, 69 NY2d 154, 156-157 [1987]), and courts since 1983 have been required to consider including restitution as part of the sentence imposed upon a person convicted of an offense (see id. at 157; Penal Law § 60.27 [1]).

Restitution is “the sum necessary to compensate the victim for out-of-pocket losses” (People v Consalvo, 89 NY2d 140, 144 [1996]; see also Penal Law § 60.27 [1]). Thus, courts must consider not only the amount taken by the defendant but also the value of any benefit received by the victim (see Lama Hold ing Co. v Smith Barney, 88 NY2d 413, 421 [1996]; see also United States v Swanson, 394 F3d 520, 528 [7th Cir 2005] [any value conferred on the victim from the criminal transaction “must be deducted from the restitution award”]; Karrell v United States, 181 F2d 981, 987 [9th Cir 1950] [the proper restitution amount is “the sum paid by the (victim) over and above the value of the thing he got”]). Indeed, we have recognized that a restitution order must include appropriate “offsets or other factors which could properly reduce the total amount” (Fuller, 57 NY2d at 158 [internal quotation marks omitted]).

If the court is unable to make a finding as to the actual out-of-pocket loss based on the record before it, or if the defendant so requests, the court must conduct a hearing in accordance with the procedure set forth in CPL 400.30 (Penal Law § 60.27 [2]). CPL 400.30 (4) provides:

“At any hearing held pursuant to this section the burden of proof rests upon the people. A finding as to the amount of the defendant’s gain from the commission of the offense must be based upon a preponderance of the evidence. Any relevant evidence, not legally privileged, may be received regardless of its admissibility under the exclusionary rules of evidence.” (Emphasis added.)

At a restitution hearing, the People bear the burden of proving the victim’s out-of-pocket loss — the amount necessary to make the victim whole — by a preponderance of the evidence (see People v Horne, 97 NY2d 404, 410-411 [2002]; Consalvo, 89 NY2d at 145). To meet that burden, the People must show both components of the restitution equation, the amount taken minus the benefit conferred (see State v Beavers, 300 Mont 49, 53, 3 P3d 614, 616 [2000]; Bowman v State, 698 So 2d 615, 616 [Fla App 1997]; State v Tutor, 538 NW2d 894, 897 [Iowa App 1995]). To hold otherwise would contravene both the words and the intent of the statute, “to prevent the victim from enjoying an unjust enrichment, and the defendant from suffering under an unduly harsh and unreasonable restitution order” (Mem of Attorney General, Bill Jacket, L 1992, ch 618, at 25).

Most often there will be no reductions, as criminals rarely confer a benefit on their victims, and the People may satisfy their burden simply by proof of the amount taken. In this case, however, it is undisputed that the city did receive benefit on the projects for which defendant submitted false invoices. The prosecution, therefore, in making a prima facie showing of the proper restitution amount was required to subtract from the face amount of the improper invoices the value of the benefit conferred in connection with the underlying projects.

Indeed, the prosecution did precisely that with respect to all but two of the falsified invoices. Carl testified that, in determining the restitution amount, she reduced the face value of the invoices by the actual cost of the services rendered by the subcontractors to whom the invoices related. For the Vack and Essex invoices, however, the People failed to introduce any evidence as to the value of defendant’s work on those projects, although the DCAS resident engineer had certified that the work was completed when he approved the payment requests. The People might have satisfied that burden by calling a DCAS engineer or other qualified employee to estimate the benefit conferred, or the costs the city might incur for comparable work, but failed to do so.

We agree with the Appellate Division that legislative reform in this area would be useful, and thus echo that Court’s call for a modification to allow hearing courts the discretion to place the burden of proving offsets on the party best suited to do so— here, undoubtedly, defendant. Until such amendment, however, this burden remains with the prosecution, as plainly specified in the statute. In that the hearing court impermissibly placed the burden on defendant, the Appellate Division correctly concluded that the restitution order must be vacated and the case remitted for a new hearing.

Upon remittal, defendant should be permitted to offer evidence that the work reflected in the invoices was actually done (see Consalvo, 89 NY2d at 145 [“At the hearing, the court must permit the defendant to speak on the out-of-pocket loss . . .”]). CPL 400.30 (4) embodies a liberal evidentiary standard and evidence that defendant completed the work for which he requested payment is certainly relevant to the city’s out-of-pocket loss. We also agree with the Appellate Division that evidence of the fair market value of the materials or services provided by defendant is not in and of itself irrelevant. If defendant can identify with reasonable certainty the materials or services utilized in completing the projects reflected in the invoices, he should be permitted to introduce fair-market-value evidence in opposition to the People’s proof, to be weighed in the competitive-bidding context in which the city contracted for the work at issue.

Accordingly, the order of the Appellate Division, insofar as appealed from, should be affirmed.

Smith, J.

(dissenting). I agree with the majority that the burden of proving offsets in a restitution hearing ought to be on the defendant (majority op at 222-223). I do not agree, however, that the Criminal Procedure Law forbids us from placing that burden where it belongs.

