author: Read, J.

text:
    [830 NE2d 268, 797 NYS2d 370]
    In the Matter of Blossom View Nursing Home, Appellant, v Antonia C. Novello, M.D., as Commissioner of Health of State of New York, et al., Respondents.
    Argued March 22, 2005;
    decided April 28, 2005

      POINTS OF COUNSEL

      Harter, Secrest & Emery LLP, Rochester (Thomas G. Smith of counsel), for appellant.
    I. State regulations imposing a six-year time limit for audits of records underlying a nursing facility’s Medicaid rates apply to audits of patient review instrument records. (Matter of Elcor Health Servs. v Novello, 100 NY2d 273; Matter of Teresian House Nursing Home Co. v Chassin, 218 AD2d 250.) II. The Department of Health’s inexcusable delay in scheduling audits of Blossom View Nursing Home’s patient review instrument data for more than six years is untimely as a matter of law. (Matter of Cortlandt Nursing Home v Axelrod, 66 NY2d 169; St. Joseph’s Hosp. Health Ctr. v Department of Health of State of N.Y., 247 AD2d 136, 93 NY2d 803.)

      Eliot Spitzer, Attorney General, Albany (Victor Paladino, Caitlin J. Halligan, Daniel Smirlock and Nancy A. Spiegel of counsel), for respondents.
    I. Prohibition does not lie because the proposed audit of Blossom View Nursing Home’s 1994 through 1996 patient review instruments is not untimely as a matter of law. (Matter of Doe v Axelrod, 71 NY2d 484; Matter of Teresian House Nursing Home Co. v Chassin, 218 AD2d 250; Matter of Monroe County v Axelrod, 125 AD2d 981; Matter of Rossi v Axelrod, 178 AD2d 813; Matter of St. Luke’s Presbyt. Nursing Ctr. v Perales, 170 AD2d 915; Matter of Elcor Health Servs. v Novello, 100 NY2d 273; Matter of Ellis Ctr. for Long Term Care v De-Buono, 261 AD2d 791, 93 NY2d 1037; Matter of Cortlandt Nursing Care Ctr. v Whalen, 46 NY2d 979; Matter of Sigety v Ingraham, 29 NY2d 110; Matter of Orange County Home & Infirmary

      v Axelrod, 141 Misc 2d 135.) II. The factual question of whether Blossom View Nursing Home would be substantially prejudiced cannot be decided in advance of the audit, but must be decided by the agency in the first instance. (St. Joseph’s Hosp. Health Ctr. v Department of Health of State of N.Y., 247 AD2d 136, 93 NY2d 803; Matter of Cortlandt Nursing Home v Axelrod, 66 NY2d 169; Matter of Monroe County v Axelrod, 125 AD2d 981; Matter of Town of Huntington v New York State Div. of Human Rights, 82 NY2d 783; Matter of Dondi v Jones, 40 NY2d 8; Matter of Cerniglia v Ambach, 145 AD2d 893, 74 NY2d 603.)

      Neiman Ginsburg & Mairanz P.C., New York City (Marvin Neiman and Theodore T. Mairanz of counsel), for Concourse Rehabilitation & Nursing Center, Inc. and another, amici curiae.
    I. The State of New York is estopped from arguing that the six-year limitations period does not apply to reviews of patient review instrument reports. (Matter of Astor Gardens Health Care Ctr. v Novello, 304 AD2d 961; Matter of Thrift Assns. Serv. Corp. v DeBuono, 255 AD2d 809.) II. The regulations provide for a 90-day period to adjust a facility’s rates. (Flanagan v Mount Eden Gen. Hosp., 24 NY2d 427; Kassner & Co. v City of New York, 46 NY2d 544.) III. The Department of Health cannot give itself an open ended limitations period. (Boreali v Axelrod, 71 NY2d 1; Hartnett v New York City Tr. Auth., 86 NY2d 438; State of New York v Mayflower Nursing Home, 144 AD2d 657; Hollander v Brezenoff, 787 F2d 834.)

      O’Connell and Aronowitz, Albany (Cornelius D. Murray of counsel), for New York State Health Facilities Association, Inc., amicus curiae.
    I. Patient review instruments are fiscal and statistical records within the meaning of 10 NYCRR 86-2.7. (Matter of Elcor Health Servs. v Novello, 100 NY2d 273; Matter of Astor Gardens Health Care Ctr. v Novello, 304 AD2d 961; Matter of Cortlandt Nursing Home v Axelrod, 66 NY2d 169.) II. Even under the alternative regulation, 18 NYCRR 517.3 (a) (1), the patient review instruments would be subject to the six-year audit limitation. III. Nursing homes would obviously be prejudiced if books and records were still subject to audit after they had legally disposed of them.

      Cadwalader, Wickersham & Taft LLP, New York City (Peter G. Bergmann and Kathy H. Chin of counsel), for New York Association of Homes and Services for the Aging, amicus curiae.
    I. The proposed patient review instrument audit was untimely as a matter of law. (Matter of Cortlandt Nursing Home v Axelrod,
      66 NY2d 169, 476 US 1115; Matter of Monroe County v Axelrod, 125 AD2d 981, 76 NY2d 714.) II. The decision will impact nursing homes adversely. (St. Joseph’s Hosp. Health Ctr. v Department of Health of State of N.Y., 247 AD2d 136, 93 NY2d 803; Matter of Cortlandt Nursing Home v Axelrod, 66 NY2d 169, 476 US 1115.)
   OPINION OF THE COURT

Read, J.

In this CPLR article 78 proceeding, petitioner Blossom View Nursing Home (Blossom) appeals from an Appellate Division order dismissing its petition seeking to bar respondents Commissioner of Health and Director of the Division of the Budget from auditing its patient review instruments (PRIs) for the years 1994 though 1996. The New York State Department of Health (DOH) did not announce its intention to commence audits of Blossom’s PRIs for any of these years until August 2002, and the parties dispute whether DOH may ever audit PRIs more than six years after they are filed. For the reasons that follow, we conclude that DOH is not required by its regulations to notice or commence an audit of PRIs within six years of filing; however, in light, of the facts of this case, DOH may not audit Blossom’s PRIs for 1995 and 1996, or use its audit of Blossom’s 1994 PRIs to determine Medicaid reimbursement rates.

I.

