author: Rivera, J. Pigott, J.

text:
    [53 NE3d 706, 33 NYS3d 829]
    Beck Chevrolet Co., Inc., Appellant, v General Motors LLC, Respondent.
    Argued March 22, 2016;
    decided May 3, 2016

      Arent Fox LLP, New York City (Russell P. McRory, James M. Westerlind, and Michael P. McMahan of counsel), for appellant.

      Seyfarth Shaw LLP, Boston Massachusetts (James C. McGrath, of the Massachusetts bar, admitted pro hac vice, and Katherine R. Moskop, of the Massachusetts bar, admitted pro hac vice, of counsel), for respondent.

      Putney, Twombly, Hall & Hirson LLP, New York City (Philip H. Ralban of counsel), for Greater New York Automobile Dealers Association, Inc., amicus curiae.

      Bressler, Amery & Ross, P.C., New York City {Eric L. Chase of counsel), for Van Wie Chevrolet, Inc., doing business as Evans Chevrolet, amicus curiae.

      Bellavia Blatt & Crossett, P.C., Mineóla {Leonard A. Bellavia and Shaun M. Malone of counsel), for New York State Automobile Dealers Association, amicus curiae.

      Hogan Lovells US LLP, New York City {John J. Sullivan of counsel), for Alliance of Automobile Manufacturers and another, amici curiae.
   OPINION OF THE COURT

Rivera, J.

The United States Court of Appeals for the Second Circuit certified to this Court questions requiring our interpretation of two provisions of New York’s Franchised Motor Vehicle Dealer Act (Dealer Act), codified at Vehicle and Traffic Law § 460 et seq. The first question concerns the propriety of a franchisor sales performance standard that relies on statewide data and some local variances, but fails to account for local brand popularity. Based on our reformulation of the question, we conclude that use of such a standard to determine compliance with a franchise agreement is unlawful under the Dealer Act. The second question asks whether a franchisor’s unilateral change of a dealer’s geographic sales area constitutes a prohibited modification to the franchise. We conclude that it does not.

I.

The underlying federal action involves a dispute between franchisor and Chevrolet car manufacturer General Motors LLC (GM), and a Westchester County-based franchised motor vehicle dealer, Beck Chevrolet Co., Inc. Beck is a longtime automobile dealership with a Chevrolet franchise dating back to GM’s predecessor-in-interest. During the predecessor’s bankruptcy proceeding, Beck entered a wind-down agreement to terminate its franchise in exchange for a money payout. After GM acquired certain of the predecessor’s assets, GM rescinded the wind-down agreement and entered a participation agreement with Beck. The participation agreement, along with Beck’s dealer sales and services agreement with incorporated standard provisions (dealer agreement), allows Beck to operate as a GM franchise operation.

Under these agreements GM required Beck to achieve a specified level of sales performance within a geographic location designated by GM, referred to as an area of geographic sales and service advantage (AGSSA). The AGSSA consists of U.S. census tracts closest in proximity to the dealer, subject to certain traffic condition adjustments. GM carves out an individual dealer’s AGSSA from a geographic sales region known as an area of primary responsibility (APR), which is shared by a group of dealers in the same urban location. Dealers, like Beck, are responsible for the sale and marketing of Chevrolet vehicles and products within their respective AG-SSA.

GM measured Beck’s sales performance based on a retail sales index (RSI), a methodology commonly employed by vehicle manufacturers in the United States, and applied by GM to all its dealers. The RSI is a percentage determined by a fractional equation, which divides a dealer’s actual total retail sales during a particular time period by the dealer’s expected sales. In other words, the mathematical representation of an RSI is actual sales (the numerator) over expected sales (the denominator), multiplied by 100.

Expected sales are determined using a multistep formula, whereby GM determines Chevrolet’s statewide market share for a particular type of vehicle segment — for example a midsized sedan or pickup truck — then multiplies that number by the total retail motor vehicle registrations in the dealer’s AG-SSA for that same segment, and repeats the process for each vehicle segment. The results for each segment are combined to achieve the dealer’s total expected sales in its AGSSA. By way of illustration, assume in a given year that Chevrolet has a particular mid-sized sedan model and that the sales of that model represent 12% of all mid-sized sedans sold in New York State (constituting one vehicle segment). Further assume that the number of mid-sized sedan registrations in a dealer’s AG-SSA is 1,500, meaning there are 1,500 mid-sized sedans registered in the AGSSA. In that case, 1,500 is multiplied by the 12% statewide share, equaling 180 expected sales for this segment. This same mathematical formula is repeated for each segment of vehicles in which Chevrolet competes, meaning in each segment for which Chevrolet has a model that could be sold in New York State. Assume four segments total, and that the formula results in the following expected sales by segment: 180, 120, 75, 25. These are added together for a combined number of 400. The 400 represents the dealer’s total expected sales and will be the denominator in the equation used to determine the dealer’s RSI.

As stated, GM includes in the dealer’s expected sales only registrations for vehicle segments in which Chevrolet competes, and does not include registrations for non-Chevrolet vehicle segments. Through this segmentation or “segment-adjustment” GM accounts for local popularity of particular types of vehicles. For example, if pickup trucks are less popular in a given AG-SSA, compared to the rest of the state, a dealer’s expected sales are adjusted downward.

A 100 RSI constitutes satisfactory performance of a dealer’s sales obligations under the dealer agreement. Nevertheless, GM treats this not as a perfect score but as an average score, and as explained in the dealer agreement, GM expects dealers below 100 “to pursue available sales opportunities exceeding this standard.” GM’s dealer rating system classifies dealers as follows: “Superior” for a 100 or greater RSI, and the dealer is in the top 15% of all dealers in the state; “Satisfactory” for a 100 RSI and the dealer is not in the top 15%; “Needs Improvement” for a 85 to 99.9 RSI; “Needs Significant Improvement” for an 84.9 or lower RSI and the dealer is not in the bottom 15% of dealers in the state; and “Unsatisfactory” for an 84.9 or less RSI and the dealer is in the bottom 15%.

Applying this rating system to the hypothetical dealer in the prior example, if the dealer sells 400 Chevrolet cars, because its expected sales were also 400, the dealer’s RSI is 100 (400 divided by 400 equals 1, multiplied by 100 to achieve an RSI as a percentage). Since the dealer achieved its target sales, which constitutes an average sales performance, the dealer would be rated “superior” if the dealer is in the top 15% of all dealers statewide, or “satisfactory” if the dealer is not in the top 15%. If the dealer with the same expected sales of 400 sells instead 200 Chevrolets, then its RSI is 50 (200 divided by 400 equals .5, multiplied by 100 to achieve an RSI as a percentage). The dealer achieved only half of its target sales, and would be rated as “needs significant improvement” if the dealer is not in the bottom 15% of all dealers, or “unsatisfactory” if the dealer is in the bottom 15%.

Unless all dealers meet or exceed their expected target sales, there will be some dealers who score below 100. A below 100 score is below average performance. Since the expected sales number is based on an adjusted state market average, as the number of sales increases, so do the number of actual sales necessary to achieve a 100 RSI. In other words, the RSI sales performance measure moves upward (or downward) depending on market variations. Consequently, a dealer’s performance is dependent on the performance in the market against which the dealer is measured, and the statewide market is subject to local variations, only one of which is reflected in the RSI (vehicle segment preference).

Under the participation agreement, GM required Beck to trend-up to the 100 RSI average benchmark within three years. In the first year Beck had to attain an RSI of 70, in the second year an 85 RSI, and a 100 RSI in its third year. When Beck failed to timely achieve these RSI scores it defaulted on the participation agreement, and potentially became subject to a “needs significant improvement” or “unsatisfactory” dealer rating.

In the middle of the second year, GM notified Beck that it would extend the dealer agreement into future years on condition that Beck met its performance requirements, including achieving the 85 RSI by the second year’s end, and the 100 RSI in the third year. Failure to achieve the 85 RSI in the second year meant that “GM shall have no obligation to extend the Dealer Agreement.” By separate letter GM also informed Beck that it was increasing its AGSSA by four census tracts in West-chester County, and reducing the AGSSA by seven tracts in Bronx County.

