author: Stein, J.

text:
    [47 NE3d 463, 27 NYS3d 97]
    In the Matter of Monarch Consulting, Inc., et al., Respondents, v National Union Fire Insurance Company of Pittsburgh, PA, Appellant. In the Matter of National Union Fire Insurance Company of Pittsburgh, PA, Appellant, v Priority Business Services, Inc., Formerly Known as Inland Valley Staffing Services and Another, Doing Business as Priority Staffing, Respondent. In the Matter of National Union Fire Insurance Company of Pittsburgh, PA, Appellant, v Source One Staffing, LLC, Respondent.
    Argued January 7, 2016;
    decided February 18, 2016

      POINTS OF COUNSEL

      Sidley Austin LLP, Washington, D.C. {Peter D. Keisler, of the District of Columbia bar, admitted pro hac vice, and Paul J. Zidlicky, of the District of Columbia bar, admitted pro hac vice, of counsel), and Sidley Austin LLP, New York City {Andrew W. Stern, Nicholas P. Crowell, Eamon P. Joyce and Benjamin F. Burry of counsel), for appellant in the first, second and third above-entitled proceedings.
    I. Respondents’ basis for challenging arbitration affects the formation of the entire contract, and therefore must be decided by the arbitrators. (United States Fire Ins. Co. v National Gypsum Co., 101 F3d 813; Matter of Diamond Waterproofing Sys., Inc. v 55 Liberty Owners Corp., 4 NY3d 247; Preston v Ferrer, 552 US 346; Buckeye Check Cashing, Inc. v Cardegna, 546 US 440; Rent-A-Center, West, Inc. v Jackson, 561 US 63; AT&T Technologies, Inc. v Communications Workers, 475 US 643; First Options of Chicago, Inc. v Kaplan, 514 US 938.) II. The McCarran-Ferguson Act does not “reverse-preempt” the Federal Arbitration Act in this case. (Humana Inc. v Forsyth, 525 US 299; Ojo v Farmers Group, Inc., 565 F3d 1175; Hamilton Life Ins. Co. of N.Y. v Republic Natl. Life Ins. Co., 408 F2d 606; In re Arbitration Between National Union Fire Ins. Co. of Pittsburgh, P.A. v Personnel Plus, Inc., 954 F Supp 2d 239; Preston v Ferrer, 552 US 346; Mitsubishi Motors Corp. v Soler Chrysler-Plymouth, Inc., 473 US 614; St. Paul Fire & Mar. Ins. Co. v Courtney Enters., Inc., 270 F3d 621; Kong v Allied Professional Ins. Co., 750 F3d 1295; Miller v National Fid. Life Ins. Co., 588 F2d 185.) III. There are substantial grounds for the arbitrators to conclude that section 11658 of the California Insurance Code does not invalidate the agreements to arbitrate. (AT&T Technologies, Inc. v Communications Workers, 475 US 643; Mitsubishi Motors Corp. v Soler Chrysler-Plymouth, Inc., 473 US 614; Commonwealth Coatings Corp. v Continental Casualty Co., 393 US 145.)

      Anderson Kill, P.C., New York City {Jeffrey E. Glen, Edward J. Stein and Rene F. Hertzog of counsel), Roxborough, Pomerance, Nye & Adreani, LLP, Woodland Hills, California {Nicholas Roxborough, of the California bar, admitted pro hac vice, of counsel), Pillsbury Winthrop Shaw Pittman LLP, New York City {Alexander D. Hardiman of counsel), and Bond, Schoeneck & King PLLC, Syracuse {Clifford G. Tsan and Suzanne M. Messer of counsel), for respondents in the first, second and third above-entitled proceedings.
    I. California insurance law and regulation requires filing and pre-approval of arbitration provisions in workers’ compensation insurance agreements. (Cap Gemini Ernst & Young, U.S., L.L.C. v Nackel, 346 F3d 360; Beatie & Osborn LLP v Patriot Scientific Corp., 431 F Supp 2d 367; Matter of Allstate Ins. Co. [Stolarz—New Jersey Mfrs. Ins. Co.], 81 NY2d 219; Matter of New York City Council v City of New York, 4 AD3d 85; Humana Inc. v Forsyth, 525 US 299; In re Arbitration Between National Union Fire Ins. Co. of Pittsburgh, P.A. v Personnel Plus, Inc., 954 F Supp 2d 239; Hubbard v SoBreck, LLC, 554 F3d 742; St. Paul Fire & Mar. Ins. Co. v Courtney Enters., Inc., 270 F3d 621.) II. The McCarran-Ferguson Act preserves California’s regulatory scheme from Federal Arbitration Act preemption including California regulations that render unenforceable arbitration requirements contained in unfiled and unapproved insurance agreements. (SEC v National Securities, Inc., 393 US 453; Humana Inc. v Forsyth, 525 US 299; Stolt-Nielsen S. A. v Animal-Feeds Int’l Corp., 559 US 662; Preston v Ferrer, 552 US 346; Buckeye Check Cashing, Inc. v Cardegna, 546 US 440; Prima Paint Corp. v Flood & Conklin Mfg. Co., 388 US 395; Matter of Diamond Waterproofing Sys., Inc. v 55 Liberty Owners Corp., 4 NY3d 247; United States v South-Eastern Underwriters Assn., 322 US 533; Department of Treasury v Fabe, 508 US 491; Stephens v American Intl. Ins. Co., 66 F3d 41.) III. Even were the Federal Arbitration Act applicable here, the determination of whether the arbitration provisions of the Payment Agreements are enforceable would be for the court, and not the arbitrators, to decide. (First Options of Chicago, Inc. v Kaplan, 514 US 938; Matter of Smith Barney Shearson v Sacharow, 91 NY2d 39; AT&T Technologies, Inc. v Communications Workers, 475 US 643; Howsam v Dean Witter Reynolds, Inc., 537 US 79; Prima Paint Corp. v Flood & Conklin Mfg. Co., 388 US 395; Buckeye Check Cashing, Inc. v Cardegna, 546 US 440.) IV. Alternatively, California’s strong public policy establishing the California Department of Insurance as the gateway agency for any use of arbitration in workers’ compensation policies is preserved under the savings clause of section 2 of the Federal Arbitration Act.

      Amy R. Bach, of the California bar, admitted pro hac vice, and Whiteman Osterman & Hanna LLP, Albany {Jean F. Gerbini of counsel), for United Policyholders, amicus curiae.
    The insurers’ Payment Agreements are illegal under California insurance law and void as a matter of public policy. (Matter of New York Pub. Interest Research Group v New York State Dept.

      of Ins., 66 NY2d 444; California Automobile Assn. Inter-Insurance Bureau v Maloney, 341 US 105; Prudential Ins. Co. v Benjamin, 328 US 408; Osborn v Ozlin, 310 US 53; O’Gorman & Young, Inc. v Hartford Fire Ins. Co., 282 US 251.)

      Kamala D. Harris, Attorney General, Los Angeles, California (Stephen Lew, Edward C. DuMont, Kathleen A. Kenealy, Paul D. Gifford and Joshua A. Klein of counsel), for Dave Jones, amicus curiae.
    I. Because the Payment Agreements modified the parties’ policy obligations, National Union Fire Insurance Company of Pittsburgh, PA could not issue the Agreements in California without satisfying the prefiling requirements of California law. (Matter of New York City Council v City of New York, 4 AD3d 85; Employers Ins. of Wausau v Granite State Ins. Co., 330 F3d 1214; Washington v California City Corr. Ctr., 871 F Supp 2d 1010.) II. The McCarran-Ferguson Act requires general arbitration principles to give way in favor of the state’s special, congressionally recognized power to regulate insurance. (Autry v Northwest Premium Servs., Inc., 144 F3d 1037; SEC v National Securities, Inc., 393 US 453; Merchants Home Delivery Serv., Inc. v Frank B. Hall & Co., Inc., 50 F3d 1486; Stephens v American Intl. Ins. Co., 66 F3d 41; Washburn v Cocoran, 643 F Supp 554; Group Life & Health Ins. Co. v Royal Drug Co., 440 US 205; Humana Inc. v Forsyth, 525 US 299; Mutual Reins. Bur. v Great Plains Mut. Ins. Co., Inc., 969 F2d 931; In re Arbitration Between National Union Fire Ins. Co. of Pittsburgh, P.A. v Personnel Plus, Inc., 954 F Supp 2d 239; St. Paul Fire & Mar. Ins. Co. v Courtney Enters., Inc., 270 F3d 621.)
   OPINION OF THE COURT

Stein, J.

In order to resolve whether the parties’ disputes pertaining to certain workers’ compensation insurance Payment Agreements should be submitted to arbitration, we must make a threshold determination of whether the McCarran-Ferguson Act (15 USC § 1011 et seq.) precludes application of the Federal Arbitration Act (9 USC § 1 et seq. [FAA]) in relation to California Insurance Code § 11658. We conclude that, because application of the FAA does not “invalidate, impair, or supersede” (15 USC § 1012 [b]) section 11658, the McCarranFerguson Act is not implicated, and the FAA applies to the parties’ Payment Agreements. Further, under FAA rules of sever-ability, the question of the enforceability of the Payment Agreements and the arbitration clauses contained therein should be submitted to arbitration. We, therefore, reverse the Appellate Division order.