The Commissioner administers the State’s Medical Assistance Plan (Medicaid) and sets Medicaid reimbursement rates for nursing homes, more formally called “residential health care facilities,” for medical services provided to the indigent (Public Health Law § 2807 [3]; § 2808 [3]). Prior to 1986, the State’s Medicaid per diem reimbursement rate—the daily rate at which a facility can bill Medicaid for every Medicaid-eligible resident— was not in any way tied to the level of care required. As a result, nursing homes were thought to be discouraged from admitting individuals requiring more intensive care, who were as a consequence shunted into costly hospital beds. To reduce any rate-induced disincentive for nursing homes to provide services for individuals requiring institutional but not hospital care, DOH developed and implemented the Resource Utilization Group-II (RUG-II) case mix reimbursement methodology, effective January 1, 1986.

RUG-II is a prospective system that establishes reimbursement rates by using a nursing home’s allowable costs in a base year or period, adjusted for regional wage differentials, inflation and changes in the level of care required by its residents. RUG-II provides for reimbursement of capital and operating costs, the latter of which is composed of direct, indirect and noncomparable components (10 NYCRR 86-2.10 [a] [7]; [b] [1] [ii]; [2]).

The direct component of operating costs is based upon a patient classification system that establishes 16 RUG-II categories grouped into five “hierarchies,” each of which is characterized by specifically diagnosed physical or mental conditions. The five hierarchies are further divided to create the 16 RUG-II categories based on the resident’s functional ability to perform activities of daily living (ADL), measured by the resident’s score on an ADL index designed to reflect the need for supervision or assistance in eating, toileting and transferring (see 10 NYCRR Appendix 13-A).

Each of the RUG-II categories represents a different combination of the two components—condition (the hierarchy) and functional ability (the ADL)—and reflects the costs associated with caring for nursing home residents classified within the particular category, expressed as a numeric value or case mix index (CMI). Generally, the higher the CMI, the more intensive and costly the care required.

The number of a nursing home’s residents classified in the various RUG-II categories determines the facility’s overall CMI and thus significantly influences its per diem Medicaid reimbursement rate. Consequently, it is essential for each resident’s condition and functional ability to be assessed accurately. This is accomplished by means of the PRI.

A qualified registered nurse completes the PRI, which summarizes the resident’s condition, including medical diagnosis and treatments, ADLs, behavior and specialized services required during the four weeks prior to the PRI’s completion. Each resident is assigned to one of the 16 RUG-II categories based on the information in the completed PRI, for which DOH has provided detailed instructions and clarification documents specifying certain “qualifiers” or criteria that must be met before any PRI question may be answered “Yes.” These qualifiers take the form of time period (the four weeks before the PRI’s completion), frequency (how often something needs to occur to meet the qualifier), the specific medical record documentation called for and exclusions (types of behavior or care to be disregarded when answering the question).

Nursing homes submit new PRIs electronically for all the residents in their care every six months, in accordance with a schedule set by DOH. Twice a year, at the halfway point between these “full-house” PRI filings, a nursing home must update its submission to DOH to account for new admissions and discharges (10 NYCRR 86-2.11 [b]). To insure the accuracy of a nursing home’s PRIs and thus the integrity of its reimbursement rates, DOH has developed a three-stage audit process. DOH has represented in this litigation that “PRI audits are performed at each facility [in the state] approximately every 18 months.”

DOH sends a list of nursing homes to be audited to an independent organization with which it has contracted to accomplish this work. For Stage I audits, DOH typically provides audit forms for 40 of a nursing home’s residents during the audit period, which the auditor completes independently to validate the ADL level assigned by the nursing home. The auditor usually completes a hierarchy verification sheet, or checklist, for 16 of the 40 residents, which addresses the qualifiers relevant to the resident’s specific classification. Auditors principally examine a resident’s medical records to complete the audit form, although they may also observe the residents whose PRIs are being audited or discuss the residents’ care with nursing home staff.

The Stage I auditor returns the completed Stage I audit forms to DOH with an explanation for any differences between PRIs after auditing and as originally submitted. DOH substitutes Stage I audited PRIs for those filed by the nursing home, and also determines whether there is a statistically significant variance (a change in RUG-II category for more than 25% of residents whose PRIs are audited or a change in CMI for the audited residents of .05 or greater), warranting Stage II review of an additional 80 residents.

A different auditor conducts the Stage II audit, which follows the same general format as the Stage I audit. The nursing home may dispute Stage I audit results with the Stage II auditor, who examines any documentation presented and either agrees with or overturns the Stage I auditor’s adverse findings, referred to as “controverted items.” The Stage II auditor may also seek to resolve any discrepancies between the audit findings and the nursing home’s PRIs through discussion with staff or observations of residents. The Stage II auditor returns the completed Stage II audit forms to DOH, which substitutes Stage II audited PRIs for those originally filed by the nursing home, and again determines whether there is a statistically significant variance, warranting a Stage III review of all remaining residents (except those in the lowest-rung RUG-II category).

Yet a third auditor conducts the Stage III audit, which follows the same general format as the Stage I and Stage II audits. The nursing home may seek to persuade the Stage III auditor to overturn controverted items from the Stage II audit. If after completion of the Stage III audit the nursing home is again found to have completed PRIs inaccurately to a statistically significant degree, DOH directs the nursing home to have its PRIs completed by an outside assessor at its own expense for at least one year (10 NYCRR 86-2.30 [f] [1] [ii]; [2]).

Finally, DOH’s procedures call for kicking off each stage of the audit with an entrance conference at which the auditor outlines the review’s purpose, scope and timetable. During the entrance conference, the auditor must secure the nursing home’s written determination as to whether an exit conference is requested. Nursing homes are entitled to an exit conference at the conclusion of each stage of the audit so long as requested at the entrance conference. At the exit conference, the auditor conveys the provisional results of the review just conducted.

II.

On August 11, 1993, DOH’s contract auditor conducted a Stage I audit of Blossom’s July 1993 PRIs, and so examined records to determine the ADL levels of 40 residents and completed hierarchy checklists for 16 of them. The auditor placed 8 of these 40 residents in a different RUG-II classification, yielding a statistically significant decrease in the CMI for these 40 residents. Accordingly, a Stage II audit was scheduled for December 6, 1993.