After Beck sued GM in state court alleging violations of the Dealer Act based on the performance standard and changes in the AGSSA, GM removed the action to the United States District Court for the Southern District of New York. After procedural history not relevant to the questions certified to us, Beck filed amended complaints asserting, inter alia, two Dealer Act claims for injunctive and declaratory relief. The first claim alleged that GM used an unreasonable, arbitrary and unfair performance standard in determining Beck’s compliance with its agreements, pursuant to Vehicle and Traffic Law § 463 (2) (gg), and sought to enjoin GM from using a New York statewide average to calculate Beck’s sales performance. Beck claimed the RSI was unreasonable and unfair as a matter of law because it failed to account for local customer preferences and low brand popularity in New York’s downstate region. The second claim alleged that GM’s unilateral change to Beck’s AG-SSA was an unfair modification within the meaning of Vehicle and Traffic Law § 463 (2) (ff), because the new area enlarged Beck’s sales territory, with the effect of increasing Beck’s sales targets and facility requirements.

The District Court held against Beck on both claims, and Beck appealed. The Second Circuit determined that resolution of the appeal depended on unsettled New York law, and certified two questions concerning the propriety of GM’s performance standard and unilateral modification under the Dealer Act (787 F3d 663 [2d Cir 2015]). The first certified question as framed by the Second Circuit asks,

“Is a performance standard that requires ‘average’ performance based on statewide sales data in order for an automobile dealer to retain its dealership ‘unreasonable, arbitrary, or unfair’ under New York Vehicle & Traffic Law section 463(2)(gg) because it does not account for local variations beyond adjusting for the local popularity of general vehicle types?” (Id. at 682.)

The second certified question concerns GM’s revision of Beck’s AGSSA, and asks,

“Does a change to a franchisee’s Area of Primary Responsibility or AGSSA constitute a prohibited ‘modification’ to the franchise under section 463(2)(ff), even though the standard terms of the Dealer Agreement reserve the franchisor’s right to alter the Area of Primary Responsibility or AGSSA in its sole discretion?” (Id.)

II.

A. First Certified Question

As a threshold matter we consider GM’s recommendation that we reformulate the first certified question because it is predicated on the incorrect presumption that GM terminates all dealers who have a below-average sales performance, when, in fact, GM bases termination on the RSI and other relevant factors. Beck objects to the proposed reframing of the question, arguing that the consequences that flow from the application of a manufacturer’s sales performance metric are relevant to the statute’s interpretation, and that Beck was threatened with nonrenewal of its franchise solely because of its RSI score.

We agree with the parties that the question certified by the Second Circuit posits a case in which below-average sales performance results in termination of a dealership. Section 463 (2) (gg), in contrast, makes no mention of termination, and instead applies to standards used to assess dealer compliance with a franchise agreement. Such assessment may lead to franchisor conduct short of termination, but which nonetheless adversely impacts a dealer.

We do not adopt the approach taken by our dissenting colleague to the first certified question because whether a franchisor’s standard complies with Vehicle and Traffic Law § 463 (2) (gg) is in the first instance a legal question concerning the propriety of the general criteria by which a dealer is measured. Contrary to the dissent’s view of the statute, a standard can appear facially unreasonable, arbitrary or unfair without reference to facts particular to any individual dealer. While a standard that appears fair as written may be applied in an unfair manner, and a standard that is reasonable in the abstract may have irrational consequences in practice, resolution of the reframed question does not require the type of as-applied analysis advocated by the dissent. Instead, we consider the standard’s lawfulness against benchmarks as framed by GM, which rely on general data and not an individual dealer’s facts.

Therefore, to provide appropriate guidance on the statute’s anticipated coverage, and in accordance with our discretion in these matters, we proceed to answer the following reformulated question: Is a performance standard that uses “average” performance based on statewide sales data in order to determine an automobile dealer’s compliance with a franchise agreement “unreasonable, arbitrary or unfair” under New York Vehicle and Traffic Law § 463 (2) (gg) because it does not account for local variations beyond adjusting for the local popularity of general vehicle types? (see Barenboim v Starbucks Corp., 21 NY3d 460, 469-470 [2013] [reformulating the certified question to track the language of the statute at issue]; Commodity Futures Trading Commn. v Walsh, 17 NY3d 162, 176 [2011] [reformulating a certified question]).

As our well-established rules of statutory construction direct, we begin our analysis with the language of the statute, recognizing that “our primary consideration is to ascertain and give effect to the intention of the Legislature” (People v Ballman, 15 NY3d 68, 72 [2010], quoting Matter of DaimlerChrys ler Corp. v Spitzer, 7 NY3d 653, 660 [2006] [internal quotation marks and citation omitted]). In this endeavor we are guided by the principle that “the text of a provision ‘is the clearest indicator of legislative intent and courts should construe unambiguous language to give effect to its plain meaning’ ” (Matter of Albany Law School v New York State Off. of Mental Retardation & Dev. Disabilities, 19 NY3d 106, 120 [2012], quoting Matter of Daimler Chrysler Corp., 7 NY3d at 660).

As its title makes clear, section 463 of the Dealer Act protects dealers from “Unfair business practices by franchisors.” Section 463 (2) (gg) provides that

“[i]t shall be unlawful for any franchisor, notwithstanding the terms of any franchise contract: . . .
“ [t] o use an unreasonable, arbitrary or unfair sales or other performance standard in determining a franchised motor vehicle dealer’s compliance with a franchise agreement. Before applying any sales, service or other performance standard to a franchised motor vehicle dealer, a franchisor shall communicate the performance standard in writing in a clear and concise manner.”

The Dealer Act does not define what constitutes “unreasonable, arbitrary or unfair” performance standards. However, these determinates of impermissible conduct are familiar concepts in the law (see Black’s Law Dictionary [10th ed 2014] [unreasonable: “Not guided by reason; irrational or capricious”; arbitrary: “founded on prejudice or preference rather than on reason or fact”; unfair: “Inequitable in business dealings”]). Notably, a standard need only violate one of these proscriptions to run afoul of Vehicle and Traffic Law § 463 (2) (gg). As a consequence, the statute limits a range of performance standards made unlawful by the Dealer Act.

Whether a performance standard is “unreasonable, arbitrary or unfair” depends on considerations unique to the franchise business, which is driven by sales in a competitive market. A performance standard that measures dealer success based on data that fails to accurately represent market challenges would appear to undermine the franchisor and dealer’s common goal of selling and servicing vehicles and franchisor products. At a minimum, Vehicle and Traffic Law § 463 (2) (gg) forbids the use of standards not based in fact or responsive to market forces because performance benchmarks that reflect a market different from the dealer’s sales area cannot be reasonable or fair.

The standard employed here reflects GM’s acceptance that market forces matter in assessing dealer sales performance. The RSI is based on an equation in which the market— actual and aspirational — sets the foundation for measuring a dealer’s achievement. As GM’s standard recognizes, a dealer works within a constructed market — one set both by externalities and by GM’s business needs. Thus, GM measures a dealer’s sales performance by comparison to a statewide class of dealers, but adjusts the standard to reflect certain local market peculiarities with respect to one metric: local consumer purchasing preferences for certain vehicle types. Although having made the determination to incorporate local concerns in its dealer performance standard, GM has also specifically chosen to exclude from its measure the impact of customer brand preference on dealership sales. Yet, customer purchases are influenced not solely by preferences for a type of vehicle, for which GM accounts through its segmentation formula, but also by brand popularity and import bias. Moreover, those dealers, like Beck, who service an assigned area in which Chevrolet is less popular are disadvantaged when measured against dealers in other parts of the state in which the Chevrolet brand is stronger and facilitates dealer sales performance. Therefore, once GM determined that statewide raw data must be adjusted to account for customer preference as a measure of dealer sales performance, GM’s exclusion of local brand popularity or import bias rendered the standard unreasonable and unfair because these preference factors constitute market challenges that impact a dealer’s sales performance differently across the state. It is unlawful under section 463 (2) (gg) to measure a dealer’s sales performance by a standard that fails to consider the desirability of the Chevrolet brand itself as a measure of a dealer’s effort and sales ability.