L

Three statutes are at the crux of this dispute — the FAA, the McCarran-Ferguson Act, and California Insurance Code § 11658.

The Federal Arbitration Act

The FAA was enacted by Congress “in response to widespread judicial hostility to arbitration” (American Express Co. v Italian Colors Restaurant, 570 US —, —, 133 S Ct 2304, 2308-2309 [2013]), and it aims to “ensure judicial enforcement of privately made agreements to arbitrate” (Dean Witter Reynolds Inc. v Byrd, 470 US 213, 219 [1985]). Under the FAA, an arbitration provision contained in any contract involved in interstate commerce “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract” (9 USC § 2). “This text reflects the overarching principle that arbitration is a matter of contract” and, “consistent with that text, courts must ‘rigorously enforce’ arbitration agreements according to their terms” (American Express Co., 570 US at —, 133 S Ct at 2309, quoting Dean Witter Reynolds Inc., 470 US at 221; see Rent-A-Center, West, Inc. v Jackson, 561 US 63, 67 [2010]). Typically, “the FAA pre[e]mpts state laws [that] ‘require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration’ ” (Volt Information Sciences, Inc. v Board of Trustees of Leland Stanford Junior Univ., 489 US 468, 478-479 [1989], quoting Southland Corp. v Keating, 465 US 1, 10 [1984]; see Preston v Ferrer, 552 US 346, 349-350 [2008]; Allied-Bruce Terminix Cos. v Dobson, 513 US 265, 272 [1995]).

The McCarran-Ferguson Act

In certain circumstances, however, the McCarran-Ferguson Act exempts state laws from FAA preemption {see 15 USC § 1012 [b]; see generally CompuCredit Corp. v Greenwood, 565 US —, —, 132 S Ct 665, 669 [2012]). In 1944, the United States Supreme Court held that the federal government has the power, under the Commerce Clause, to regulate the insurance industry {see United States v South-Eastern Underwriters Assn., 322 US 533, 553 [1944]). Prompted by concern that the Supreme Court’s ruling in South-Eastern Underwriters would interfere with state regulation of the business of insurance, Congress enacted the McCarran-Ferguson Act to limit congressional preemption in that arena (see Humana Inc. v Forsyth, 525 US 299, 306 [1999]; Department of Treasury v Fabe, 508 US 491, 500 [1993]). The McCarran-Ferguson Act declared that “the continued regulation and taxation by the several States of the business of insurance is in the public interest, and . . . silence on the part of the Congress shall not be construed to impose any barrier to the regulation or taxation of such business by the several States” (15 USC § 1011). Thus, under the McCarran-Ferguson Act, “[n]o Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance . . . unless such Act specifically relates to the business of insurance” (15 USC § 1012 [b]). Stated otherwise, “when Congress enacts a law specifically relating to the business of insurance, that law controls,” but the McCarranFerguson Act precludes application of — or, in other words, reverse preempts — a federal law in the face of a state law regulating the business of insurance where “the federal measure does not ‘specifically relat[e] to the business of insurance,’ and would ‘invalidate, impair, or supersede’ the State’s law” (Humana Inc., 525 US at 306, 307, quoting Department of Treasury, 508 US at 501; see 15 USC § 1012 [b]).

California Insurance Code § 11658

California law requires most employers to maintain workers’ compensation insurance (see Cal Lab Code § 3700). The insurers that provide workers’ compensation coverage to employers are regulated by the California Department of Insurance (the Department), its Commissioner, and the Workers’ Compensation Insurance Rating Bureau of California (WCIRB) (see Cal Ins Code §§ 11750.3, 11751, 12921). The WCIRB, among other things, provides statistics and rating information, formulates rules and regulations in connection with insurance rates, and “examine[s] policies, daily reports, endorsements or other evidences of insurance for the purpose of ascertaining whether they comply with the provisions of law and . . . make[s] reasonable rules governing their submission” (Cal Ins Code § 11750.3 [e]; see [a]-[d]).

Of particular relevance here, under California Insurance Code § 11658 (a),

“[a] workers’ compensation insurance policy or endorsement shall not be issued by an insurer to any person in [California] unless the insurer files a copy of the form or endorsement with the rating organization [WCIRB] . . . and 30 days have expired from the date the form or endorsement is received by the commissioner from the rating organization without notice from the commissioner.”

In other words, workers’ compensation insurers must file copies of their policies, endorsements, and forms with the WCIRB prior to issuing the policies; after performing an initial review, the WCIRB sends the policies to the Department for the Commissioner’s review (see Cal Ins Code § 11750.3 [e]; Cal Code Regs tit 10, §§ 2218, 2509.30; see also Cal Ins Code § 11735). If, within 30 days, the Commissioner rejects a policy, form, or endorsement as failing to comply with the requirements of the Insurance Law, “it is unlawful for the insurer to issue any policy or endorsement in that form” (Cal Ins Code § 11658 [b]). California regulations also provide that “[n]o collateral agreements modifying the obligation of either the insured or the insurer shall be made unless attached to and made a part of the policy” (Cal Code Regs tit 10, § 2268).

Sometime before 2011, the Department became aware that workers’ compensation insurers were entering into agreements with their insureds after the initial policy agreements, and that these subsequent agreements were not being filed with the WCIRB or the Department. As reflected in a February 2011 letter written by a Department staff attorney to the president of the WCIRB, the Department took the position that these agreements were required by law to be filed with the State. The Department also expressed its view that arbitration provisions contained in unfiled agreements may be considered unenforceable absent proof that the insured expressly agreed to arbitration when it initially entered into the policy agreement.

In apparent accordance with that view, in 2011, the California Legislature enacted California Insurance Code § 11658.5 (see 2011 Cal Stat, ch 566, § 2 [Senate Bill 684]). That statute provides that arbitration provisions in workers’ compensation policies or endorsements must be disclosed to each potential insured contemporaneously with any quote for insurance coverage, together with a notice that choice of law or venue and forum-selection clauses in the policies may dictate a jurisdiction other than California, and that such terms are negotiable (see Cal Ins Code § 11658.5 [a] [1]). If the insurer fails to comply with the disclosure requirements, the remedy is “a default to California as the choice of law and forum for resolution of disputes arising in California” (Cal Ins Code § 11658.5 [c]). Critically, however, this section applies only to insurance policies “issued or renewed on or after July 1, 2012” (Cal Ins Code § 11658.5 [e]). Prior to the enactment of section 11658.5, and during all times relevant to this appeal, the California Insurance Code and regulations were silent with respect to arbitration provisions in workers’ compensation insurance policies and endorsements.

IL

Turning to the facts of the appeal before us, National Union Fire Insurance Company of Pittsburgh, PA, is an insurance company licensed in Pennsylvania, with its principal place of business in New York. At various times between 2003 and 2010, National Union issued workers’ compensation policies to three different California-based employers — Monarch Consulting, Inc., Priority Business Services, Inc., and Source One Staffing, LLC. After the execution of the policies — which were filed with the WCIRB and the Commissioner of Insurance without objection — National Union and the insureds, respectively, entered into various “Payment Agreements.” In accordance with the Agreements, National Union would extend credit to the insureds by deferring payments due under the policies in return for the provision of collateral on behalf of the insureds. The Payment Agreements set forth the particulars of that arrangement and what would occur in the event of a default. National Union concedes that these Payment Agreements were never filed with the State of California. Nevertheless, the parties operated under the Agreements for several years.

Central to this dispute, the Payment Agreements contained arbitration clauses requiring that disputes arising out of the Agreements, if not resolved internally, be submitted to arbitration before a panel of three arbitrators with certain qualifications and experience in the insurance industry. Significantly, the parties agreed that the arbitrators would “have exclusive jurisdiction over the entire matter in dispute, including any question as to its arbitrability.” The Payment Agreements and addenda required that court proceedings concerning arbitration be commenced in New York.

By early 2011, disputes arose between National Union and each of the insureds under the Payment Agreements. Ultimately, three separate proceedings were initiated in Supreme Court, involving a petition or cross petition by National Union to compel arbitration in each case, and a petition by Monarch Consulting to stay arbitration. In the Monarch Consulting and Priority Business proceedings, Supreme Court granted National Union’s petitions to compel arbitration and denied Monarch Consulting’s petition to stay arbitration. In the Source One matter, Supreme Court denied National Union’s petition to compel arbitration, and held that the Payment Agreements were unenforceable.

National Union, Monarch Consulting, and Priority Business appealed their respective adverse orders. Consolidating the appeals, the Appellate Division, with two Justices dissenting, reversed the orders compelling Monarch Consulting and Priority Business to arbitrate, and affirmed the order denying arbitration in the Source One matter (123 AD3d 51, 54 [1st Dept 2014]). The Appellate Division majority determined that, under California law, National Union was required to file the Payment Agreements with the State and that the appropriate penalty for its failure to do so was to decline to enforce the arbitration provisions. In the majority’s view, this result did not contravene the FAA because the McCarran-Ferguson Act precluded its application inasmuch as requiring arbitration would impair and undermine the goals of California Insurance Code § 11658.