The Stage II auditor examined the records pertaining to the remaining residents living at Blossom in July 1993 and, at Blossom’s request, reassessed the Stage I auditor’s findings. The Stage II auditor overturned three of the items controverted by Blossom in the Stage I audit, but agreed with the Stage I auditor as to the others. Further, the Stage II auditor concluded that PRIs for 32 additional residents were unsupported by documentation. There was an exit conference at which the auditor informed Blossom’s personnel of these provisional results.

Blossom’s administrator wrote a health care fiscal analyst at DOH on December 17, 1993 to complain about how the contract auditors had carried out the Stage I and II audits, and to dispute their findings. Although Blossom’s resident population was too small to qualify for a Stage III audit, DOH’s health care fiscal analyst nonetheless offered Blossom an additional review and thus another chance to contest Stage II audit results.

Two new outside auditors undertook this third review on March 14, 1994. The auditors examined the records of 24 patients involving 27 controverted items from the Stage II audit and agreed with the Stage II auditor on all of them, although Blossom did not know this at the time. More significantly, the auditors prepared a report “detailing] what occurred” during their review. This report conveys the auditors’ distinct impression that Blossom’s staff was at least uncooperative if not downright intimidating and hostile. Upon completing their work, the auditors told Blossom’s administrator that they were finished, but needed time to compile their findings for the exit conference. When the administrator objected that the auditors “were not to leave the building until an exit interview was granted,” the auditors “explained again that [they] were not prepared to do this yet and [Blossom] would hear from the [auditors’ home] office.”

On March 30, 1994, Blossom’s attorney wrote to the health care fiscal analyst at DOH to request the exit conference. His version of the “confusion as to what exactly happened on March 14,” demonstrates yet again the wisdom of Rashomon: perspective distorts reality and makes the absolute truth unknowable. According to the attorney, during the morning session of the review there was “[a] great deal of constructive dialogue” between the auditors and Blossom’s staff. In the afternoon, however, the auditors’ attitude changed and they “became difficult to work with.” This turn of events “dismayed” Blossom’s staff “since the review, until that point, had proceeded with the smooth exchange of assistance and information.” Worse yet, “the auditors left . . . without giving the nursing home staff any chance to discuss the patient records with the auditors or to see the results of the audit itself.”

Blossom’s attorney stated that he had since learned secondhand from DOH that the auditors “had no intention of ever returning” to conduct an exit conference, and that DOH was preparing Blossom’s CMI based on the March 14, 1994 review. He protested that “without question” Blossom was “not afforded its right” to an exit conference; he requested the exit conference in advance of DOH’s making any final decision regarding Blossom’s CMI.

No one from DOH ever replied to Blossom’s attorney’s letter. Indeed, Blossom did not hear from anyone at DOH on the subject of the Stage II audit until March 28, 2001—almost exactly seven years later—when the same health care fiscal analyst responsible for affording Blossom the March 14, 1994 review wrote to offer yet another reexamination. DOH offers no explanation for this seven-year gap other than “administrative oversight.”

On April 30, 2001, Blossom’s attorney (not the same one who had written to DOH before), accepted the offer of another review of the July 1993 PRIs and chided DOH for not promptly providing Blossom with the exit conference requested seven years earlier. Further, he disputed DOH’s right to use the audited PRIs to calculate the facility’s Medicaid reimbursement rate retroactively for periods from July 1993 forward.

On July 2, 2001, the Director of DOH’s Bureau of Financial Management and Information Support responded to Blossom’s attorney by denying his “request” for DOH to accept Blossom’s PRIs without auditing their accuracy. Noting that although DOH “sincerely regret[s] that the final adjudication of the July[ ] 1993 PRI review has yet to occur, we cannot agree to disregard audit findings and circumvent longstanding protocols for determining when reviews are necessary.” He reiterated DOH’s offer to afford Blossom a “re-review” of the 27 controverted items from the Stage II audit, and pledged to “take all steps practical to move the audit process along as expeditiously as possible for subsequent periods” so as “to make the facility current at the earliest possible date.”

This second bonus review took place another eight months later, on February 22, 2002. Blossom did not question about half of the controverted items, apparently because supporting documentation for the July 1993 PRIs was in some cases no longer available. Of the remaining disputed findings, the auditors agreed with their predecessors on most, and with Blossom on only a few. As a result, the level of discrepancy between the July 1993 PRIs as submitted by Blossom and after audit was still statistically significant. Consequently, on March 28, 2002, DOH’s health care fiscal analyst directed Blossom to enter into a contract with an outside assessor approved by DOH to perform its next four rounds of PRIs (10 NYCRR 86-2.30 [f] [1] [ii]; [2]).

On May 3, 2002, Blossom’s administrator requested a “waiver for Part 86-2.30,” essentially citing DOH’s tardiness in completing the audit of the July 1993 PRIs. On June 12, 2002, the Director responded, stating that it was “unclear” whether Blossom was requesting that DOH “forego processing of the audit results in total” or “rescind its instruction that the facility utilize an independent assessor for PRI submissions between July 2002 and April 2003.” In either event, he denied the request.

In August 2002, DOH notified Blossom of its intention to audit Blossom’s January 1994 PRIs in November 2002. Blossom’s attorney wrote the Director and the fiscal health care analyst to object that DOH could “no longer conduct a timely, lawful audit of the 1994 rate period,” asked DOH to withdraw its audit request and threatened a lawsuit if it did not. On October 17, 2002, the Director denied the request and stated that the audit would take place on November 18, 2002. Further, he warned, “If medical records are not made available to the auditor, we cannot presume the facility’s PRIs are correct. Consequently, all issues relating to hierarchies would need to be denied and all issues relating to [ADLs] would need to be reduced to their lowest level.”

When further efforts to persuade DOH to withdraw or postpone the impending audit proved futile, Blossom commenced this proceeding in Supreme Court on November 15, 2002. Blossom sought judgment declaring respondents’ “announced intention” to audit 1994 PRIs to be arbitrary, capricious, irrational and contrary to state and federal law because “untimely as a matter of law”; declaring any “attempt” by respondents to audit PRIs for 1995 and 1996 to be arbitrary, capricious, irrational and contrary to state and federal law; ordering respondents to recalculate its Medicaid reimbursement rates for 1994, 1995 and 1996 using the CMI derived from the PRIs originally filed for these years; and enjoining respondents from auditing Blossom for “all periods” in 1994, 1995 and 1996.