GM contends that inclusion of these factors is both undesirable and unduly burdensome. GM essentially argues that it can set a standard that misrepresents external market forces. However, measuring the dealer’s performance against a market the dealer never faces is not reasonable or fair within the meaning of section 463 (2) (gg). It is the equivalent of holding a dealer in New York State to a standard based on the market of a foreign country or another state without appropriate adjustments for local differences. In both cases, the dealer is measured against a sales landscape that is not within the dealer’s experience.

GM claims that the standard has a certain utility because it is intended to identify dealers in need of improvement. This boils down to GM desiring to rid itself of ineffective dealers in order to increase its brand market share. Certainly a franchisor has a business interest in addressing weaknesses in its sales force. However, in doing so, a franchisor must not deploy unreasonable, arbitrary or unfair performance standards. The standard used by GM excludes local variance in market competitiveness, and masks the dealer mediocrity of which GM complains. To comply with the Dealer Act, if a franchisor intends to measure a dealer’s performance based on a comparison to statewide data for other dealers, then the comparison data must take into account the market-based challenges that affect dealer success. Here, if Beck cannot keep up with comparably placed dealers in its sales area, then termination may be appropriate, but as it stands the RSI excludes an important measure of comparability.

Notwithstanding GM’s claim that the RSI methodology is consistent with industry norms, it remains the case that any performance standard adopted by a franchisor to determine a dealer’s compliance with a franchise agreement is subject to the limitations set forth in the Dealer Act. While we recognize that industry norms are important because they express the wisdom borne of experience, and reflect considered thought on the part of industry members, they are not beyond the reach of the statute. We are especially cautious in this regard because this is an industry in which the parties hold unequal bargaining positions, and an industry standard may reflect the entrenchment of the very inequality and favoritism that the legislature sought to counterbalance in the Dealer Act. Thus, GM may not rely on a standard that is unreasonable and unfair simply because of its prevalence within an industry the legislature sought to regulate.

Relatedly, assuming arguendo that the use of statewide data reflects a certain administrative convenience, the standard would still be unlawful because although it might not be unreasonable or arbitrary, it is still unfair. Moreover, section 463 (2) (gg) prohibits unfair practices in order to protect dealers, not to alleviate a franchisor’s potential administrative burdens associated with its performance standards.

Our analysis also furthers the act’s statutory purpose. By enacting the Dealer Act, the legislature sought to address a historical inequality in the vehicle franchise business that favored automobile manufacturers over motor vehicle dealers (Assembly Mem in Support, Bill Jacket, L 1983, ch 815, § 1 at 7; see New Motor Vehicle Bd. of Cal. v Orrin W. Fox Co., 439 US 96, 100-101 n 4 [1978], quoting S Rep 2073, 84th Cong, 2d Sess at 2 [1956] [US Senate finding that the “highly concentrated” automobile industry created a “vast disparity in economic power and bargaining strength” between automobile manufacturers and their dealers, in which manufacturers “determine arbitrarily the rules by which the two parties conduct their business affairs”]; see also Automobile Dealers’ Day in Court Act, 15 USC §§ 1221-1225). The imbalance placed dealers at the mercy of manufacturers who were able to draft and impose protectionist agreements favorable to manufacturers, placing at risk a dealer’s financial investment (see Assembly Mem in Support, Bill Jacket, L 1983, ch 815 at 7). As the Memorandum in Support of Legislation explained,

“[t]here is a great disparity in bargaining power between the motor vehicle manufacturer and the motor vehicle dealer. The franchise agreements which have been developed over a long course of dealing between the manufacturer and the dealer have reached a point where the dealer has few if any rights in comparison to those of the motor vehicle manufacturer. This results in an undue imbalance in bargaining power and the dealer is in many cases at the mercy of the manufacturer. In reality, the motor vehicle dealer who frequently has millions of dollars invested in dealership real property, equipment and good will can do nothing to oppose the will of the manufacturer without jeopardizing this substantial investment. This bill seeks to provide certain basic protection for the dealer in areas where such protection is deemed necessary. If enacted, the protection afforded the dealer through the terms of the bill would counterbalance the numerous protections afforded the manufacturer under the terms of its franchise agreement with the dealer. The result would be a healthier marketplace for all parties concerned” (id. at 7; see New Motor Vehicle Bd. of Cal., 439 US at 100-101 n 4 [manufacturer’s arbitrary “rules are incorporated in the sales agreement or franchise which the manufacturer has prepared for the dealer’s signature”]).

The legislature expanded protections for dealers by enacting the Dealer Act in derogation of common-law contract rules, statutorily overriding agreement provisions that were unfair to dealers (see Vehicle and Traffic Law § 463 [2] [making the 2008 amendments applicable “notwithstanding the terms of any franchise contract”]). The legislature thereby sought to affirmatively “establish an equilibrium of bargaining power” (Assembly Mem in Support, Bill Jacket, L 1983, ch 815 at 7). Furthermore, by amending the statute to include section 463 (2) (gg), thereby imposing a writing requirement to ensure transparency and a substantive measure of lawfulness, the legislature identified the misuse of performance standards as one unfair business practice that needed to be reined in.

Our interpretation of Vehicle and Traffic Law § 463 (2) (gg) should not be understood as an invitation for a court to substitute its opinion for a franchisor’s determination of how best to achieve its bottom-line business goals. Decisions about how best to improve the quality of dealerships and increase dealer sales involve business judgments rightly left to franchisors, and not the courts. Nevertheless, the legislature, by its enactment of the Dealer Act, has determined it is in the interest of the state to subject a franchisor’s performance standards to statutory limits in order to prevent unfair business practices, and has seen fit to place review of franchisor standards squarely within the authority of the courts.

B. Second Certified Question

The second certified question concerns GM’s revision of Beck’s AGSSA, and asks,

“Does a change to a franchisee’s Area of Primary Responsibility or AGSSA constitute a prohibited ‘modification’ to the franchise under section 463(2)(ff), even though the standard terms of the Dealer Agreement reserve the franchisor’s right to alter the Area of Primary Responsibility or AGSSA in its sole discretion?”

We conclude that such change is not an impermissible modification within the meaning of the statute.

Under Vehicle and Traffic Law § 463 (2) (ff) (1),

“[i]t shall be unlawful for any franchisor, notwithstanding the terms of any franchise contract: . . .
“[t]o modify the franchise of any franchised motor vehicle dealer unless the franchisor notifies the . . . dealer, in writing, ... at least ninety days before the effective date thereof, stating the specific grounds for such modification.”

A “modification” is “any change or replacement of any franchise if such change or replacement may substantially and adversely affect the new motor vehicle dealer’s rights, obligations, investment or return on investment” (id. § 463 [2] [ff] [2]). A franchise is statutorily defined as

“a written arrangement for a definite or indefinite period in which a manufacturer or distributor grants to a franchised motor vehicle dealer a license to use a trade name, service mark or related characteristic, and in which there is a community of interest in the marketing of motor vehicles or services related thereto” (Vehicle and Traffic Law § 462 [6]).

Thus, a modification is not limited to a change in the franchise contract because other documents may be constituent parts of the parties’ written arrangement, reflecting their shared interest in the sales and servicing of vehicles and other franchisor products.

The statute provides the dealer with a private right of action to challenge a modification, and places on a franchisor “the burden of proving that such modification is fair and not prohibited” (Vehicle and Traffic Law §§ 463 [2] [ff] [3]; 469). Under the statute “[a] modification is deemed unfair if it is not undertaken in good faith; is not undertaken for good cause; or would adversely and substantially alter the rights, obligations, investment or return on investment of the franchised motor vehicle dealer under an existing franchise agreement” (id. § 463 [2] [ff] [3]).