The dissenting Justices would have compelled arbitration in each case. The dissent posited that the McCarran-Ferguson Act did not reverse preempt the FAA because the California Insurance Code did not regulate the use of arbitration clauses in workers’ compensation insurance policies and endorsements and, consequently, application of the FAA would not “impair” California law (id. at 79 [Gische, J., dissenting]). In addition, the dissent would have held that, under the FAA, the arbitrators, not the court, should determine whether the Payment Agreements were required to be filed — and any consequences for National Union’s failure to do so — because the insureds challenged the arbitration clauses on a ground that would invalidate the Payment Agreements in their entirety.

National Union now appeals to this Court as of right (see CPLR 5601 [a]). Echoing the views of the dissent below, National Union argues that the McCarran-Ferguson Act does not reverse preempt the FAA — which National Union contends would mandate arbitration — because application of the FAA does not interfere with, or undermine, California Insurance Code § 11658. Assuming we agree, National Union further asserts that the insureds’ challenge to the enforceability of the Payment Agreements is premised upon the validity of those Agreements as a whole and, therefore, must be determined by arbitration.

In response, the insureds — -joined by the California Commissioner of Insurance as amicus curiae — argue that the Payment Agreements and the arbitration clauses are illegal and unenforceable because National Union failed to file them in accordance with California Insurance Code § 11658. The insureds contend that compelling arbitration pursuant to an arbitration clause in an unfiled insurance agreement would undermine the California filing statute and, consequently, the McCarranFerguson Act reverse preempts the FAA. Thus, the insureds argue, the courts may decline to enforce the arbitration provisions in the Payment Agreements. The insureds also claim that, even if the FAA applies, the question of whether the arbitration provisions are enforceable is one for the courts, not arbitrators, to decide.

III.

To resolve the parties’ contentions, we must first determine whether the McCarran-Ferguson Act reverse preempts the FAA. The relevant analysis is a three-part test, pursuant to which the McCarran-Ferguson Act applies if: (1) the federal statute in question does not specifically relate to insurance; (2) the state law at issue was enacted to regulate the business of insurance; and (3) the federal statute at issue would invalidate, impair, or supersede the state law (see 15 USC § 1012 [b]; Humana Inc., 525 US at 307). Here, the first two prongs of this test are satisfied — namely, the FAA does not specifically relate to insurance (see Kong v Allied Professional Ins. Co., 750 F3d 1295, 1303 [11th Cir 2014]; Munich Am. Reins. Co. v Crawford, 141 F3d 585, 590 [5th Cir 1998]; Stephens v American Intl. Ins. Co., 66 F3d 41, 44 [2d Cir 1995]) and California Insurance Code § 11658 was enacted to regulate the business of insurance (see generally Rush Prudential HMO, Inc. v Moran, 536 US 355, 373 [2002]; Union Labor Life Ins. Co. v Pireno, 458 US 119, 129 [1982]). Thus, whether the McCarran-Ferguson Act applies turns on whether application of the FAA — assuming that it would mandate arbitration here — would “invalidate, impair, or supersede” California Insurance Code § 11658 (15 USC § 1012 [b]).

As the Supreme Court explained in Humana Inc., “[t]he term ‘invalidate’ ordinarily means ‘to render ineffective, generally without providing a replacement rule or law’ ” and “the term ‘supersede’ ordinarily means ‘to displace (and thus render ineffective) while providing a substitute rule’ ” (525 US at 307 [citations omitted]). The Supreme Court has interpreted the term “impair” more broadly to mean “ ‘[t]o weaken, to make worse, to lessen in power, diminish, or relax, or otherwise affect in an injurious manner’ ” {id. at 309-310, quoting Black’s Law Dictionary 752 [6th ed 1990]). Although the term “impair” broadens the reach of the McCarran-Ferguson Act beyond federal statutes that directly conflict with a state law regulating insurance, “when application of the federal law would not frustrate any declared state policy or interfere with a State’s administrative regime, the McCarran-Ferguson Act does not preclude its application” {id. at 310).

Applying the above definitions here, the McCarranFerguson Act does not reverse preempt the FAA with respect to California Insurance Code § 11658. This is so because neither section 11658 — nor any other California law which has been brought to our attention — would be invalidated, superseded or impaired by application of the FAA inasmuch as California law did not, at the relevant times, prohibit, limit, or regulate the use or form of arbitration clauses in insurance contracts. The clearest example of a scenario in which reverse preemption occurs is where state law expressly prohibits arbitration of insurance related disputes (see e.g. McKnight v Chicago Tit. Ins. Co., Inc., 358 F3d 854, 857-859 [11th Cir 2004]; Standard Sec. Life Ins. Co. of N.Y. v West, 267 F3d 821, 823 [8th Cir 2001]; Mutual Reins. Bur. v Great Plains Mut. Ins. Co., Inc., 969 F2d 931, 934-935 [10th Cir 1992]; see also Stephens, 66 F3d at 42). As noted previously, at the times in question here, California law did not — and still does not — prohibit arbitration in the insurance context. Nor have the parties alerted us to any California statutes or regulations granting that state’s courts or administrative agencies exclusive jurisdiction over insurance disputes (compare State of Wash., Dept. of Transp. v James Riv. Ins. Co., 176 Wash 2d 390, 400, 292 P3d 118, 123 [2013]; Washburn v Corcoran, 643 F Supp 554, 556 [SD NY 1986]).

As the insureds point out, California courts have consistently found the FAA to be reverse preempted by the McCarranFerguson Act with respect to arbitration agreements in health care service plans (see Zolezzi v PacifiCare of California, 105 Cal App 4th 573, 588 n 11, 129 Cal Rptr 2d 526, 539 n 11 [2003]; Imbler v PacifiCare of California, Inc., 103 Cal App 4th 567, 573, 126 Cal Rptr 2d 715, 719-720, 723 [2002]; Smith v PacifiCare Behavioral Health of California, Inc., 93 Cal App 4th 139, 143, 113 Cal Rptr 2d 140, 142 [2001]). However, the result in those cases was compelled by the existence of a California statute mandating that certain disclosures be contained in arbitration provisions in health care plans (see Cal Health & Safety Code § 1363.1). Thus, in those cases, application of the FAA would have “absolutely preclude[d]” enforcement of the statute “to regulate the wording and organization of . . . arbitration clauses” (Imbler, 103 Cal App 4th at 573, 126 Cal Rptr 2d at 719-720; see Cal Health & Safety Code § 1363.1; Smith, 93 Cal App 4th at 143, 113 Cal Rptr 2d at 142). By contrast, in the workers’ compensation insurance context, California insurance law did not mandate a specific form or content of arbitration clauses, or otherwise restrict their use.

Moreover, although California Insurance Code § 11658 may have required the filing of the Payment Agreements, the purpose of the filing rule is to ensure that the insurance documents comply with the Insurance Code and accompanying regulations — none of which pertained to the use or form of arbitration provisions. Neither the goal of the statute nor its administrative scheme is undermined by applying the FAA. Should the FAA mandate arbitration, the arbitrators can competently determine the question of whether the Payment Agreements, generally, and the arbitration provisions, specifically, are enforceable under California law despite the fact that they were not filed with the State.

We disagree with the insureds’ assertion that application of the FAA would undercut the Department’s authority to review insurance agreements and incentivize violations of the filing requirement. Significantly, the determination of whether California Insurance Code § 11658 applies to the Payment Agreements — and, if so, the consequences of the failure to file them — will be made pursuant to California law regardless of whether arbitration is compelled. Further, whether this issue is resolved by a court or by arbitrators, the question of whether the failure to file invalidates the Payment Agreements will not be determined by the Department, itself. However, should it be so inclined, the Department may pursue an enforcement action against National Union. Thus, permitting arbitration will not undermine the authority of the WCIRB or the Commissioner (cf. Preston, 552 US at 358 [rejecting argument that arbitration of private dispute would undermine role of agency in enforcing statute]). Rather, the insureds’ contention that permitting arbitration would somehow frustrate the filing requirement or allow National Union to escape the consequences of its failure to comply with section 11658 is based on nothing more than their apparent hostility to arbitration.