By order to show cause dated November 18, 2002, Supreme Court granted Blossom a temporary restraining order barring respondents from auditing PRIs filed for the time period from January 1, 1994 through December 31, 1996. On January 3, 2003, Supreme Court issued a decision in Blossom’s favor; on February 4, 2003, Supreme Court entered an order barring respondents from auditing Blossom’s PRIs for 1994 through 1996 and directing them to recalculate Blossom’s Medicaid reimbursement rates for those years in accordance with the PRIs as originally filed. The Appellate Division reversed on the law and dismissed the petition. We subsequently granted Blossom leave to appeal, and now reverse.

III.

Prior to April 1, 1983, Medicaid audit responsibilities were “inefficiently distributed among various State agencies including the Departments of Social Services and Health and the Offices of Mental Hygiene and Mental Retardation and Developmental Disabilities” (Mem of State Exec Dept, reprinted in McKinney’s 1983 Session Laws, at 2415, 2417). Accordingly, as of April 1, 1983 all Medicaid-related audit activities were vested in the Department of Social Services (DSS), including auditing the fiscal and statistical records and reports filed by nursing homes to support their Medicaid reimbursement rates (see L 1983, ch 83, §§ 4, 9; Social Services Law §§ 364, 368-c; 18 NYCRR 517.3 [a] [1]). DOH continued to set and adjust Medicaid rates (see Public Health Law § 2803 [2]; § 2807 [3]; § 2808) and so also, after the advent of RUG-II, undertook to review PRIs (10 NYCRR 86-2.30 [e] [3], [5]).

As of October 1, 1996, responsibility for administering the Medicaid program was shifted from DSS to DOH (see L 1996, ch 474, §§ 233-248; Social Services Law § 363-a [1]; Public Health Law § 201 [1] [v]). DSS’s rules and regulations pertaining to transferred Medicaid functions continued in full force and effect as rules and regulations of DOH (see L 1996, ch 474, § 242). DSS retained the Medicaid audit function until April 1, 1997, when it was renamed the Department of Family Assistance, and the “medicaid audit function pursuant to sections 364 and 368-c of the social services law” was placed with DOH (see L 1997, ch 436, part B, § 122 [a], [e]).

The specific DOH and DSS regulations cited by the parties as relevant to this appeal are 10 NYCRR 86-2.7 (relating to audits of fiscal and statistical records and reports), promulgated by DOH in 1976; 18 NYCRR 517.3 (relating to audits of fiscal and statistical records and reports), promulgated by DSS in 1985; 10 NYCRR 86-2.30 (relating to PRIs), promulgated by DOH in 1985; and 10 NYCRR 415.22 (relating to patients’ clinical records), promulgated by DOH in 1990.

There is considerable overlap between 10 NYCRR 86-2.7 and 18 NYCRR 517.3. This is not surprising since these provisions both address auditing fiscal and statistical records and reports, the task transferred from DOH to DSS in 1983, and then returned from DSS to DOH in 1997. Thus, 10 NYCRR 86-2.7 provides that

“[a] 11 fiscal and statistical records and reports shall be subject to audit. All underlying books, records and documentation which formed the basis for the fiscal and statistical reports, filed by [the nursing home] with the [State], shall be kept and maintained by the facility for a period of time not less than six years from the date of filing, or the date upon which the fiscal and statistical records were to be filed, whichever is the later date. In this respect, any rate of payment . . . will be construed to represent a provisional rate until such audit is performed and completed, at which time such rate or adjusted rate will be construed to represent the audited rate” (emphasis added).

Similarly, 18 NYCRR 517.3 (a) (1) specifies that for cost-based providers such as Blossom

££[a]ll fiscal and statistical records and reports . . . used for the purpose of establishing rates . . . and all underlying books, records, documentation and reports which formed the basis for such fiscal and statistical records and reports are subject to audit. All underlying books, records and documentation which formed the basis for the fiscal and statistical reports filed by a provider with any State agency responsible for the establishment of rates of payment or fees must be kept and maintained by the provider for a period of not less than six years from the date of filing of such reports, or the date upon which the fiscal and statistical records were required to be filed, or two years from the end of the last calendar year during any part of which a provider’s rate or fee was based on the fiscal and statistical reports, whichever is later. . . . [A]ny rate of payment certified or established . . . will be construed to represent a provisional rate until an audit is performed and completed, or the period within which to conduct an audit has expired without such audit having been begun or notice of such having been issued, at which time such rate or adjusted rate will be construed to represent the final rate as to those items audited” (emphasis added).

18 NYCRR 517.3 (a) (2) concomitantly specifies that ££[a]ll required fiscal and statistical reports are subject to audit for a period of six years from the date of their filing or from the date when such reports were required to be filed, whichever is later” (emphasis added); and 18 NYCRR 517.3 (c) directs that

££[n]otification by the department to the provider of the department’s intent to audit shall toll the six-year period for record retention and audit. The department shall not notify a provider of its intent to audit more than six years from the date of filing of the fiscal and statistical reports to be audited” (emphasis added).

With respect to PRIs, 10 NYCRR 86-2.30 (e) (3) states that “[t]he patient review form (PRI) and any underlying books, records, and/or documentation which formed the basis for the completion of such form shall be subject to review by [DOH].” Further, “[DOH], in order to ensure accuracy of the [PRI], may also conduct timely on-site observations and/or interviews of patients ¡residents and review of their medical records” (10 NYCRR 86-2.30 [e] [5] [emphasis added]). Finally, 10 NYCRR 415.22 (b) requires a nursing home resident’s “[c]linieal records” to “be retained for six years from the date of discharge or death” (emphasis added).

As Blossom points out, PRIs and “any underlying books, records, and/or documentation which form[ ] the basis for [their] completion” (10 NYCRR 86-2.30 [e] [3]) in common with “fiscal and statistical records and reports” and “[a]ll underlying books, records and documentation which form[ ] the basis for . . . fiscal and statistical reports” (10 NYCRR 86-2.7; 18 NYCRR 517.3 [a] [1]), significantly influence a facility’s Medicaid reimbursement rate; and six years is indisputably the period for record retention and audit of fiscal and statistical reports and their supporting documentation as well as for the retention of a resident’s clinical records after discharge or death. It does not follow, however, that DOH must audit PRIs within six years of filing.