To the extent section 463 (2) makes unlawful certain franchisor abuses, “notwithstanding the terms of any franchise contract,” this section abrogates contract principles which traditionally bind parties to their agreements (see B & F Bldg. Corp. v Liebig, 76 NY2d 689, 693 [1990] [“The Legislature is presumed ... to have abrogated the common law only to the extent that the clear import of the language of the statute requires”]). As a consequence, a franchisor may not insulate itself from the requirements and proscriptions of section 463 (2) (ff) by contractually reserving in the standard dealer agreement the power to revise an AGSSA, as GM did in this case. Otherwise, a franchisor with superior bargaining power could easily circumvent the purpose of the Dealer Act by reserving the right to change franchise terms at will, even where a change results in significant adverse affects on the dealer.

The fact that the dealer agreement does not contain details about the AGSSA does not remove a franchisor’s revision of the AGSSA from the ambit of section 463 (2) (ff) because a change in the AGSSA is a change to the franchise. The AG-SSA is a subset of a dealer’s APR, which is specifically referenced in the dealer agreement. The AGSSA defines the dealer’s geographic sales area and serves as an essential metric of a dealer’s sales performance. As such it affects a dealer’s competitive position and ability to comply with its obligation under the dealer agreement to “effectively sell[ ], servic[e] and otherwise represent] ] General Motors Products” in the dealer’s designated APR. In other words, a revised AGSSA has the potential to significantly impact the franchise arrangement. GM recognized this very fact in its letter to Beck informing it of the revisions to its AGSSA, which GM described as a notice “provided pursuant to New York Vehicle & Traffic Law § 463 (2) (ff) (1).”

However, by its terms, section 463 (2) (ff) (1) is concerned only with those modifications that result in negative consequences for the dealer, and which meet its requirements for determining whether a change is statutorily impermissible. Thus, the only prohibited modification is one that “may substantially and adversely affect the new motor vehicle dealer’s rights, obligations, investment or return on investment” (Vehicle and Traffic Law § 463 [2] [ff] [2]). In addition, the modification must be deemed unfair, meaning “it is not undertaken in good faith; is not undertaken for good cause; or would adversely and substantially alter the rights, obligations, investment or return on investment of the franchised motor vehicle dealer under an existing franchise agreement” (Vehicle and Traffic Law § 463 [2] [ff] [3]).

Given this statutory language, we cannot say that a revision to a dealer’s geographic sales area categorically violates section 463 (2) (ff). The revised area may not have a substantial impact or be adverse to a dealer’s interests within the meaning of the statute. Indeed, a change could improve a dealer’s sales performance opportunities and competitive position, for example by assigning a geographic area with greater sales potential, by reducing the dealer’s geographic area thereby improving the dealer’s RSI, or by leveling the playing field among dealers within the same dealer network. Thus, a revision of the AG-SSA is not perforce violative of section 463 (2) (ff). Rather, such change must be assessed on a case-by-case basis, upon consideration of the impact of the revision on a dealer’s position.

Accordingly, the first certified question, as reformulated, should be answered in accordance with this opinion and the second certified question answered in the negative.

Pigott, J.

(dissenting in part). Vehicle and Traffic Law § 463 (2) (gg) makes it unlawful for any franchisor, regardless of the terms of a franchise contract, “[t]o use an unreasonable, arbitrary or unfair sales or performance standard in determining a franchised motor vehicle dealer’s compliance with a franchise agreement.” These general and amorphous adjectives “unreasonable,” “arbitrary” and “unfair” are similar to those found in the Uniform Commercial Code and lend themselves to varying interpretations depending on the circumstances of a particular business situation. A performance standard that may be “unreasonable, arbitrary or unfair” as applied to one dealer, in a metropolitan area, may be perfectly reasonable when applied to another in another area of the state. Because in my view a determination concerning the reasonableness, arbitrariness or unfairness of a particular sales performance standard necessarily requires a factual, rather than a legal, determination, I dissent from the majority’s response to the first certified question.

District Court conducted a bench trial over several days and rendered a determination that the RSI performance standard, which uses a statewide sales average adjusted for local conditions, was not unreasonable, arbitrary or unfair. In making that determination, District Court considered and rejected the testimony of Beck’s expert that the standard did not account for brand popularity and import bias, holding that the retail sales index’s (RSI) use of “segmentation” adequately accounted for those particular variables. Crediting the testimony of GM’s two experts, District Court also determined that the RSI standard was “administratively convenient,” “objective,” and “uniformly applied.” That factual determination concerning the performance standard should not be disturbed unless there is no record evidence to support it.

The majority reaches a different factual conclusion, however, stating that “GM’s exclusion of local brand popularity or import bias rendered the [RSI] standard unreasonable and unfair because these preference factors constitute market challenges that impact a dealer’s sales performance differently across the state” (majority op at 391). Putting aside that what constitutes an “unreasonable,” “arbitrary” or “unfair” standard is a factual determination, I do not believe it is this Court’s role or function to determine, as a matter of law, that GM’s failure to include these particular “preference factors” as part of its currently-formulated RSI violated section 463 (2) (gg). We should be mindful that our decision will apply not only to the particular facts in this case, but to all automobile manufacturers and dealerships in this state. Indeed, the Second Circuit acknowledges that GM’s performance standards “appear to represent the industry standard” (787 F3d 663, 676 [2d Cir 2015]).

Contrary to the majority’s subjective conclusion, GM’s use of the RSI with a segmented adjustment does not amount “to GM desiring to rid itself of ineffective dealers in order to increase its brand market share” (majority op at 392) — a fact that we are not empowered to determine. However, if that were GM’s true motive, it would have stuck with the wind-down agreement that Beck signed instead of entering into the participation agreement with Beck instead. Nor would GM have continued working with Beck from 2010 through 2012 to improve Beck’s performance had it been GM’s intention that the Beck dealership fail. It is evident from the record that the RSI is a tool utilized by GM to determine if a franchisee is achieving certain benchmarks, and, if not, the RSI operates as a canary in the coal mine to alert GM that the franchisee needs assistance.

In my view, the majority’s opinion sets a standard that will require other franchisors to follow suit, and, to that extent, its interpretation of section 463 (2) (gg) goes beyond what the legislature intended. Therefore, I dissent.

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

Following certification of questions by the United States Court of Appeals for the Second Circuit and acceptance of the questions by this Court pursuant to section 500.27 of the Rules of Practice of the New York State Court of Appeals, and after hearing argument by counsel for the parties and consideration of the briefs and the record submitted, first certified question answered in accordance with the opinion herein and second certified question answered in the negative.

       Beck does not claim that GM failed to “communicate the performance standard in writing in a clear and concise manner,” which is also required by section 463 (2) (gg).


source: Caselaw Access Project

author: Garcia, J.

license: Public Domain

text:
    [53 NE3d 719, 33 NYS3d 842]
    The People of the State of New York, Respondent, v Elliot Parrilla, Appellant.
    Argued March 30, 2016;
    decided May 3, 2016

      Robert S. Dean, Center for Appellate Litigation, New York City, for appellant.

      Cyrus R. Vance, Jr., District Attorney, New York City {Andrew E. Seewald and Patrick J. Hynes of counsel), for respondent.
   OPINION OF THE COURT

Garcia, J.

It is not disputed that defendant Elliot Parrilla possessed a folding utility knife at the time of his arrest. He asserts, however, that he was unaware that the knife’s characteristics rendered it a gravity knife and that the People were required to prove such knowledge to establish an element of the crime of which he was convicted — criminal possession of a weapon in the third degree. We reject defendant’s argument and hold, based upon the statutory language, that the mens rea prescribed by the legislature for criminal possession of a gravity knife simply requires a defendant’s knowing possession of a knife, not knowledge that the knife meets the statutory definition of a gravity knife.