Our conclusion that the McCarran-Ferguson Act does not reverse preempt the FAA is supported by the weight of the relevant precedent. At least two courts in California have held that the McCarran-Ferguson Act is not triggered by the interaction between the FAA and California Insurance Code § 11658 with respect to arbitration agreements in unfiled insurance documents because the California Insurance Code “does not address the topic of arbitration or provide a procedural framework for resolution of disputes” (Grove Lbr. & Bldg. Supply, Inc. v Argonaut Ins. Co., 2008 WL 2705169, *7, 2008 US Dist LEXIS 51752, *17 [CD Cal, July 7, 2008, No. SA CV 07-1396 AHS(RNBx)]; see Adir Intl. LLC v Travelers Indem. Co. of Connecticut, Cal Super Ct, Los Angeles County, Aug. 21, 2015, Wiley, J., No. BC575513). Likewise, the District Court of the Southern District of New York has held that the McCarranFerguson Act does not reverse preempt the FAA in relation to California Insurance Code § 11658 because the state law and the FAA “address completely different matters” (In re Arbitration Between National Union Fire Ins. Co. of Pittsburgh, P.A. v Personnel Plus, Inc., 954 F Supp 2d 239, 248 [SD NY 2013]). The Eighth Circuit reached a similar conclusion in a dispute involving a filing requirement contained in Texas insurance laws, holding that the enforceability of the unfiled agreement was a question of the underlying merits and the Texas insurance laws were not impaired by enforcement of the agreement to arbitrate (see St. Paul Fire & Mar. Ins. Co. v Courtney Enters., Inc., 270 F3d 621, 625 [8th Cir 2001]; see also American Heritage Life Ins. Co. v Orr, 294 F3d 702, 709 [5th Cir 2002]). We find these cases to be persuasive, and the insureds’ reliance to the contrary on the unpublished decision in Ceradyne, Inc. v Argonaut Ins. Co. to be unavailing in light of that court’s focus on the merits of the parties’ substantive arguments and its failure to address the applicability of the McCarran-Ferguson Act (2009 WL 1526071, *11, 2009 Cal Unpub LEXIS 4375, *31-33 [Cal Ct App, June 2, 2009, No. G039873]; see also American Zurich Ins. Co. v Country Villa Serv. Corp., 2015 WL 4163008, *16, 2015 US Dist LEXIS 89452, *44-46 [CD Cal, July 9, 2015, No. 2:14-cv-03779-RSWL-AS]).

Accordingly, we hold that the McCarran-Ferguson Act does not prevent application of the FAA to the Payment Agreements at issue in this case.

IV.

We must next address whether, under the FAA, the enforceability of the Payment Agreements and their arbitration clauses is a question that should be resolved by arbitrators, or by the court.

“ ‘[Arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he [or she] has not agreed so to submit’ ” (AT&T Technologies, Inc. v Communications Workers, 475 US 643, 648 [1986], quoting Steelworkers v Warrior & Gulf Nav. Co., 363 US 574, 582 [1960]; see First Options of Chicago, Inc. v Kaplan, 514 US 938, 943 [1995]). As the United States Supreme Court has stated, “[Challenges to the validity of arbitration agreements . . . can be divided into two types,” namely, “challenges specifically [to] the validity of the agreement to arbitrate” and “challenges [to] the contract as a whole, either on a ground that directly affects the entire agreement {e.g., the agreement was fraudulently induced), or on the ground that the illegality of one of the contract’s provisions renders the whole contract invalid” (Buckeye Check Cashing, Inc. v Cardegna, 546 US 440, 444 [2006]). “[A]ttacks on the validity of the contract, as distinct from attacks on the validity of the arbitration clause [,] itself, are to be resolved ‘by the arbitrator in the first instance, not by a federal or state court’” (Nitro-Lift Technologies, L.L.C. v Howard, 568 US —, —, 133 S Ct 500, 503 [2012], quoting Preston, 552 US at 349; see Buckeye Check Cashing, Inc., 546 US at 444; Prima Paint Corp. v Flood & Conklin Mfg. Co., 388 US 395, 403-404 [1967]).

The Supreme Court has also held that arbitration agreements must be enforced according to their terms, and that “parties can agree to arbitrate ‘gateway’ questions of ‘arbitrability’” (Rent-A-Center, West, Inc., 561 US at 68-69; see NitroLift Technologies, L.L.C., 568 US at —, 133 S Ct at 503; Buckeye Check Cashing, Inc., 546 US at 445). Such “delegation clauses” are enforceable where “there is ‘clea[r] and unmistakabl[e]’ evidence” that the parties intended to arbitrate arbitrability issues (First Options of Chicago, Inc., 514 US at 944, quoting AT&T Technologies, Inc., 475 US at 649). “When deciding whether the parties agreed to arbitrate a certain matter (including arbitrability), courts generally . . . should apply ordinary state-law principles that govern the formation of contracts” (First Options of Chicago, Inc., 514 US at 944).

Further, “courts treat an arbitration clause as severable from the contract in which it appears and enforce it according to its terms unless the party resisting arbitration specifically challenges the enforceability of the arbitration clause itself” (Granite Rock Co. v Teamsters, 561 US 287, 301 [2010]; see Nitro-Lift Technologies, L.L.C., 568 US at —, 133 S Ct at 503; Rent-A-Center, West, Inc., 561 US at 71; Buckeye Check Cashing, Inc., 546 US at 445). This rule of severability extends to delegation clauses, which are severable from larger arbitration provisions (see Rent-A-Center, West, Inc., 561 US at 71-72; Parnell v Cash-Call, Inc., 804 F3d 1142, 1146 [11th Cir 2015]; Brennan v Opus Bank, 796 F3d 1125, 1133 [9th Cir 2015]). Thus, where a contract contains a valid delegation to the arbitrator of the power to determine arbitrability, such a clause will be enforced absent a specific challenge to the delegation clause by the party resisting arbitration (see Rent-A-Center, West, Inc., 561 US at 71-72).

Here, the crux of the insureds’ challenge to the arbitration provisions is that National Union’s failure to file the Payment Agreements in accordance with California Insurance Code § 11658 renders unenforceable the Payment Agreements and, only by extension, the arbitration provisions. National Union argues that this is, at its core, a challenge to the Payment Agreements, not to the arbitration provisions, and, therefore, is a matter for the arbitrator to decide. Regardless of whether the insureds sufficiently directed their attack to the arbitration provisions, a review of the record reveals that they did not specifically direct any challenge to the delegation clauses empowering the arbitrators to determine gateway questions of arbitrability (see Rent-A-Center, West, Inc., 561 US at 71-72). Those delegation provisions, which state that the arbitrators “have exclusive jurisdiction over the entire matter in dispute, including any question as to its arbitrability,” are valid because the parties “clearly and unmistakably” agreed to arbitrate arbitrability (AT&T Technologies, Inc., 475 US at 649; see First Options of Chicago, Inc., 514 US at 944; Malone v Superior Ct., 226 Cal App 4th 1551, 1560, 173 Cal Rptr 3d 241, 247 [2014]; Gilbert St. Devs., LLC v La Quinta Homes, LLC, 174 Cal App 4th 1185, 1192, 94 Cal Rptr 3d 918, 922-923 [2009]). As the delegation clauses are severable from the remainder of the agreements to arbitrate, we must enforce them according to their terms and, under these circumstances, the question of arbitrability is one for the arbitrators (see Rent-A-Center, West, Inc., 561 US at 71-72).

V

In sum, we hold that the FAA applies to the Payment Agreements because it does not “invalidate, impair, or supersede” the California Insurance Code or any insurance regulations and, consequently, the MeCarran-Ferguson Act is not triggered (15 USC § 1012 [b]). Further, because the parties clearly and unmistakably delegated the question of arbitrability and enforceability of the arbitration clauses to the arbitrators — in provisions that were not specifically challenged by the insureds — the FAA mandates that the arbitration provisions be enforced as written. We, therefore, express no view on whether National Union’s failure to file the Payment Agreements rendered the arbitration clauses unenforceable, because that question should be determined by the arbitrators pursuant to the FAA and the parties’ agreements to arbitrate arbitrability (see AT&T Technologies, Inc., 475 US at 649).

The insureds’ remaining arguments are unpersuasive. Accordingly, the order of the Appellate Division should be reversed, with costs. In the first captioned proceeding, Monarch Consulting’s petition to stay arbitration should be denied and National Union’s cross petition to compel arbitration should be granted. In the second and third captioned proceedings, National Union’s petitions to compel arbitration should be granted.

Judges Pigott, Rivera, Abdus-Salaam and Fahey concur; Chief Judge DiFiore and Judge Garcia taking no part.

Order reversed, with costs, and (1) in Matter of Monarch Consulting, Inc. v National Union Fire Insurance Company of Pittsburgh, PA, petition to stay arbitration denied and cross petition to compel arbitration granted; (2) in Matter of National Union Fire Insurance Company of Pittsburgh, PA v Priority Business Services, Inc., petition to compel arbitration granted; and (3) in Matter of National Union Fire Insurance Company of Pittsburgh, PA v Source One Staffing, LLC, petition to compel arbitration granted.

      . Monarch Consulting Inc., as referenced herein, includes Elite Management, Inc., Brentwood Television Funnies, Inc., Professional Employer Options, Inc., Recurrent Software Solutions, Ahill, Inc., The Accounting Group, LLC, and PES Payroll, IA, Inc.

      . No party to this appeal raises any challenge to the jurisdiction of New York courts.

      . We express no opinion as to whether a different result would be compelled in a case implicating the later-enacted California Insurance Code § 11658.5.