As an initial matter, PRIs are not “fiscal and statistical records and reports.” The latter are the “cost reports” that nursing homes must file annually with DOH pursuant to 10 NYCRR 86-2.2. Nor are PRIs the “underlying books, records and documentation which form[ ] the basis for . . . fiscal and statistical reports,” which include such things as employee payroll records, mortgage and loan documents, and purchase records. For one thing, fiscal and statistical reports must be completed in accordance with generally accepted accounting principles and certified by an accountant (10 NYCRR 86-2.4, 86-2.5). These requirements make no sense with respect to PRIs, which are instead subject to a three-stage audit process (10 NYCRR 86-2.30 [e], [f], [g]) and certification by “the [facility] operator and the nurse assessor responsible for [PRI] completion” (10 NYCRR 86-2.30 [c] [3]). Further, DOH promulgated 10 NYCRR 86-2.30 in 1985, a time when DSS—not DOH—was responsible for auditing a nursing home’s fiscal and statistical reports.

Courts normally “defer to an administrative agency’s interpretation of its regulations if not irrational” (Matter of Sylcox Nursing Home & Health Related Facility v Axelrod, 184 AD2d 986, 988 [1992], Iv denied 80 NY2d 761 [1992]). Deference is especially fitting here where DOH has promulgated a separate regulation governing PRIs, which does not impose any specific deadline for PRI audits and instead simply instructs that they must be timely conducted (see 10 NYCRR 86-2.30 [e] [5]).

Nonetheless, Blossom protests that the “only rational interpretation that can be gleaned” from the relevant regulations is that 10 NYCRR 86-2.30 (e) (5) incorporates the six-year limitations period specified in 10 NYCRR 86-2.7 and 18 NYCRR 517.3 (a) and (c). Otherwise, nursing homes would be subject to financial uncertainty and would have to cope with PRI audits many years after residents had died or been discharged (which usually occurs within 2.5 years of arrival), staff had left and the rules for completing or auditing PRIs might have changed. Consequently, Blossom argues, any audit of PRIs conducted more than six years after filing places the nursing home in an untenable position. The auditor must review residents’ clinical records to validate PRIs, but the nursing home may have lawfully destroyed these records for at least some of the residents in the audit population.

These are valid points. It is also true that significantly delayed or protracted PRI audits harm the public fisc by thwarting prompt recoupment of any Medicaid overpayments. As we pointed out in Matter of Elcor Health Servs. v Novello (100 NY2d 273, 280 [2003]), however, “[t]hat [DOH’s] interpretation might not be the most natural reading of the regulation, or that the regulation could be interpreted in another way, does not make the interpretation irrational.”

Although PRI audits are not subject to the six-year limitations period specified in 10 NYCRR 86-2.7 and 18 NYCRR 517.3 (a) and (c), “timely” is not synonymous with “timeless.” In this case, DOH sought to audit Blossom’s January 1994 PRIs more than six years after they were filed solely because DOH neglected to wrap up its Stage II audit of Blossom’s July 1993 PRIs until 2002, and PRI audits take place sequentially. Because DOH offers no better explanation than “administrative oversight” (meaning inadvertence, not supervision) for the seven-year hiatus in its nearly nine-year long audit of Blossom’s July 1993 PRIs, we hold that any audit of Blossom’s PRIs filed in 1995 and 1996 is untimely as a matter of law.

Accordingly, the order of the Appellate Division should be reversed, with costs, the proceeding converted to a declaratory judgment action and judgment granted declaring that respondents may not audit or adjust Blossom’s CMI for the period January 1, 1995 through December 31, 1996, and that Blossom’s Medicaid reimbursement rates for the period from January 1, 1994 through December 31, 1996 be determined by implementing the CMI as calculated using the PRIs originally filed by Blossom for 1994, 1995 and 1996.

Chief Judge Kaye and Judges G.B. Smith, Ciparick, Rosenblatt, Graffeo and R.S. Smith concur.

Order reversed, etc.

      . Blossom’s request for injunctive and declaratory relief with respect to the audit of its 1994 PRIs is moot because DOH has already commenced and completed this audit; however, the question of this audit’s use remains open for our consideration.

      . For most nursing homes, 1983 is the base year. Because of a major construction and expansion project, Blossom’s costs are based on the six-month period from May 1, 1991 through October 31, 1991 (10 NYCRR 86-2.2 [e]; 86-2.15). A base year is used in a prospective system to control for cost growth in excess of inflation.

      . Direct costs encompass the hands-on care provided to patients, such as nursing, social services, occupational therapy and physical therapy services (10 NYCRR 86-2.10 [c] [1]).

      . Indirect costs include administrative services, grounds, housekeeping, food and laundry services (10 NYCRR 86-2.10 [d] [1]).

      . Noncomparable costs are those specific to a particular facility.

      . In descending order of resource utilization, these five hierarchies are heavy rehabilitation, special care, clinically complex, severe behavioral and reduced physical functioning. A nursing home resident who does not have a condition qualifying for one of the four higher hierarchies is automatically placed in the fifth, reduced physical functioning.

      . For a nursing home with a population under 120, Stage II review encompasses all remaining residents except those in the lowest-rung RUG-II category, and is the last stage in the audit process.

      . For a nursing home with a population under 120, DOH would take this step after an unsatisfactory Stage II audit.

      . As originally promulgated in 1976, what is now 10 NYCRR 86-2.7 was subdivision (a) of a provision composed of subdivisions (a) through (h). On September 25, 1996, DOH proposed to amend section 86-2.7 by deleting subdivisions (b) through (h) “to eliminate obsolete language in order to recognize the transfer to [DSS in 1983] of the authority/responsibility for [nursing home] Medicaid rate audits” and to recognize that “[t]he responsibility for the Medicaid rate audit function was previously transferred to [DSS] and is authorized by DSS regulation [i.e., 18 NYCRR part 517]” (XVIII NY Reg, Issue 39, Sept. 25, 1996, at 14). Accordingly, subdivisions (b) through (h) of 10 NYCRR 86-2.7 were repealed, effective January 14, 1997 (XIX NY Reg, Issue 4, Jan. 29, 1997, at 10), shortly before the Legislature shifted the Medicaid audit function again, this time away from DSS to DOH (see L 1997, ch 436, part B, § 122 [a], [e]).