In February 2011, police officers stopped defendant for a traffic infraction. An officer patted him down for weapons at which time defendant admitted that he had a knife in his pocket. One of the officers tested the knife to determine whether it was a gravity knife by flicking his wrist with a downward motion; the blade opened and locked into place. Defendant was arrested and charged with third-degree criminal possession of a weapon, namely a gravity knife.

At trial, defendant testified that he bought the knife at a large retail store in the Bronx in 2009. According to defendant’s testimony, he worked as a tradesman and used the tool to cut Sheetrock. Defendant testified that, on the day of his arrest, he used the knife to cut tiles during a home renovation project. Defendant stated that he opened the knife with two hands and never opened it with one hand by flicking his wrist.

Over defendant’s objection, the trial court charged the jury as follows:

“A person knowingly possesses a gravity knife when that person is aware that he is in possession of a knife. A person does not have to know that the knife is specifically a gravity knife or that it fits the legal description of a gravity knife in order to knowingly possess it. The People are only required to prove that the defendant, with respect to the knowledge element, knowingly possessed a knife.”

The charge also required the jury to find that the knife defendant possessed did in fact meet the statutory definition of a gravity knife. Defendant was found guilty of criminal possession of a weapon in the third degree and the court imposed a sentence of 2V2 to 5 years’ imprisonment.

On defendant’s appeal, the Appellate Division unanimously affirmed, holding that the trial court “properly instructed the jury that the knowledge element would be satisfied by proof establishing defendant’s knowledge that he possessed a knife in general, and did not require proof of defendant’s knowledge that the knife met the statutory definition of a gravity knife” (112 AD3d 517, 517 [1st Dept 2013]). A Judge of this Court granted defendant leave to appeal (26 NY3d 933 [2015]), and we affirm.

Penal Law § 265.01 (1) states that a “person is guilty of criminal possession of a weapon in the fourth degree when: . . . [h]e or she possesses any . . . gravity knife.” Section 265.00 (5) defines “ ‘[g]ravity knife’ ” as “any knife which has a blade which is released from the handle or sheath thereof by the force of gravity or the application of centrifugal force which, when released, is locked in place by means of a button, spring, lever or other device.” The crime is defined as a class A misdemeanor.

“The Penal Law identifies gravity knives as per se weapons and criminalizes the mere possession of one” (People v Brannon, 16 NY3d 596, 599 [2011]). In other words, section 265.01 (1) “criminalizes the mere possession, and not use, of a gravity knife” (id. at 602).

It is undisputed that to be convicted of criminal possession of a weapon for possessing a gravity knife under Penal Law § 265.01 (1), defendants must know that they possessed a knife. Indeed, “the corpus delicti of weapons possession under Penal Law § 265.01 (1) is the voluntary, aware act of the possession of a weapon” (People v Saunders, 85 NY2d 339, 341-342 [1995]; see CJI2d[NY] Penal Law § 265.01 [1] [Possession of Per Se Weapons other than Firearms] n 2 [recognizing that knowing possession of a knife is required]). Defendant contends that his knowledge had to go one step further; he argues that the People were required to establish that he knew that the knife met the statutory definition of a gravity knife.

We disagree and conclude that Penal Law § 265.01 (1) does not require the People to prove that defendants knew that the knife in their possession met the statutory definition of a gravity knife. The plain language of that subdivision demonstrates that the legislature intended to impose strict liability to the extent that defendants need only be aware of their physical possession of the knife (see Penal Law §§ 15.00 [2]; 15.10). While knowing possession of the knife is required (see Penal Law § 15.15 [2]), we conclude it is not necessary that defendants know that the knife meets the technical definition of a gravity knife under Penal Law § 265.00 (5).

A line of Appellate Division cases supports our conclusion. In People v Berrier, the defendant was convicted of, among other crimes, criminal possession of a weapon in the third degree (see 223 AD2d 456, 457 [1st Dept 1996], lv denied 88 NY2d 876 [1996]). The First Department held that

“[t]he trial court correctly charged that in order to convict [the] defendant of possessing a gravity knife, the prosecution had to prove that [the] defendant knew he had a knife in his possession, not that he knew it was specifically a gravity knife, and that the knife fit the legal description of a gravity knife under Penal Law § 265.00 (5)” (id.).

The Court continued: “Knowledge that the thing possessed answers the description of one of the prohibited instruments is not an element of third-degree criminal possession of a weapon” (id.; see e.g. People v Herbin, 86 AD3d 446, 447 [1st Dept 2011], lv denied 17 NY3d 859 [2011]).

Our determination also is consistent with cases concluding that defendants’ knowledge of a firearm’s operability is not an element of criminal possession of a weapon. Defendants need only knowingly possess a firearm, they need not know that the firearm was loaded or operable (see Saunders, 85 NY2d at 341-342; People v Brown, 107 AD3d 1477, 1478 [4th Dept 2013], lv denied 21 NY3d 1040 [2013]; People v Melendez, 71 AD3d 1166, 1167 [2d Dept 2010], lv denied 15 NY3d 753 [2010]).

Defendant’s second issue on appeal is without merit. During jury deliberations, a juror sent a note to the court stating: “I am concerned one of the locations mentioned in the witnesses’ testimony may affect my judgment in this case due to the proximity to where I live.” Thereafter, the trial court interviewed the juror twice. The record supports the conclusion that the juror did not possess a state of mind that would have prevented her from rendering an impartial verdict and, therefore, was.not grossly unqualified (see CPL 270.35 [1]; People v Mejias, 21 NY3d 73, 79 [2013]). Defendant’s alternative argument that the trial court failed to engage in a probing and tactful inquiry of the juror is unpreserved (see People v Hicks, 6 NY3d 737, 739 [2005]).

Accordingly, the Appellate Division order should be affirmed.

Chief Judge DiFiore and Judges Pigott, Rivera, Abdus-Salaam, Stein and Fahey concur.

Order affirmed.

      . In 2010, following an agreement with the New York County District Attorney’s Office, the retail store stopped selling similar knives in New York.

      . Here, defendant was convicted of criminal possession of a weapon in the third degree pursuant to Penal Law § 265.02 (1), which states: “A person is guilty of criminal possession of a weapon in the third degree when: . . . [s]uch person commits the crime of criminal possession of a weapon in the fourth degree as defined in subdivision one ... of section 265.01, and has been previously convicted of any crime.” Defendant had a prior criminal conviction, making his conviction a class D felony.


author: Abdus-Salaam, J.

text:
    [53 NE3d 723, 33 NYS3d 846]
    Millennium Holdings LLC, Plaintiff, The Northern Assurance Company of America, Appellant, and Certain Underwriters at Lloyd’s et al., Intervenors-Appellants, v The Glidden Company, Now Known as Akzo Nobel Paints LLC, et al., Respondents.
    Argued March 29, 2016;
    decided May 5, 2016

      Zuckerman Spaeder LLP, Washington, D.C. (Carl S. Kravitz and Jason M. Knott, of the District of Columbia bar, admitted pro hac vice, of counsel), and Tannenbaum Helpern Syracuse & Hirschtritt LLP, New York City (Jamie B.W. Stecher and George F. du Pont of counsel), for appellant and intervenors-appellants.

      Debevoise & Plimpton LLP, New York City (Maura K. Mon-aghan and James B. Amler of counsel), for respondents.

      Anderson Kill P.C., New York City (William G. Passannante and John M. Leonard of counsel), and Amy Bach, United Policyholders, San Francisco, California, for United Policyholders, amicus curiae.

      Melito & Adolfsen PC, New York City (S. Dwight Stephens of counsel), and Wiley Rein LLP, Washington, D.C. {Laura A. Fog-gan and Edward R. Brown of counsel), for Complex Insurance Claims Litigation Association, amicus curiae.
   OPINION OF THE COURT

Abdus-Salaam, J.