The factual issue the court below had to decide was “the actual out-of-pocket loss to the victim caused by the offense” (Penal Law § 60.27 [2]). The hearing to decide that issue was governed by CPL 400.30 (4), which says: “At any hearing held pursuant to this section the burden of proof rests upon the people.” I take this to mean that the People bear the burden of proof in two senses — the initial burden of producing evidence and the burden of persuasion — on the issue to be decided at the hearing, the amount of the out-of-pocket loss. (The distinction between the two burdens, both sometimes called “burden of proof,” is explained in Fisch, New York Evidence §§ 1086-1088, at 609-612 [2d ed 1977].)

In this case, the burden of persuasion is not in issue; the question is which side had the burden of producing evidence— not on the ultimate issue of the City’s out-of-pocket loss, but on the more specific issue of the value of the performance defendant furnished. We all agree that that burden should be on defendant, “the party best suited” to discharge it (majority op at 223), but the majority concludes, wrongly in my view, that the statute places it on the People.

The statute does place on the People the initial burden of producing evidence sufficient to establish a prima facie case on the ultimate issue: If the People fail to produce such evidence at the hearing, the issue must be decided in defendant’s favor. But that does not mean the People bear a like burden as to every narrower factual issue that could affect the outcome of the hearing. It is a basic principle that “depending upon the status of the evidence in the record at any particular time, the burden of producing evidence during the trial may shift from one party to the other and back again” (Fisch § 1088, at 611-612; see e.g. Matter of Philip M., 82 NY2d 238, 244 [1993]). A statute placing “the burden of proof’ on one party (here, the People) should not be read as repealing this principle.

To take a simple example: Suppose the People produce evidence that a defendant snatched a purse containing $20. Must the People also come forward with evidence showing that the defendant never returned any of the money? Of course not. Once the theft of $20 has been proved, the People have made a prima facie case, and if the defendant wants a finding that he returned some of the money, he must come forward with evidence showing that he did so. Placing this burden upon him does not violate the statute, but merely recognizes that, in showing the theft of $20, the People have discharged the initial burden of producing evidence that the statute places on them.

This case is fundamentally the same. The People produced evidence that defendant had obtained, through false invoices, a sum exceeding $950,000. That established the People’s prima facie case. As the hearing judge observed, the People could have stopped there and left it to defendant to produce evidence as to what, if anything, he gave New York City in return for its money. The People, acting with appropriate professionalism, went beyond this, and placed before the hearing court such information as they had about what defendant had provided, thus reducing the restitution amount to $340,143. In doing so, the People were bearing part of defendant’s burden for him; while of course they could not have concealed the information, they could have left the task of putting it into evidence to defendant.

The majority holds that the People had to go farther than they did — that they had to seek out and put before the court proof of all “the benefit conferred” by defendant on the City (majority op at 222). This is evidence favorable to defendant that defendant was in a better position to supply than the People were. In concluding that the statute compels this misallocation of the burden, the majority gives the statute a needlessly broad reading.

Judges Ciparick, Graffeo and Pigott concur with Chief Judge Kaye; Judge Smith dissents in a separate opinion in which Judge Read concurs; Judge Jones taking no part.

Order, insofar as appealed from, affirmed.

      . The legislative history clarifies that the restitution amount may not be only the value of the property taken by the defendant. Section 60.27 of the Penal Law was designed “to require the sentencing court to determine and fix the amount of restitution and reparation based upon the dollar amount of the fruits of the offense and the actual out-of-pocket loss to the crime victim, without respect to . . . the extent to which [the defendant] profited by the offense.” (Governor’s Program Bill Mem, Bill Jacket, L 1992, ch 618, at 21.)

      . The People’s burden of proof encompasses both the burden of producing evidence sufficient to establish a prima facie case of the proper restitution amount (the out-of-pocket loss, which includes appropriate reductions) as well as the burden of persuasion — that is, the ultimate burden of convincing the hearing court, after all the evidence is submitted, that its restitution figure is, more likely than not, correct (see Prince, Richardson on Evidence §§ 3-201, 3-206 [Farrell 11th ed]). The dissent agrees that the People bear the burden of proving the victim’s out-of-pocket loss but implies that this amount does not include the value of the benefit conferred on the victim. Such definition of out-of-pocket loss is unsupported by both case law and legislative history. We agree with the dissent, however, that, once the People have established a prima facie case of the victim’s out-of-pocket loss, the burden of going forward falls to the defendant to offer evidence contradicting the People’s calculation (see id. § 3-202).

      . Buttressing this conclusion is CPL 400.30 (4)’s mandate that, in seeking a criminal fine, the People must prove the defendant’s “gain” by a preponderance of the evidence. Gain is defined as “the amount of money or the value of property derived from the commission of the crime, less the amount of money or the value of property returned to the victim of the crime” (Penal Law § 80.00 [2] [emphasis added]). Thus, gain and out-of-pocket loss both contemplate amount taken minus value conferred.