      . We also note that a nursing home’s Medicaid reimbursement rates are provisional until the cost reports upon which the rates are based have been audited, or the period within which to conduct an audit has expired without either an audit having begun or a notice of audit having been issued (10 NYCRR 86-1.8, 86-2.7; 18 NYCRR 517.3 [a] [1]). Further, notice of intent to audit must be given within six years from the date the cost reports are filed (18 NYCRR 517.3 [c]). A nursing home has no entitlement to Medicaid payments until these audits of cost reports have been completed, or the time for conducting them has expired without an audit having been begun or noticed ('Matter of Cortlandt Nursing Home v Axelrod, 66 NY2d 169, 178-179 [1985]). From the record in this case, it is impossible to tell whether Blossom’s Medicaid reimbursement rates for the years 1994 through 1996 were still provisional or instead were final when DOH sought to audit the January 1994 PRIs. Accordingly, we have no occasion to address in this appeal whether an audit of PRIs for time periods for which there are audited or final rates may ever be “timely” within the meaning of 10 NYCRR 86-2.30 (e) (5).


source: Caselaw Access Project

license: Public Domain

text:
    [830 NE2d 287, 797 NYS2d 389]
    In the Matter of Chesterfield Associates, Appellant, v New York State Department of Labor, Respondent.
    Argued March 30, 2005;
    decided May 3, 2005

      POINTS OF COUNSEL

      Jackson Lewis LLP, White Plains (Greg A. Riolo, Thomas V. Walsh and Michelle McKee Cubbon of counsel), for appellant.
    The annualization regulation, 12 NYCRR 220.2, is invalid because it contradicts Labor Law § 220 (6). (Weiss v City of New York, 95 NY2d 1; Finger Lakes Racing Assn. v New York State Racing & Wagering Bd., 45 NY2d 471; Matter of Jones v Berman, 37 NY2d 42; Kuppersmith v Dowling, 93 NY2d 90; Matter of New York Botanical Garden v Board of Stds. & Appeals of City of N.Y., 91 NY2d 413; Matter of National R.R. Passenger Corp. v Hartnett, 169 AD2d 127; Matter of Cayuga-Onondaga Counties Bd. of Coop. Educ. Servs. v Sweeney, 89 NY2d 395; Matter of Action Elec. Contrs. Co. v Goldin, 64 NY2d 213; Matter of Beltrone Constr. Co. v McGowan, 260 AD2d 870; HMI Mech. Sys., Inc. v McGowan, 266 F3d 142.)

      Eliot Spitzer, Attorney General, New York City (Benjamin N. Gutman, Michael S. Belohlavek, M. Patricia Smith and Pico Paul Ben-Amotz of counsel), for respondent.
    I. Annualization is a reasonable method of valuing benefits under prevailing-wage statutes. (Miree Constr. Corp. v Dole, 930 F2d 1536; Tom Mistick & Sons, Inc. v Reich, 54 F3d 900.) II. Annualizing all fringe benefits is a reasonable means of assuring compliance with the law. (Matter of Unimax Corp. v Tax Appeals Trib. of State of N.Y., 79 NY2d 139; Matter of New York Assn, of Homes & Servs. for Aging v Commissioner of N.Y. State Dept, of Health, 87 NY2d 978; HMI Mech. Sys., Inc. v McGowan, 266 F3d 142.) III. Annualization does not regulate private work, favor unions, or make it impossible to comply with Labor Law § 220. (HMI Mech. Sys.,

      Inc. v McGowan, 266 F3d 142; Rondout Elec., Inc. v New York State Dept. of Labor, 335 F3d 162; Miree Constr. Corp. v Dole, 930 F2d 1536; Commissioners of State Ins. Fund v Eugene Iovine, Inc., 5 Misc 3d 487; New York State Conference of Blue Cross & Blue Shield Plans v Travelers Ins. Co., 514 US 645; Matter of Action Elec. Contrs. Co. v Goldin, 64 NY2d 213.) IV The Department of Labor’s past inconsistency in enforcing the regulation does not undermine annualization’s legitimacy. (Burgio & Campofelice, Inc. v New York State Dept. of Labor, 914 F Supp 931, 107 F3d 1000; HMI Mech. Sys., Inc. v McGowan, 266 F3d 142; General Elec. Co. v New York State Dept, of Labor, 936 F2d 1448; Matter of HMI Mech. Sys. v McGowan, 277 AD2d 657, 96 NY2d 705; Matter of American Tel. & Tel. Co. v State Tax Commn., 61 NY2d 393; Matter of Varrington Corp. v City of N.Y. Dept. of Fin., 85 NY2d 28.)
   OPINION OF THE COURT

Read, J.

Petitioner, Chesterfield Associates, challenges respondent Department of Labor’s use -of the “annualization” rule (12 NYCRR 220.2 [d]) to assess whether a contractor has fulfilled its obligation under the prevailing wage law (Labor Law art 8) to pay or provide prevailing supplements to employees for work on a public project. For the reasons that follow, we conclude that the Commissioner of Labor reasonably annualized the contributions that Chesterfield made to a profit-sharing plan on behalf of its employees working on the public projects at issue in this case.

I.

Article I, § 17 of the New York State Constitution declares that

“[n]o laborer, worker or mechanic, in the employ of a contractor or sub-contractor engaged in the performance of any public work, shall be . . . paid less than the rate of wages prevailing in the same trade or occupation in the locality within the state where such public work is to be situated, erected or used.”

The prevailing wage law carries out the constitutional mandate in Labor Law § 220 (3). This provision requires a contractor undertaking a public work project to pay its employees the prevailing rate of wages and to pay or provide them with supplements in accordance with prevailing practices for private sector work in the same locality.

The Commissioner has established and annually updates a schedule of prevailing wages and supplements, expressed as hourly rates and pegged to collectively bargained wages and fringe benefits for different work classifications (carpenters, electricians, painters, etc.) in different localities (id.; Labor Law § 220 [5] [a]; 12 NYCRR 220.3). The public entity attaches the relevant prevailing rate schedule to its bid specifications for a public project and to the eventual contract; the schedule must be posted at the job site so that workers know how much compensation they are entitled to receive (Labor Law § 220 [3-a] [a], [b]).

Contractors may provide or pay for supplements by furnishing their employees with benefits whose value matches the relevant supplements, paying the supplements in cash or combining benefits and cash payments (12 NYCRR 220.2 [a]-[b]; Matter of Action Elec. Contrs. Co. v Goldin, 64 NY2d 213 [1984]). In short, a contractor may provide supplements in any form or combination so long as the sum total is not less than the prevailing rate.