In this action, appellant insurance companies seek to be subrogated to the right of their insured, plaintiff Millennium Holdings LLC, to indemnification against respondents, the Glidden Company, now known as Akzo Nobel Paints LLC, following the insurance companies’ satisfaction of Millennium’s obligations pursuant to monetary settlements reached in certain lead paint related cases. The courts below, applying the antisubrogation rule, held that the insurance companies could not subrogate. We disagree, and hold that the antisubrogation rule does not apply in this case.

I.

The complex corporate history of the parties is central to resolving this indemnification dispute. The Glidden Company, incorporated in Ohio in 1917, made, marketed and sold lead paint, including, until 1958, lead pigment. Glidden was bought by SCM Corporation in 1967. SCM placed Glidden’s operations in a division entitled the Glidden-Durkee Division. Between 1962 and 1970, primary and excess insurance policies were issued to Glidden, and thereafter the Glidden-Durkee Division of SCM, by the appellant insurance companies, including certain underwriters at Lloyd’s, London and certain London Market Insurance Companies (the London Insurers), as well as the predecessor of Northern Assurance Company of America (collectively, where appropriate, the Insurers). A number of the policies issued between 1963 and 1968 provide the Insurers with a right to subrogation, whereby, after paying a claim on behalf of its insured, an insurer may seek to enforce the insured’s rights against another entity to recover its loss (see Federal Ins. Co. v Arthur Andersen & Co., 76 NY2d 366, 372 [1990]).

In 1986, Hanson Trust PLC purchased SCM in a hostile takeover. SCM adopted a plan of liquidation and dissolution, where it distributed its remaining assets and liabilities between 20 “fan companies,” entitled HSCM 1 through 20. SCM placed the assets and liabilities of the Glidden paints business into HSCM-6. SCM memorialized this distribution in a memorandum of distribution and liquidation which expressly noted that the insurance policies issued to Glidden and SCM were excluded from the distribution to HSCM-6. Thus, the insurance policies that were issued to SCM and Glidden were not included in the assets of the Glidden paints business which were distributed to HSCM-6. Following the distribution of assets to HSCM-6, the stock of HSCM-6 and all remaining undistributed assets of SCM were placed in HSCM-20, including the insurance policies issued by the Insurers.

As relevant to this appeal, the critical moment in the corporate history of the parties occurred in 1986, when HSCM-20 entered into a purchase agreement under which it sold all the stock in HSCM-6 to ICI American Holdings (1986 purchase agreement). Although ICI American Holdings held all the HSCM-6 stock, HSCM-20 retained the insurance policies. The 1986 purchase agreement also included certain indemnity obligations, due to successor liability concerns. Under section 9.1 (c) of the 1986 purchase agreement, HSCM-20 agreed to indemnify ICI American Holdings for an eight-year period between 1986 and 1994 for claims arising from:

“product safety or liability . . . , health or welfare conditions or matters arising from or relating to acts, omissions, events or conditions of or relating to the Business, the Predecessor Business or the Former Business occurring or existing prior to the Closing or otherwise arising out of or relating to the conduct of the Business, the Predecessor Business or the Former Business prior to the Closing.”

Under section 9.3 of the 1986 purchase agreement, ICI American Holdings agreed to indemnify HSCM-20 after 1994,

“from, against and in respect of any Claims . . . relating to the Business arising from or relating to acts, omissions, events or conditions of or relating to the Business, the Predecessor Business or the Former Business occurring or existing prior to, on or after the Closing or otherwise arising out of or relating to the conduct of the Business, the Predecessor Business or the Former Business prior to, on or after the Closing arising against Indemnitees for matters referred to in Section 9.1(b), 9.1(c) or 9.1(e) to the extent that [ICI American Holdings] would not be entitled to indemnity under Sections 9.1 and 9.2."

Through a series of corporate transactions, HSCM-20 became plaintiff Millennium, and ICI American Holdings assigned HSCM-6 to an entity that became Akzo Nobel Paints (ANP). Accordingly, based on the 1986 purchase agreement, Millennium and its predecessors were required to indemnify ANP and its predecessors from 1986 to 1994. In turn, ANP and its predecessors were required to indemnify Millennium and its predecessors from 1994 onward.

Commencing in 1987', a number of lawsuits were filed across the nation against the predecessors of Millennium and ANP, alleging either personal injury or property damage from the lead paint they produced, or that the lead paint was a public nuisance requiring abatement (hereinafter the Lead Cases). Between 1987 and 1994, pursuant to the 1986 purchase agreement’s indemnification provision, ANP’s predecessors were indemnified by Millennium’s predecessors for their defense costs in the Lead Cases. However, when the indemnity obligation flipped in 1994, ANP’s predecessor refused to indemnify Millennium’s predecessor, claiming it was not obligated to do so under the 1986 purchase agreement. As a result, in 1994, ANP’s predecessor and Millennium’s predecessor commenced actions against each other in both New York and Ohio state courts to resolve the dispute. That litigation settled in 2000, and the settlement agreement incorporated a novation agreement, whereby ANP acquired ICI American Holdings’s indemnity obligation under section 9.3 of the 1986 purchase agreement. The parties amended the 1986 purchase agreement consistent with the settlement (the amended purchase agreement). The settlement, however, expressly left open the parties’ indemnification obligations regarding the Lead Cases.

During pendency of the 1994 litigation, the London Insurers agreed to pay the defense costs of both Millennium and ANP under an interim defense agreement. However, the London Insurers terminated that funding agreement in 2000, and sought a declaration in Ohio state court that they were not required to provide ANP with a defense and indemnification in the Lead Cases, based on the subject policies. In 2006, the Ohio Supreme Court held that ANP was not covered under the relevant policies “by operation of law or by contract,” as it was not a named insured on any of the relevant policies and, additionally, its subsequent purchase of HSCM-6 included an assumption of liabilities (Glidden Co. v Lumbermens Mut. Cas. Co., 112 Ohio St 3d 470, 470, 474-475, 861 NE2d 109, 112, 115-116 [2006]).

Thereafter, in 2008, Millennium commenced this action seeking indemnification from ANP for fees and claims associated with the Lead Cases. After procedural history not directly relevant here, ANP asserted certain counterclaims. The London Insurers filed a motion to intervene in the action. While that motion was pending, Millennium’s settlement of a California lead case, referred to as the Santa Clara action, was approved by the federal bankruptcy court for the sum of $8.5 million. The London Insurers contributed approximately $2.8 million and Northern Assurance contributed approximately $370,000 (roughly $3.2 million collectively) to Millennium’s satisfaction of this settlement. Millennium and ANP then entered into a settlement agreement to resolve their claims in this action, under which ANP agreed to pay Millennium $3 million in satisfaction of all claims between them, and to terminate any obligations under the amended purchase agreement. The settlement agreement did not impact the Insurers’ subrogation rights under the 1986 purchase agreement.

Following execution of that settlement agreement, Supreme Court granted the London Insurers’ earlier motion to intervene in this action, and thereafter Millennium and the London Insurers filed a second amended complaint. The London Insurers sought a declaration that they were entitled to subrogate (both equitably and contractually) to Millennium’s indemnification rights in the 1986 purchase agreement and, as a result, recover from ANP amounts that were paid by the London Insurers on behalf of Millennium in connection with the Lead Cases. At that juncture, the London Insurers’ claim against ANP for subrogation was the only remaining claim in this action, as ANP and Millennium’s settlement resolved the claims between them. Later, Northern Assurance joined this action as a plaintiff when its separate indemnification action against ANP, seeking its contribution to the Santa Clara settlement, was consolidated with this action. The Insurers moved for partial summary judgment on liability and ANP cross-moved for summary judgment dismissing the complaints. Specifically, as relevant here, ANP argued, and the courts below agreed, that the Insurers’ subrogation claim was barred by the exception to subrogation — the antisubrogation rule. Although Supreme Court determined that under the 1986 purchase agreement ANP was not an insured, it concluded that because the Insurers sought to recover for the very risk they insured, the anti-subrogation rule would prohibit the Insurers’ right of subrogation (41 Misc 3d 1231 [A], 2013 NY Slip Op 51947[U] [2013]). The Appellate Division affirmed for the reasons stated by Supreme Court (see 121 AD3d 444 [1st Dept 2014]), and we now reverse.