      . Indeed, the California Department of Insurance instituted an enforcement action against Zurich American Insurance Company and Zurich American Insurance Company of Illinois alleging similar violations of California Insurance Code § 11658 by Zurich’s failure to file certain “Deductible Agreements.” That action was settled in 2013 with no penalties or admissions of wrongdoing. Zurich agreed to submit future deductible agreements to the Department of Insurance and allow insureds a one-time opt out of the arbitration provisions in the agreements for certain disputes. The settlement agreement did not, however, prohibit the use of arbitration clauses in filed agreements in the future.


source: Caselaw Access Project

author: Fahey, J.

license: Public Domain

text:
    [47 NE3d 704, 27 NYS3d 425]
    The People of the State of New York, Respondent, v Freddie Thompson, Appellant.
    Argued January 13, 2016;
    decided February 11, 2016

      POINTS OF COUNSEL

      Lynn W.L. Fahey, Appellate Advocates, New York City (A. Alexander Donn of counsel), for appellant.
    When a defendant who was initially sentenced to probation for a violent felony is resentenced to a prison term after violating probation, the date of the original sentencing, rather than the resentencing, determines whether the conviction falls within the 10-year look-back period set forth in Penal Law § 70.04 (1) (b) (iv) for predicate sentencing purposes in a subsequent case. (People v Boyer, 22 NY3d 15; People v Kisina, 14 NY3d 153; Matter of Tall Trees Constr. Corp. v Zoning Bd. of Appeals of Town of Huntington, 97 NY2d 86; People v Sosa, 18 NY3d 436; People v Garcia, 84 NY2d 336; People v Walker, 81 NY2d 661; Matter of Chemical Specialties Mfrs. Assn. v Jorling, 85 NY2d 382; Matter of Darvin M. v Jacobs, 69 NY2d 957; People v Sparber, 10 NY3d 457; People v Acevedo, 17 NY3d 297.)

      Daniel M. Donovan, Jr., District Attorney, Staten Island (Anne Grady and Morrie I. Kleinbart of counsel), for respondent.
    I. The appeal from the order modifying resentence must be dismissed. (People v Samms, 95 NY2d 52; People v Morse, 62 NY2d 205; People v Edwards, 96 NY2d 445; People v Capers, 177 AD2d 992; People v Foust, 278 AD2d 242; People v Benton, 196 AD2d 755; People v Olah, 300 NY 96; People v Jones, 25 NY3d 57; People v Crawford, 204 AD2d 203; People v Herrar, 120 AD2d 614.) II. Defendant is a second violent felony offender (answering defendant’s argument). (People v Jones, 25 NY3d 57; Matter of Albano v Kirby, 36 NY2d 526; People v Morse, 62 NY2d 205, People v height, 90 Misc 2d 233; People v Davis, 93 AD3d 524; People v Newton, 91 AD3d 1281; People v Bell, 73 NY2d 153; People v Notey, 72 AD2d 279; People v Jackson, 174 Misc 2d 105.)
   OPINION OF THE COURT

Fahey, J.

This appeal turns on our conclusion that to revoke a penalty of probation does not equate to annulling a sentence under Penal Law § 60.01. In November 2010, defendant was convicted of, inter alia, two counts of the class B violent felony of robbery in the first degree (Penal Law § 160.15 [4]) (generally, instant conviction). Our primary interest in this case, however, lies not with those crimes, but with one of defendant’s prior convictions — specifically, his June 1994 conviction of the class B violent felony of assault in the first degree (Penal Law § 120.10 [1]) (generally, prior conviction) — and the question whether that conviction qualifies as a predicate violent felony offense Csee Penal Law § 70.04 [1] [b] [second violent felony offender statute]) for the purpose of sentencing him as a second violent felony offender with respect to the instant conviction.

Defendant was originally sentenced to probation with respect to the prior conviction on June 8, 1994 (generally, original sentence). After violating that probation, however, defendant was resentenced on December 21, 1995 to a prison term with respect to that crime (generally, resentence).

The principal question before us is whether the date of the original sentence, rather than the date of the resentence, determines whether the prior conviction comes within the 10-year look-back period in the second violent felony offender statute for the purpose of imposing sentence on the instant conviction (see Penal Law § 70.04 [1] [b] [iv] [providing, subject to an exception immaterial here, that “sentence must have been imposed not more than (10) years before commission of the felony of which the defendant presently stands convicted” for the prior conviction to constitute a predicate violent felony-conviction]). Based on our determination that the revocation of probation under Penal Law § 60.01 is not the analogue of the annulment of a sentence, we conclude that the original sentence controls for the purposes of determining eligibility under the look-back period in Penal Law § 70.04. We further conclude that, on these facts, defendant should not have been resentenced as a second violent felony offender with respect to the instant conviction.

L

The instant robberies were committed on February 18 and February 25, 2010 and, in December 2010, Supreme Court sentenced defendant, as a second felony offender, to concurrent terms of 20 years’ incarceration to be followed by five years’ postrelease supervision (PRS) with respect to that conviction. Defendant was adjudicated a second felony offender based on a prior drug conviction.

Approximately two months later, the People “recommended” that the court treat defendant as a second violent felony offender based on the prior conviction, that is, the June 8, 1994 conviction of assault in the first degree. As noted, with respect to that conviction defendant initially was sentenced to five years’ probation. That probation, however, was later revoked and, in place of the original sentence of probation, defendant was resentenced to a term of 2 to 6 years’ incarceration on December 21, 1995.

In view of what they characterized as the December 21, 1995 “re-sentence date” with respect to the prior conviction, the People submitted to the sentencing court papers “in support of treating defendant as a second violent felony offender” with respect to the instant conviction. There, the People contended that, to the extent the “re-sentence date of December 21, 1995” controls as the date on which sentence was imposed upon the prior conviction, that conviction would qualify as a predicate violent felony pursuant to Penal Law § 70.04 (1) (b) (iv), thereby rendering defendant eligible to be sentenced as a second violent felony offender with respect to the instant conviction. There is no dispute that, to the extent the resentence date is the controlling date of sentence with respect to the prior conviction, that conviction would constitute a predicate violent felony and thus subject defendant to sentencing as a second violent felony offender with respect to the instant conviction. It is also undisputed that, to the extent the date of the original sentence controls for determining when “sentence [was] imposed” (§ 70.04 [1] [b] [iv]) with respect to the prior conviction, defendant cannot now be adjudicated a second violent felony offender on the basis of that crime.

Supreme Court agreed with the People that the date of the resentence, not the date of the original sentence, is the controlling date for the calculation of the look-back period, and it adjudicated defendant a second violent felony offender for the purpose of imposing sentence upon the instant conviction. In resentencing defendant with respect to those robbery crimes, the court reimposed its initial punishment, that is, it ordered concurrent determinate terms of 20 years’ incarceration to be followed by five years’ PRS.

Defendant subsequently appealed from both the judgment of conviction and sentence, and the resentence. The Appellate Division dismissed the appeal from so much of the judgment as imposed the sentence, and it rejected defendant’s challenges to the balance of the judgment, which were based on grounds not at issue here (118 AD3d 822, 822-823 [2d Dept 2014]). The Appellate Division modified the resentence as a matter of discretion in the interest of justice by reducing the determinate terms of imprisonment imposed upon the instant conviction from 20 years to 15 years, and, as so modified, it affirmed the resentence (,see id.). In doing so, that Court concluded that Supreme Court did not err in resentencing defendant as a second violent felony offender inasmuch as the controlling date of the imposition of sentence for the prior conviction is the date of the resentence, not the date of the original sentence (see id. at 823). A Judge of this Court granted defendant leave to appeal (24 NY3d 1089 [2014]), and we now reverse the order of the Appellate Division insofar as appealed from.

IL

Before addressing the main issue before us, we consider the preliminary question whether this Court may hear this appeal. The People contend that this Court is powerless to address the merits of this case for three main reasons. None of those points has merit.

First, the People contend that CPL 450.90 (1), which governs an appeal to this Court from an order of an intermediate appellate court, does not vest this Court with jurisdiction to hear this appeal. That section provides, in relevant part, that “[a]n order of an intermediate appellate court is adverse to the party who was the appellant in such court when it affirms the judgment, sentence or order appealed from .... An appellate court order which modifies a judgment or order appealed from is partially adverse to each party” (id.).

[X] According to the People, the Appellate Division merely modified the resentence here, and because the last sentence of CPL 450.90 (1) provides that an Appellate Division order that modifies a judgment or order appealed from is partially adverse to each party, but does not say that an Appellate Division order that modifies a resentence creates adversity, this Court has no authority to hear this appeal. We disagree. The Appellate Division order modified the resentence to the extent of reducing defendant’s period of incarceration from 20 to 15 years, but it otherwise affirmed the resentence (see 118 AD3d at 822-823; see also CPL 450.30 [3] [equating a resentence with a sentence for the purpose of specifying the instances in which a defendant may appeal to an intermediate appellate court]). That affirmance unquestionably creates adversity here, and it defeats the People’s contention that we lack jurisdiction under CPL 450.90 (X) to hear this appeal.