The Commissioner enforces the prevailing wage law through compliance investigations undertaken in response to a complaint or on his/her own initiative (Labor Law § 220 [7]). After a hearing, the Commissioner may issue an order determining that the contractor is liable for underpayments—the difference between the prevailing wages or supplements that the schedules call for and the sums actually paid or provided to employees—plus interest (Labor Law § 220 [7], [8]). In addition to liability for underpayments, contractors face potential civil and criminal penalties for violating article 8 (Labor Law § 220 [8], [9]).

The prevailing wage law “has been characterized as an attempt by the State to hold its territorial subdivisions to a standard of social justice in their dealings with laborers, workmen, and mechanics” (Matter of Cayuga-Onondaga Counties Bd. of Coop. Educ. Servs. v Sweeney, 89 NY2d 395, 402 [1996] [internal quotation marks omitted]). As the Department puts it, section 220 “seeks to equalize competing contractors’ labor costs, which ensures that the winning bid on a public project is not made on the backs of the contractor’s employees.”

Whether a contractor pays a prevailing wage is easy enough to figure out, as wages are received by employees as hourly cash payments or are easily converted into the equivalent. How an employer’s fringe benefits relate to a prevailing supplement is less straightforward. Accordingly, the Commissioner has adopted a regulation called the annualization rule (12 NYCRR 220.2 [d]) for computing the hourly cash equivalent of a supplement.

Under the annualization rule, the Commissioner “divide[s] the [contractor’s] actual contribution or cost for providing” a benefit “by the total annual hours worked [by employees] on both public and private work” (12 NYCRR 220.2 [d] [1]). The Commissioner then multiplies the “hourly cash equivalent” thus derived by the total annual hours the contractor’s employees worked on the public project (which the parties here refer to as “public hours”). The resulting figure acts as a credit to offset the contractor’s obligation to pay or provide for supplements.

In this case, the Department received complaints from employees and union representatives that Chesterfield was not paying or providing prevailing wages and supplements on five public projects carried out during 1994 through 1997 to repair certain bridges and roads in Nassau and Suffolk counties. Chesterfield furnished supplements to its employees by way of three categories of fringe benefits: paid vacation, sick days and holidays; health insurance; and pension plans. These benefits were supplied to all of Chesterfield’s employees, even those who performed no public work.

Upon investigation, the Department concluded that Chesterfield had underpaid wages and supplements on the projects and the matter went to hearing. The parties stipulated to the figures to be used to calculate the value of Chesterfield’s fringe benefits. Further, Chesterfield ultimately conceded that its health insuranee and vacation, holiday and sick pay benefits should be annualized.

Chesterfield disputed use of the annualization rule to calculate the hourly cash equivalent of its contributions for pension benefits, however, and so Chesterfield and the Department computed this credit alternatively. They stipulated that if pension contributions were not annualized and were instead given what Chesterfield calls dollar-for-dollar credit (i.e., if Chesterfield’s pension contributions on behalf of employees who worked on the public projects were divided by only the public hours worked by these employees), Chesterfield would be entitled to a credit of $7.92 per hour to offset its supplement obligation;* ** if annualized (i.e., if Chesterfield’s pension contributions on behalf of employees who worked on the public projects were divided by the total hours worked by these employees), the credit decreased by approximately two thirds to $2.54 an hour. The practical effect was a swing in Chesterfield’s liability for underpayment of supplements from roughly $18,000 (if not annualized) to almost $600,000 (if annualized).

From 1994 through 1997, Chesterfield made contributions to a profit-sharing pension plan. Under this plan, an employee’s rights did not vest immediately; instead, an employee became fully vested (at a rate of 20% per year) only at the end of five years. According to the Department, Chesterfield’s contributions to the plan were allocated to individual employees based on their total earnings for the year; that is, without regard to whether or for how many hours the employee worked on a public project.®

After nine days of hearings spanning roughly 21 months, the Department’s hearing officer issued a report and recommendation concluding, among other things, that the Department had “permissibly and properly” annualized Chesterfield’s contributions for pension benefits. He consequently concluded that Chesterfield had underpaid supplements by almost $600,000.

The Commissioner issued a determination and order adopting the hearing officer’s findings of fact, conclusions of law and recommendations in their entirety, and Chesterfield commenced this CPLR article 78 proceeding pursuant to Labor Law § 220 (8). The Appellate Division confirmed the Commissioner’s determination, denied Chesterfield’s petition and dismissed the proceeding. We subsequently granted Chesterfield leave to appeal, and now affirm.

II.

Chesterfield contests only the annualization of its contributions for pension benefits. Specifically, Chesterfield argues that annualization violates Labor Law § 220 (3) by penalizing contractors unless they provide for supplements at the prevailing rate on both public and private work or, alternatively, pay the supplements in cash.

To prove this point, Chesterfield describes a benefit plan into which a contractor contributes at the prevailing rate for public hours and at a lesser rate for private hours. According to the Department, however, this is a hypothetical plan that in no way resembles Chesterfield’s actual profit-sharing plan; Chesterfield’s pension contributions were allocated to individual employees based on their total annual earnings and without regard to whether or how many hours they worked on public projects.

Chesterfield also relies on Tom Mistick & Sons, Inc. v Reich (54 F3d 900 [DC App 1995]). There, the D.C. Circuit determined that it was unreasonable for the federal Department of Labor to annualize the employer’s contributions to a fringe benefit plan established to comply with the Davis-Bacon Act (40 USC § 276a et seq. [now 40 USC § 3141 et seq.]), the federal prevailing wage law. The contractor in Mistick, however, maintained and made contributions to two separate fringe benefit plans—the Davis-Bacon plan for public work only and another fringe benefit plan for private work only. We cannot conclude from this record that Chesterfield similarly maintained and contributed to separate profit-sharing plans for its employees’ public and private work.