II.

Subrogation, generally, may arise either contractually or under the doctrine of equitable subrogation. The purpose of subrogation is to “allocate [ ] responsibility for the loss to the person who in equity and good conscience ought to pay it, in the interest of avoiding absolution of a wrongdoer from liability simply because the insured had the foresight to procure insurance coverage” (North Star Reins. Corp. v Continental Ins. Co., 82 NY2d 281, 294 [1993]). Equitable subrogation “ ‘entitles an insurer to stand in the shoes of its insured to seek indemnification from third parties whose wrongdoing has caused a loss for which the insurer is bound to reimburse’ ” (ELRAC, Inc. v Ward, 96 NY2d 58, 75 [2001], quoting North Star Reins. Corp., 82 NY2d at 294 [additional internal quotation marks omitted]). Subrogation rights may also be preserved by the parties to a contract — as is the case in some of the insurance policies at issue here.

However, the antisubrogation rule is an exception to the right of subrogation (see Pennsylvania Gen. Ins. Co. v Austin Powder Co., 68 NY2d 465, 468 [1986]). Under that rule, “an ‘insurer has no right of subrogation against its own insured for a claim arising from the very risk for which the insured was covered . . . even where the insured has expressly agreed to indemnify the party from whom the insurer’s rights are derived’ ” (ELRAC, Inc., 96 NY2d at 76, quoting Pennsylvania Gen. Ins. Co., 68 NY2d at 468). In effect, “an insurer may not step into the shoes of its insured to sue a third-party tortfea-sor — if that third party also qualifies as an insured under the same policy — for damages arising from the same risk covered by the policy” (ELRAC, Inc., 96 NY2d at 76), even where there is an express subrogation agreement (see Jefferson Ins. Co. of N.Y. v Travelers Indent. Co., 92 NY2d 363, 373 [1998]). The two primary purposes of the antisubrogation rule are to avoid “a conflict of interest that would undercut the insurer’s incentive to provide an insured with a vigorous defense” and “to prohibit an insurer from passing its loss to its own insured” (id.).

Insurers are barred under the antisubrogation rule from seeking subrogation from a named insured or additional insureds (see Pennsylvania Gen. Ins. Co., 68 NY2d at 471). Conversely, subrogation is typically permissible where the third party is not a named or additional insured (see e.g. St. John’s Univ., N.Y. v Butler Rogers Baskett Architects, P.C., 92 AD3d 761, 764 [2d Dept 2012]; Utica Mut. Ins. Co. v Brooklyn Navy Yard Dev. Corp., 52 AD3d 821, 822-823 [2d Dept 2008]; Insurance Corp. of N.Y. v Cohoes Realty Assoc., L.P., 50 AD3d 1228, 1230 [3d Dept 2008]). In Jefferson Ins. Co., however, where an insurer sought subrogation against a permissive operator of a covered vehicle, we held that the antisubrogation rule applied even though the permissive user was not specifically named as an insured or an additional insured, and despite the operator’s agreement to indemnify the named insured. We reasoned that, although the operator was not named on the policy, the operator qualified as an insured because the policy covered permissive users of the vehicle, and that the distinction between a named insured and a permissive user was “immaterial for purposes of application of the antisubrogation rule” (92 NY2d at 375). Accordingly, we concluded that application of the anti-subrogation rule was appropriate, observing that the insurer “should not [have] be[en] surprised to pay claims that it covered” (id.).

The antisubrogation rule, therefore, requires a showing that the party the insurer is seeking to enforce its right of subrogation against is its insured, an additional insured, or a party who is intended to be covered by the insurance policy in some other way, such as the permissive user in Jefferson. Here, as recognized by the courts below, ANP and its predecessor were not insured under the relevant insurance policies. When SCM transferred the assets and liabilities of its paints business to HSCM-6 (ANP’s predecessor), the insurance policies that had applied to SCM were specifically excluded from that distribution. The insurance policies were placed in HSCM-20, a predecessor of Millennium. Hence, ANP was never insured by the Insurers. Thus, the principal element for application of the antisubrogation rule — that the insurer seeks to enforce its right of subrogation against its own insured, additional insured, or a party intended to be covered by the insurance policy — is absent.

Despite concluding, as we do here, that ANP was not insured by the Insurers, the courts below determined that, based on Jefferson, the antisubrogation rule should apply. However, our holding in that case did not extend application of the antisub-rogation rule to non-insured parties, for in Jefferson, the vehicle operator was insured as a permissive user because the policy expressly covered permissive users. In this case, ANP was not covered by the Insurers, and thus Jefferson is distinguishable.

The essential element of the antisubrogation rule is that the party to which the insurer seeks to subrogate is covered by the relevant insurance policy. The rule also requires that the insurer seek to enforce its right of subrogation against that covered party on a risk insured by the policy (see Pennsylvania Gen. Ins. Co., 68 NY2d at 468). If we were to extend application of the antisubrogation rule to all non-covered third parties, an insurer who fulfills its obligation to pay on the risks insured by the relevant policy would essentially be foreclosed from the ability to subrogate. For this reason it is essential, absent a policy reason supporting application of the antisubro-gation rule, that the third party against whom the insurer seeks to exercise its right of subrogation is not covered by the relevant insurance policy.

The contexts in which courts of this state have extended the antisubrogation rule to third parties who are not covered by the insurance policy are limited and distinguishable from this circumstance. The application of the antisubrogation rule in those cases was primarily based on a policy concern — namely, the existence of a conflict of interest, one of the primary purposes underlying the antisubrogation rule. Thus, the anti-subrogation rule has been applied by the Appellate Division Departments to an insured’s employee for whom the insured is vicariously liable (see Medical Liab. Mut. Ins. Co. v Schurig, 211 AD2d 518, 518 [1st Dept 1995], Iv denied 86 NY2d 703 [1995]), an insured property owner’s real estate managers (see Kerr v Louisville Hous., 2 AD3d 924, 927 [3d Dept 2003]), and the president and principal shareholder of a closely held corporation (see Fireman’s Ins. Co. of Newark, N.J. v Wheeler, 165 AD2d 141, 144-145 [3d Dept 1991]). Here, however, the policy concerns underpinning the antisubrogation rule are not implicated as no conflict of interest arises. Since ANP is not an insured, there is no risk that the Insurers will shirk their obligation to one insured in favor of the other. There is no reason to apply the antisubrogation rule under these facts, and the courts below erred in granting ANP’s motion for summary judgment on that basis.

Accordingly, the order of the Appellate Division should be reversed, with costs, ANP’s motion for summary judgment on its antisubrogation defense is denied, and the case remitted to the Appellate Division for consideration of issues raised but not determined on the appeal to that Court.

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

Order reversed, with costs, motion by The Glidden Company, now known as Akzo Nobel Paints LLC, for summary judgment on its antisubrogation affirmative defense denied and case remitted to the Appellate Division, First Department, for consideration of issues raised but not determined on the appeal to that court.

      . Prior to Hanson’s acquisition of SCM, SCM placed its pigments business into a subsidiary, ABC Chemicals Inc. SCM retained its paints business.

      . This distribution to HSCM-20 also included ABC Chemicals Inc.

      . HSCM-20 and ICI American Holdings agreed that the amount of the indemnity for this initial eight-year period would decrease gradually, until it expired in 1994.

      4. Section 9.1 concerns the indemnification obligations of HSCM-20, as the seller, and defines business, predecessor business, and former business. Those definitions are not relevant for purposes of this appeal.