Second, the People contend that we should not consider the merits of this appeal because “the Appellate Division’s rejection of defendant’s claim to have been improperly adjudicated a [second] violent felony offender . . . has no practical impact on . . . defendant.” The People appear to suggest that this appeal is moot because defendant’s X5-year period of incarceration would be legal even if defendant had been sentenced as a second felony offender, rather than as a second violent felony offender (see Coleman v Daines, 19 NY3d 1087, 1090 [2012] [“an appeal is moot unless an adjudication of the merits will result in immediate and practical consequences to the parties”]). In so contending the People ignore Penal Law § 70.08, which sets criteria for a sentence of imprisonment for a persistent violent felony offender. Pursuant to that statute, the test for whether a prior violent felony constitutes a predicate violent felony for the purpose of adjudicating a defendant a persistent violent felony offender is the same as the test for determining whether a prior felony is a predicate one for the purpose of adjudicating a defendant a second violent felony offender (see Penal Law § 70.08 [1] [b]). Consequently, to the extent the date of the resentencing on the prior conviction controls for the purpose of determining whether defendant is a second violent felony offender with respect to the instant conviction, defendant theoretically could be adjudicated a persistent violent felony offender based on the prior conviction should he quickly recidivate upon his release from his current incarceration. To that end, even though the trial court did not change defendant’s period of incarceration upon resentencing him as a second violent felony offender relative to the instant conviction, the People are wrong to the extent they contend that no practical impact flows from defendant’s adjudication as a second violent felony offender.

Third, the People contend that this appeal is beyond our review because defendant’s challenge to his resentence as a second violent felony offender in this case is based on facts, rather than on the law (see CPL 470.35 [1]). We reject that contention inasmuch as the issue whether defendant was properly resentenced as a second violent felony offender turns on our interpretation of Penal Law §§ 70.04 and 60.01, which is a question of law (see generally Bragg v Genesee County Agrie. Socy., 84 NY2d 544, 552 [1994]).

III.

Turning to the merits, “[i]n matters of statutory interpretation, our primary consideration is to discern and give effect to the Legislature’s intention” (Matter of Albany Law School v New York State Off. of Mental Retardation & Dev. Disabilities, 19 NY3d 106, 120 [2012]). “To that end, . . . we must look first to the statutory text, which is ‘the clearest indicator of legislative intent’ ” (Matter of New York County Lawyers’ Assn. v Bloomberg, 19 NY3d 712, 721 [2012], rearg denied 20 NY3d 983 [2012], quoting Majewski v Broadalbin-Perth Cent. School Dist., 91 NY2d 577, 583 [1998]; see Matter of Wallach v Town of Dryden, 23 NY3d 728, 744 [2014], rearg denied 24 NY3d 981 [2014] [describing a three-part statutory interpretation analysis involving review of (1) the plain language of the statute; (2) the statutory scheme as a whole; and (3) the relevant legislative history]).

Guided by those principles, we conclude that the lower courts erred in determining that the controlling date of sentence for the prior conviction is the date of the resentence, not the date on which the original sentence was imposed with respect to that crime. Penal Law § 70.04 is entitled “[s]entence of imprisonment for second violent felony offender,” and it essentially provides that a person is a second violent felony offender when he or she stands convicted of a violent felony (Penal Law § 70.04 [1] [a]) and was previously convicted of a violent felony for which “[sjentence . . . [was] imposed [not only] before commission of the present felony” (Penal Law § 70.04 [1] [b] [ii] [emphasis added]), but also within “[10] years before commission of the [present] felony” (Penal Law §§ 70.04 [1] [b] [iv]; see 70.04 [1] [b] [v] [containing a tolling exception relative to the 10-year look-back period that is immaterial here]). As noted, there is no dispute that if the date of the original sentence (June 8, 1994) is controlling for the purpose of the second violent felony offender analysis, defendant does not qualify as a second violent felony offender pursuant to section 70.04 (1) (b). Similarly, if the date of the resentence (Dec. 21, 1995) controls for the purpose of that analysis, then defendant qualifies as a second violent felony offender under that statute.

The People would have us believe that sentence was imposed with respect to the prior conviction twice — once in 1994, when defendant was subject to a period of probation through the original sentence, and again in 1995, when defendant was subject to a period of incarceration through the resentence. To be sure, the period of probation was imposed as part of a revocable sentence (Penal Law § 60.01 [2] [a] [i]), which is a “tentative [punishment in] that it may be altered or revoked” (Penal Law § 60.01 [2] [b]). For all other purposes, however, a revocable sentence “shall be deemed to be a final judgment of conviction” (id.), and where “the part of the sentence that provides for probation is revoked, the court must sentence [a defendant] to imprisonment or to [a] sentence of imprisonment and probation” (Penal Law § 60.01 [4] [emphasis added]). The legislature’s reference to the revocation of the part of the sentence imposing probation suggests that the substitution of a different punishment — such as incarceration — for the probation a defendant has violated does not constitute a new sentence, but rather a replacement of the original, conditional penalty reflected in the sentence.

Put differently, to revoke a penalty of probation does not equate to annulling a sentence. That the legislature said that “the court must sentence [the defendant] to imprisonment or to [a] sentence of imprisonment and probation” (Penal Law §60.01 [4] [emphasis added]) upon the revocation of probation does not support a contrary conclusion. In that context, the legislature used the emphasized form of “sentence” as a transitive verb and provided merely that, where probation is revoked, a court must impose a harsher punishment to include imprisonment (see Samiento v World Yacht Inc., 10 NY3d 70, 77-78 [2008] [“The language of a statute is generally construed according to its natural and most obvious sense ... in accordance with its ordinary and accepted meaning, unless the Legislature by definition or from the rest of the context of the statute provides a special meaning” (internal quotation marks omitted)]; see also Webster’s Third New International Dictionary 2068 [2002] [defining “sentence” as, among other things, a transitive verb meaning “to prescribe the penalty or punishment of”]). Indeed, we have characterized the punishment imposed upon the revocation of a period of probation as a resentence (see People v Feliciano, 17 NY3d 14, 19 [2011], rearg denied 17 NY3d 848 [2011]), and—unlike a “sentence of probation” — a “resentence” is not defined as a “sentence” under Penal Law § 70.04 (1) (b) (iii) for the purpose of calculating the 10-year look-back period. In addition, section 70.04 (1) (b) (iv) specifically states that a “sentence [with respect to a prior felony, not a resentence,] must have been imposed not more than [10] years before commission of the [present] felony” for the prior felony to constitute a predicate crime {id. [emphasis added]; see generally People v Boyer, 22 NY3d 15, 25 [2013] [“irrespective of any resentence . . . , the original (s)entence for (a) prior conviction remains valid” (internal quotation marks omitted)]).

Finally, to the extent this is an instance in which a reasonable mind could conclude that the period of incarceration imposed on December 21, 1995 with respect to the prior conviction constitutes a sentence and, for the purpose of this case, thus brings that conviction within the look-back period in the second violent felony offender statute, the result would not change. At worst (or best, depending on one’s perspective) this is an instance in which two constructions of Penal Law §§70.04 and 60.01 are plausible, and to that end “the one more favorable to the defendant should be adopted in accordance with the rule of lenity” (People v Golb, 23 NY3d 455, 468 [2014], rearg denied 24 NY3d 932 [2014], cert denied 574 US —, 135 S Ct 1009 [2015] [internal quotation marks omitted]).

Accordingly, the order of the Appellate Division insofar as appealed from should be reversed, the second violent felony offender adjudication vacated and the case remitted to Supreme Court for resentencing.

Judges Pigott, Rivera, Abdus-Salaam and Stein concur; Chief Judge DiFiore and Judge Garcia taking no part.

Order insofar as appealed from reversed, second violent felony offender adjudication vacated, and case remitted to Supreme Court, Richmond County, for resentencing.

      . Defendant challenges only the part of the Appellate Division order that affirmed the adjudication of defendant as a second violent felony offender on the resentence.

      . Finally, under the circumstances of this case, we reject the People’s alternative contention with respect to appealability.


author: Abdus-Salaam, J. Rivera, J.

text:
    [47 NE3d 738, 27 NYS3d 459]
    The People of the State of New York, Respondent, v Gordon Gross, Appellant.
    Argued January 12, 2016;
    decided February 18, 2016

      POINTS OF COUNSEL

      Easton Thompson Kasperek Shiffrin LLP, Rochester (Brian Shiffrin of counsel), for appellant.
    The courts below erred in rejecting, without a hearing, Gordon Gross’s motion to vacate his conviction based on claims that he was denied his right to the effective assistance of counsel as a result of trial counsel’s failures (1) to consult with and/or present the testimony of a qualified, independent medical expert; and/or (2) to oppose the admission and use of prior consistent statements which bolstered the complainant’s credibility. (People v Turner, 5 NY3d 476; People v Baldi, 54 NY2d 137; Strickland v Washington, 466 US 668; Gersten v Senkowski, 426 F3d 588; Eze v Senkowski, 321 F3d 110; Pavel v Hollins, 261 F3d 210; Lindstadt v Keane, 239 F3d 191; People v Felder, 47 NY2d 287; People v Benevento, 91 NY2d 708; People v Claudio, 83 NY2d 76.)