      5. Section 9.2 outlines the periods applicable to and the limitations upon HSCM-20’s indemnification obligations.

      . At the same time the 1986 purchase agreement was entered into, Hanson — the purchaser of SCM — attempted to enter into a side letter agreement, under which it purported to provide ICI American Holdings with the benefit of the insurance policies that had applied to SCM and Glidden. Notably, this transfer was later invalidated by the Ohio Supreme Court in an indemnity action between Glidden and certain comprehensive general liability insurers. That court held that Hanson was not a named insured in the relevant policies and consequently could not transfer the policies to ICI American Holdings (see Glidden Co. v Lumbermens Mut. Cas. Co., 112 Ohio St 3d 470, 477, 861 NE2d 109, 117 [2006]).

      . ANP’s predecessor essentially argued that it was not obligated to indemnify Millennium’s predecessor for “pigment” claims versus “paint” claims; in ANP’s predecessor’s view, since the remnants of any of Glidden’s pigments business had been transferred to ABC Chemicals prior to ICI American Holdings’s purchase of HSCM-6, the indemnification provisions did not cover pigment claims. Apparently, plaintiffs in the Lead Cases made distinctions between lead-based paint and lead-pigment manufacturers, generally pursuing lead-pigment manufacturers rather than lead-based paint manufacturers due to difficulty in determining the actual manufacturers for the paint at issue.

      . As mentioned, this decision also invalidated Hanson’s side letter agreement attempting to provide ICI American Holdings with the benefits of SCM’s insurance policies.

      . Subsequently, in January 2009, Millennium filed for chapter 11 bankruptcy.

      . Specifically, ANP counterclaimed for a declaration that it was not obligated to indemnify Millennium for pigment-related claims. It also alleged that Millennium had made misrepresentations in the 1986 purchase agreement which entitled it to set-off any indemnification claims. Additionally, ANP asserted two causes of action for breach of Millennium’s contractual obligation to indemnify ANP.

      . The Insurers assert that they have paid over $15 million to Millennium in connection with the Lead Cases.

      . Prior to oral argument on the summary judgment motions in Supreme Court, an Ohio state trial court decided a pending action, wherein the Insurers sought to recoup their respective contributions to the Santa Clara settlement from Millennium. The court held that the Insurers’ settlement payment in the Santa Clara action was not required under the relevant policies, and thus was a voluntary payment. The court there reasoned that because the nuisance claim advanced by the Santa Clara plaintiffs was for “remediation of a public health hazard” not “an action for damages for injuries caused to plaintiffs’ property,” coverage for that claim was unavailable because the policies issued by the Insurers covered property damage, rather than public health hazards. Thus, the court concluded that because the Insurers were not required to make the settlement payment, they were not entitled to reimbursement from Millennium of their $3.2 million contribution. The Insurers did not appeal this Ohio court order.


text:
    [53 NE3d 734, 33 NYS3d 857]
    The People of the State of New York, Respondent, v Leroy Carver, Appellant.
    Argued April 26, 2016;
    decided June 7, 2016

      Timothy P. Donaher, Public Defender, Rochester (Janet C. Somes of counsel), for appellant.

      Sandra Doorley, District Attorney, Rochester (Scott Myles of counsel), for respondent.
   OPINION OF THE COURT

Garcia, J.

Following a jury trial, defendant was convicted of two counts of burglary in the second degree (Penal Law § 140.25 [2]). The evidence established that defendant was in the front passenger seat of a vehicle that was stopped by a police officer who observed items obstructing the windshield in violation of the Vehicle and Traffic Law. Neither defendant nor the driver could produce identification, and both men provided false names and identifying information. The men also gave false information concerning their earlier whereabouts. The officer noticed that the men appeared to be “very anxious” and “very nervous,” and he also observed several large duffel bags on the backseat. A pair of gloves rested on top of one of the bags, and the edge of a laptop computer could be seen inside one of the open bags. While the officer returned to his patrol vehicle to run a records check, the driver of the vehicle fled on foot. The officer ran back and found that defendant had removed his seat belt and was attempting to get out of the car. Defendant was detained and frisked, and a digital camera — later determined to be stolen — was recovered from defendant’s coat pocket. While defendant was detained, the officer learned that two nearby homes had recently been burglarized. During a subsequent inventory search, a number of items belonging to the burglary victims were recovered from the vehicle.

Defendant challenges his conviction, contending that a series of alleged errors — stretching from pretrial proceedings through sentencing — deprived him of effective assistance of counsel. The Appellate Division, with two Justices dissenting, affirmed, concluding that defendant was afforded meaningful representation (People v Carver, 124 AD3d 1276 [4th Dept 2015]). A Justice of the Appellate Division granted leave to appeal. We similarly reject defendant’s claims.

Defendant first argues that his trial attorney was ineffective for failing to seek suppression of the stolen property by challenging the legality of the traffic stop and the “pat down” incident to defendant’s detention. To prevail on his claim, defendant must demonstrate “the absence of strategic or other legitimate explanations for counsel’s failure to pursue ‘color-able’ claims” (People v Garcia, 75 NY2d 973, 974 [1990], citing People v Rivera, 71 NY2d 705, 709 [1988]). Only in the “rare case” will it be possible, based on the trial record alone, to deem counsel ineffective for failure to pursue a suppression motion (Rivera, 71 NY2d at 709).

Here, the record on direct appeal is devoid of any indication that counsel could have presented a colorable argument challenging the legality of the traffic stop. The arresting officer provided uncontested testimony at trial concerning the Vehicle and Traffic Law violation that supplied the basis for the stop. Defendant failed to contradict this testimony, or to otherwise supply any evidence that the stop was unlawful. While a meritorious suppression motion would have been detrimental to the prosecution’s case, “[t]here can be no denial of effective assistance of trial counsel arising from counsel’s failure to ‘make a motion . . . that has little or no chance of success’ ” (People v Caban, 5 NY3d 143, 152 [2005], quoting People v Stultz, 2 NY3d 277, 287 [2004]). We decline to deem counsel ineffective for failing to challenge the legality of the stop where, as here, there is no support in the record for such a motion (see id.).

Assuming a colorable challenge to the legality of the frisk incident to defendant’s detention could be grounded in this record, as the Appellate Division noted, counsel may have made a legitimate strategic decision not to move to suppress (Carver, 124 AD3d at 1278-1279). On this record alone, we have no reason to discount the possible strategic explanations for counsel’s decision. Because defendant “made no showing that counsel’s failure to seek a suppression hearing was not premised on strategy,” his claim must be rejected (Rivera, 71 NY2d at 709). In addition, because the remaining evidence demonstrated that defendant was in a vehicle containing a number of recently-stolen items, a challenge to the frisk would have had little to no effect on the outcome.

Defendant also contends that counsel failed to provide meaningful representation at sentencing, pointing to counsel’s brief statement referencing “the facts of the case . . . [and] what [the defense’s] position has been throughout.” We reject defendant’s contention. At sentencing, defense counsel was aware that the court had received the presentence investigation report, and was otherwise aware of the mitigating factors that defendant now claims should have been raised by counsel. Moreover, before defense counsel was asked to speak, defendant presented his own argument with regard to sentencing, emphasizing that he knew nothing about the crime and that he “didn’t do anything” wrong. Because defendant continued to deny all knowledge and responsibility related to the crime, he left counsel with little choice other than to reiterate defendant’s position at trial. On this record, we cannot agree that counsel’s performance at sentencing amounted to ineffective assistance.

We have considered defendant’s remaining arguments regarding counsel’s performance and conclude that they are without merit. The test for effectiveness is “reasonable competence, not perfect representation” (People v Oathout, 21 NY3d 127, 128 [2013]). In essence, defendant asks that we comb the record and parse each of counsel’s strategic judgments with the clarity of hindsight. We are unswayed by defendant’s attempt to buttress his claim by labeling each such decision “ineffective.” Here, “viewed in totality and as of the time of the representation,” counsel “provided meaningful representation” (People v Baldi, 54 NY2d 137, 147 [1981]).

The order of the Appellate Division should be affirmed.

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

Order affirmed.