      Richard M. Healy, District Attorney, Pittsford (Melvin Bressler of counsel), for respondent.
    I. Defense counsel properly and adequately represented appellant; in addition, the questioned testimony by the prosecutor’s medical expert was necessary and appropriate and was allowed over defense counsel’s objection. There is no question of law for the Court’s review. II. Certain testimony objected to as “bolstering” was neither hearsay nor offered for its truth, but rather as background information for the jury’s understanding. Other testimony even if hearsay based does not support a motion for a hearing, nor negate the decisions below. (People v Baldi, 54 NY2d 137.) III. Appellant did not present evidence to support the need for a medical expert to assist the defense, and, in any event such decision does not rise to the level of ineffective assistance of counsel.
   OPINION OF THE COURT

Abdus-Salaam, J.

In this appeal, we are asked to determine whether defendant’s trial counsel was ineffective. Because counsel’s alleged failures were insufficient to overshadow her overall meaningful representation of defendant, we hold that defendant received effective assistance of counsel.

L

Defendant Gordon Gross was accused of child sexual abuse, which resulted in him being indicted for course of sexual conduct against a child in the first degree (see Penal Law § 130.75 [1] [b]) and endangering the welfare of a child (see Penal Law § 260.10 [1]). During trial, the child victim testified that defendant subjected her to sexual abuse over a number of years, including anal penetration. She testified that she disclosed the sexual abuse to a number of individuals, including her mother, sister and school principal, and two police officers assigned to investigate her allegations. After this testimony, defendant’s counsel did not request a limiting instruction that the child’s statements of prior disclosures should not be considered in determining the truth of the child’s allegations.

The People called as witnesses the child’s mother, sister and school principal, and the two officers. During each witness’s testimony, defense counsel successfully objected when the witness was asked a question intended to elicit an answer regarding the specific statements of abuse the child disclosed to that witness. The People also called Dr. Danielle Thomas-Taylor, a child sex abuse expert, who examined the child at the People’s request approximately three years after her last allegation of sexual abuse. Over defense counsel’s objection, Dr. Thomas-Taylor was permitted to testify that the child told her that defendant sexually abused her by anal penetration. Dr. Thomas-Taylor also described her physical examination, stating that the child “had a generally normal physical examination.” Despite that conclusion, Dr. Thomas-Taylor opined that the normal results of the child’s physical examination did not negate the possibility that the child was anally penetrated some time before. Specifically, she stated she would not expect to see scarring after some years because the anus “heals very quickly, within a day or two.”

During the People’s summation, the prosecutor argued that the key to determining that the child was telling the truth was her prior consistent statements, referencing all the prosecution witnesses who testified that the child had disclosed to them her allegations of sexual abuse. Following deliberations, the jury found defendant guilty of course of sexual conduct against a child in the first degree and endangering the welfare of a child. Defendant was sentenced to a determinate term of 25 years in prison with 10 years of postrelease supervision. The judgment was affirmed by the Appellate Division (see People v Gross, 79 AD3d 1660 [4th Dept 2010]) and his criminal leave application on his direct appeal was denied by a Judge of this Court (see People v Gross, 16 NY3d 895 [2011]).

Defendant moved for post-conviction relief pursuant to CPL 440.10 (1) (h). Defendant argued that his state and federal constitutional rights to effective assistance of counsel were violated by his trial counsel’s failure to oppose the admission and use of the prior consistent statements of the child which bolstered her credibility. Additionally, defendant argued that his trial counsel was ineffective for failing to consult or present testimony from a qualified independent medical expert to support his contention that no sexual abuse occurred. In an affirmation from defendant’s current attorney accompanying the motion, the attorney indicates that he spoke with defendant’s trial counsel who stated that “she did not consult with nor call an expert because she had not anticipated that the People would be permitted to have Dr. Thomas Taylor testify as to what [the child] told her or that the doctor would testify that the medical finding had no significance.”

County Court denied the motion, holding that the failure of defendant’s trial counsel to object to the admission of the child’s prior disclosures did not render her ineffective. Additionally, the court found that defendant’s trial counsel was not ineffective for failing to call an expert witness, noting that defendant did not offer an expert opinion that some indicia of sex abuse would have been likely. Thus, based on the record alone the court rejected defendant’s arguments and denied his motion. The Appellate Division, with two Justices dissenting, affirmed, concluding that the testimony regarding the child’s prior disclosures did not constitute improper bolstering because it was not admitted for its truth but rather to demonstrate how the child disclosed the abuse, thereby commencing the investigation into her allegations (see People v Gross, 118 AD3d 1383, 1384 [4th Dept 2014]). Further, the Court concluded that defendant received meaningful representation despite his trial counsel’s failure to object to the prosecutor’s summation comments or to call a medical expert to testify on defendant’s behalf. Therefore, the Court concluded that trial counsel was not ineffective. The dissenting Justices voted to reverse. In their view, defendant’s trial counsel’s failure to object to inadmissible testimony regarding the child’s prior consistent statements deprived him of his right to effective assistance of counsel (see id. at 1386).

IL

On a CPL 440.10 motion pursuant to subdivision (1) (h), the burden is on the defendant to demonstrate that “[t]he judgment was obtained in violation of a right of the defendant under the constitution of this state or of the United States” (CPL 440.10 [1] [h]), here his right to effective assistance of counsel. On an ineffective assistance of counsel claim under the Sixth Amendment to the United States Constitution, a defendant must demonstrate that (1) his or her attorney committed errors so egregious that he or she did not function as counsel within the meaning of the United States Constitution, and (2) that counsel’s deficient performance actually prejudiced the defendant (see Strickland v Washington, 466 US 668, 687-688 [1984]). New York’s constitutional requirement of effective assistance of counsel is met when “the evidence, the law, and the circumstances of a particular case, viewed in totality and as of the time of the representation, reveal that the attorney provided meaningful representation” (People v Benevento, 91 NY2d 708, 712 [1998]).

Defendant argues that his trial counsel was ineffective for failing to call an expert witness who could testify that the absence of physical evidence here could indicate that the victim was never anally raped by defendant. He asserts that trial counsel should have called an expert witness who could have testified that the victim’s allegations of painful anal rape should have resulted in lasting physical trauma which could be detected some years after the last allegation of anal penetration. As support, he points to three studies. Defendant, however, failed to provide a proper foundation for the courts to consider these studies, as he did not include an affidavit by a medical expert explaining the conclusions of the studies or how those conclusions support his contentions. He thus has failed to meet his burden of demonstrating that his trial counsel was ineffective for failing to call an expert under either the federal or state standard.

We have held on numerous occasions that counsel will not be found ineffective where he or she had a strategic reason for the failure complained of by defendant (see People v Barboni, 21 NY3d 393, 405-406 [2013]). Defendant’s trial counsel articulated reasons for not calling an expert witness, and those reasons were arguably legitimate. Therefore, defense counsel was not ineffective.

III.

The testimony of each of the prosecution witnesses here was properly admitted into evidence as background information, completing the narrative of how defendant came to be investigated for sexually abusing the child. Thus, the courts below properly held that the statements did not constitute improper bolstering.

“The term ‘bolstering’ is used to describe the presentation in evidence of a prior consistent statement” (People v Smith, 22 NY3d 462, 465 [2013]). This Court has repeatedly held that it is generally improper to introduce testimony that the witness had previously made prior consistent statements, when there is no claim of either prompt outcry or recent fabrication (see People v Rosario, 17 NY3d 501 [2011]; see also People v Fisher, 18 NY3d 964, 966 [2012]; People v McClean, 69 NY2d 426 [1987]). In People v Smith, we recognized that such evidence “may, by simple force of repetition, give to a jury an exaggerated idea of the probative force of a party’s case” (Smith, 22 NY3d at 466). A prior consistent statement may be admissible when it is offered not for its truth, but for some other relevant purpose, for example to assist in “explaining the investigative process and completing the narrative of events leading to the defendant’s arrest” (People v Ludwig, 24 NY3d 221, 231 [2014]).

Our decision in People v Ludwig similarly concerned allegations by the defendant that trial testimony improperly bolstered the child victim’s claims of sexual abuse. In that case, the child victim’s brother testified that one day while he and his sister — the child victim — were playing in the backyard, the child victim stated that the backyard smelled like something that happened with her dad. After being questioned by her brother as to the meaning of her statement, the child victim stated that the backyard smelled like penis. The brother made the child victim go inside and tell their mother what she had just said. The brother was allowed to testify to those statements over the defendant’s objection. This Court determined that the brother’s testimony was admissible as background information that assisted with the investigative process. So too here, the testimony of the child’s mother, sister and principal and the two officers was admissible as necessary background information to demonstrate what ultimately led to defendant’s arrest. The testimony of those witnesses included nonspecific statements that the child had made a disclosure and described what steps they took after hearing the disclosure.

In Ludwig, we acknowledged that “New York courts have routinely recognized that ‘nonspecific testimony about [a] child-victim’s reports of sexual abuse [does] not constitute improper bolstering [when] offered for the relevant, nonhearsay purpose of explaining the investigative process’ ” and assisting in the completion of the narrative of events which led to the defendant’s arrest (id. at 231, quoting People v Rosario, 100 AD3d 660, 661 [2d Dept 2012]). Here, the testimony of the child’s mother, sister and principal and the two officers fulfilled these legitimate nonhearsay purposes, and defense counsel’s objections to the testimony of the witnesses ensured that the witnesses did not specifically repeat what the child told them.

The majority of Dr. Thomas-Taylor’s testimony as to the child’s specific allegations of sexual abuse was admissible under People v Spicola (16 NY3d 441 [2011]). In Spicola, we held that testimony of a nurse-practitioner concerning the child’s history of sexual abuse was permissible testimony because the child’s statements to the nurse-practitioner “were germane to diagnosis and treatment” and therefore “were properly admitted as an exception to the hearsay rule” (16 NY3d at 451). Applying Spicola here, the trial court properly admitted Dr. Thomas-Taylor’s testimony. The testimony explained why the child was being examined by Dr. Thomas-Taylor and why the normal results of the physical examination did not indicate that the child had not been subjected to sexual abuse. This background information completed the narrative and was properly permitted under the exception to the hearsay rule. Moreover, defense counsel lodged an objection to Dr. Thomas-Taylor’s testimony concerning the child’s history; however, that objection was overruled. Defense counsel can hardly be deemed ineffective on this score.

Trial counsel’s failure to request that a limiting instruction be given to the jury that the child’s testimony concerning the disclosures she made to other individuals should not be accepted for the truth of her allegations, does not render her ineffective in light of the totality of her representation of defendant (see People v Benevento, 91 NY2d 708, 712 [1998] [requiring examination of the totality of counsel’s performance to evaluate effectiveness]; People v Baldi, 54 NY2d 137, 147 [1981]). Moreover, defense counsel was not ineffective for failing to object to the prosecutor’s summation comments referencing the testimony of the witnesses to whom the victim had disclosed. Despite the dissent’s argument to the contrary, the failure to object to the prosecutor’s statement on summation does not negate the overall meaningful representation provided to defendant by his counsel. Defense counsel zealously advocated for defendant, making multiple successful objections which limited the testimony of several prosecution witnesses. Additionally, defense counsel may have made a strategic choice not to object during summation given that the witnesses were not able to testify to the specifics of the child’s allegations (see People v Barboni, 21 NY3d 393, 405-406 [2013]). She may have felt that such an objection would not be worthwhile given the limited testimony elicited from the witnesses. Such a strategic decision does not support a finding of ineffectiveness (see People v Barboni, 21 NY3d 393, 405-406 [2013]).

IV.

It is within the trial court’s discretion to determine whether a hearing on a CPL 440.10 motion should be ordered (see People v Jones, 24 NY3d 623, 635 [2014]; People v Satterfield, 66 NY2d 796, 799 [1985]). This Court, however, may review that determination for an abuse of discretion (see Jones, 24 NY3d at 635). No abuse occurred in this case, as the record clearly indicates that defendant’s trial counsel was not ineffective.

Accordingly, the Appellate Division order should be affirmed.

Rivera, J.

(dissenting). On constraint of People v Ludwig (24 NY3d 221 [2014]), I agree that defense counsel may not be considered ineffective for failing to object during the People’s case-in-chief to testimony about the victim’s disclosure of defendant’s sexual abuse. However, the rule adopted in Ludwig is a narrow one, justified on the theoretical assumption that such testimony is admitted to assist the jury in understanding the events leading to a defendant’s arrest (id. at 231), and not for its truth about the victim’s allegations (id., citing People v Gregory, 78 AD3d 1246 [3d Dept 2010]). Accordingly, while the prosecutor here could elicit the testimony, he exceeded the bounds of permissible summation by advocating that the victim’s disclosure was proof of the abuse.

The prosecutor’s exhortation to the jury was an invitation to misuse the testimony, and was especially prejudicial to the defense because the People lacked corroborating physical evidence of the abuse, the victim was the sole witness to defendant’s actions, and the ultimate determination of guilt turned on the victim’s credibility. Under such circumstances, defense counsel’s failure to timely object and request an instruction directing the jury to ignore the prosecutor’s argument constitutes ineffective assistance, mandating reversal and a new trial. Therefore, I dissent.

The premise of Ludwig is that testimony from a witness that the victim disclosed abuse is admissible for the “legitimate nonhearsay purposes” of “explaining the investigative process and completing the narrative of events leading to the defendant’s arrest” (id. at 231-232). According to this reasoning, the testimony is admissible solely “to depict for the jury the circumstances attendant to the disclosure that triggered the investigation” (id. at 232). However, I continue to believe that Ludwig was wrongly decided because, as the dissent in that case explained, the majority’s approach “eviscerates the hearsay rule and allows wholesale circumvention of the prompt outcry rule by countenancing the admission of prior consistent statements that provide a ‘narrative’ or ‘investigative purpose’ even where the investigative purpose is not in issue” (Ludwig, 24 NY3d at 235 [Lippman, Ch. J., dissenting]). Notwithstanding the Ludwig majority’s determination to the contrary, “these statements are obviously introduced to bolster the complainant’s credibility and establish the truth of the accusation” (id. at 236 [Lippman, Ch. J., dissenting]), and do little to ensure the reliability of the victim’s testimony (id. at 237).

The analytic error of Ludwig is compounded by that majority Court’s failure to set appreciable limits on “narrative” testimony. The instant appeal is a prime example of the foreseeable evidentiary excesses made possible by the holding, and why Ludwig is a dangerous precedent that should be discarded. According to the record, after the victim recounted that she disclosed the abuse, the child’s mother, sister and school principal, and two police officers also testified that the victim disclosed the abuse to each of them. Yet, there is no discern-able explanation as to why five reaffirmations of the victim’s disclosure were necessary background information about the investigation. Nor is there a plausible reason for three witnesses to testify similarly about the same-day disclosure to the police when disclosure is unchallenged. As this case illustrates, the potential for evidence to cross the line from “an explanation of the narrative” to improper bolstering of the victim’s testimony is increased by the sheer numerosity of witnesses who testify that the victim disclosed. Defendant does not directly challenge the judge’s evidentiary rulings, therefore given the posture of the appeal I agree that counsel is not ineffective for limiting her objections to the specific details of the abuse rather than the type of serial testimony presented in this case.

Counsel’s failure to object and request curative instruction for the prosecutor’s use of the testimony during summation is a different matter. The record establishes that the prosecutor made the testimony of non-victim witnesses the central theme of his argument that the victim’s claims of abuse should be treated as fact. Even within the confines of Ludwig, the prosecutor’s actions were improper because he relied on the testimony for the impermissible purpose of establishing that the defendant committed the acts as described by the victim.

The prosecutor argued to the jury that the case turned on whether the victim was telling the truth, and if the jurors believed the victim, they had to return a guilty verdict. He asked rhetorically, why would the victim “tell strangers, tell the police, me, you, [sic] grand jury” about the sexual abuse. The prosecutor implored the jurors to consider “why would [the victim] do this if it didn’t happen, if it wasn’t the truth.” To persuade the jury that the abuse occurred, the prosecutor emphasized that the victim repeatedly disclosed the abuse to several different people, including in formal legal settings. The prosecutor declared that

“[t]his is about the fifth time she’s talked about this. . . . According to her testimony, first time was June 25th to the police .... Then the next time, month later when she came to see me and then testified before the grand jury. And then she had again talked about this to the doctors. So again that, that will be about five times when she came here and told you what happened . . . [S]he’s told the story or she’s told, given this, these facts a number of times.”

Again, near the end of his summation, the prosecutor asked the jury to consider why the victim would “go through all this, lie to all these people if this didn’t happen?”

These excerpts leave no doubt that the prosecutor sought to bolster the credibility of the victim and establish the fact of the abuse through the victim’s repeated disclosure of her allegations. By arguing to the jury that it could base its credibility determination on the fact that the victim disclosed the abuse on several occasions to different people, and by characterizing the victim’s disclosures as statements of fact, the prosecutor re-purposed the testimony and mischaracterized its meaning. In a case that hinged on the credibility of the victim, defense counsel could only address the devastating impact of this summation argument by objecting and requesting the judge instruct the jurors that they could not rely upon the testimony in the manner advocated by the prosecutor.

Under these circumstances, counsel’s failure to act constituted egregious error that cannot be excused, as the majority argues, as part of a reasonable defense strategy (majority op at 696). The majority speculates that counsel discounted the impact of summation because the non-victim testimony did not include details of the abuse. However, the prosecutor’s focus on the victim’s repeated disclosure was the basis for arguing that the abuse occurred. The fact that the non-victim witness testimony lacked details of the victim’s allegations was irrevelant to the prosecutor’s point. Thus, to counteract the persuasive effect of the prosecutor’s argument, defense counsel had to lodge an objection and request that the judge instruct the jury on the proper consideration to be accorded the testimony. Counsel did not take these necessary minimal steps, and as a consequence her representation was ineffective, and denied defendant a fair trial (People v Baldi, 54 NY2d 137 [1981]).

Judges Pigott, Stein and Fahey concur; Judge Rivera dissents in an opinion; Chief Judge DiFiore and Judge Garcia taking no part.

Order affirmed.