This appeal does not call on us to engage in “pure statutory reading and analysis, dependent only on accurate apprehension of legislative intent” (Kurcsics v Merchants Mut. Ins. Co., 49 NY2d 451, 459 [1980]). Rather, we are asked to decide whether the Commissioner applied a reasonable methodology to evaluate Chesterfield’s compliance with its obligation under Labor Law § 220 (3) to pay or provide for supplements at the prevailing rate on the five public projects at issue. Accordingly, the Commissioner’s determination to annualize Chesterfield’s contributions to the profit-sharing plan is entitled to deference (Matter of Howard v Wyman, 28 NY2d 434, 438 [1971] [“construction given statutes and regulations by the agency responsible for their administration, if not irrational or unreasonable, should be upheld”]).

Chesterfield seeks credit for the full cost of its contributions to the profit-sharing plan on behalf of employees who worked full or part time on the five public projects. Because Chesterfield contributed to the profit-sharing plan not only for its employees’ public work but also for their private work, however, there was room for shifting costs on paper to overstate its payments on behalf of public hours, which would have bestowed an unfair competitive advantage on Chesterfield and denied its employees the full value of the supplements to which they were entitled. To enforce against this potential cost shifting, the Commissioner chose to average Chesterfield’s contributions over all work, both public and private, to which pension benefits might be related. This resulted in a proportionate credit to offset Chesterfield’s supplement obligations. We cannot say that the Commissioner acted unreasonably or irrationally in taking this approach under the circumstances of this case.

Nor can we say on this record that annualization regulates private work or forces a contractor to pay cash supplements in lieu of providing fringe benefits (see Rondout Elec., Inc. v New York State Dept. of Labor, 335 F3d 162, 169 [2d Cir 2003] [“New York’s annualization regulation does not require prevailing wages or benefits for any employee who works on a private contract. The only time the prevailing wage standard is imposed is when an employee works on a public project”]; see also Miree Constr. Corp. v Dole, 930 F2d 1536, 1546 [11th Cir 1991] [“if an employer chooses to make contributions to a year-long (benefit) . . . such contributions can only be credited on an annualized basis”]). In sum, annualization is a methodology for valuing fringe benefits, which the Commissioner reasonably applied here to compute the hourly cash equivalent of Chesterfield’s contributions to its profit-sharing plan.

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

Chief Judge Kaye and Judges G.B. Smith, Ciparick, Rosenblatt, Graffeo and R.S. Smith concur.

Judgment affirmed, with costs.

      . “Supplements” or fringe benefits include “all remuneration for employment paid in any medium other than cash, or reimbursement for expenses, or any payments which are not ‘wages’ within the meaning of the law” (Labor Law § 220 [5] [b]).

      . The Commissioner issues the schedules separately for “General Construction Projects” (buildings, heavy and highway, tunnel and water and sewer projects) and “Residential Construction Projects” on a county-by-county basis (Labor Law § 220 [3-a] [a]; see also <http://www.labor.state.ny.us/ business_ny/employer_responsibilities/prevwage/3webwagetypestatus.shtm>, cached at <http://www.courts.state.ny.us/reporter/webdocs/NYSDOL_ Business_in_NY_responsibilities_as_an_employer.htm>). The Comptroller of the City of New York, the City’s chief fiscal officer, determines the prevailing rate schedules and otherwise enforces article 8 for public projects let by the City (Labor Law § 220 [3], [5] [e]).

      . Specifically, for the 1994-1997 time period the parties stipulated to the amount that Chesterfield contributed on behalf of all of its employees (i.e., those who worked exclusively on private sector work as well as those who worked full or part time on the public projects) to a contractor’s benefit trust for health benefits only; the total hours worked by all of Chesterfield’s employees; the total hours worked by the employees who worked on the public projects as well as the total public hours worked by these employees (roughly 32% of the total hours worked); the total supplements that the employees who worked on the public projects should have been provided according to the prevailing rate schedule; the vacation, holiday and sick pay that Chesterfield paid to the employees who worked on the public projects; and the pension contributions made by Chesterfield on behalf of the employees who worked on the public projects.

      . The Department evidently often used the dollar-for-dollar methodology to calculate a benefit’s hourly cash equivalent even after adopting the annualization rule in 1992. Chesterfield regards the Department’s post-1992 forbearance from annualizing as evidence of doubt about its authority to do so. The Department, however, attributes any seeming inconsistencies in its enforcement policies to uncertainty as to how the federal Employee Retirement Income Security Act ([ERISA], 29 USC § 1001 et seq.) might affect supplements (compare General Elec. Co. v New York State Dept. of Labor, 891 F2d 25 [2d Cir 1989] [prevailing wage law may not be enforced with respect to ERISA benefits], with Burgio & Campofelice, Inc. v New York State Dept. of Labor, 107 F3d 1000 [2d Cir 1997] [ERISA does not preempt the State’s prevailing wage law because it does not mandate a particular set of benefits]; see also HMI Mech. Sys., Inc. v McGowan, 266 F3d 142 [2d Cir 2001] [ERISA does not preempt the Department’s implementation of the prevailing wage law using an annualization formula]). The Department did not annualize Chesterfield’s pension contributions to determine underpayments until after the Second Circuit’s decision in HMI.

      . There are no plan documents in the record.

      . Chesterfield also made small contributions in 1994 to the so-called Plan Data plan, a retirement plan and trust administered by Plan Data, Inc. The Plan Data plan was apparently discontinued during 1994. The record contains no information to describe it, or to show the degree to which any contributions to the Plan Data plan were attributable to the projects and time periods at issue in this case. We therefore limit our discussion to Chesterfield’s profit-sharing plan.

      . The hearing officer also recommended that the Commissioner determine and order that Chesterfield was liable for failure to pay prevailing wages totaling roughly $50,000; that Chesterfield was liable for interest on the underpayment of prevailing wages and supplements at the rate of 16% per year from the date of underpayment to the date of restitution, minus a 19-month period of delay on account of the Department’s re-auditing of the public projects; that Chesterfield’s failure to pay prevailing wages constituted a single willful violation of Labor Law § 220; and that the Commissioner assess a civil penalty amounting to 10% of the underpaid wages.


text:
    [830 NE2d 292, 797 NYS2d 394]
    Janet Olivia Scantlebury, Appellant, v New York City Health and Hospitals Corporation, Respondent.
    Argued March 31, 2005;
    decided May 5, 2005

      POINTS OF COUNSEL

      Law Offices of Joseph M. Lichtenstein, P.C., Mineola (Joseph Lichtenstein and Elliot Lewis of counsel), for appellant.
    I. The “savings provision” of General Municipal Law § 50-e (3) (c) applies to the instant case such that service of plaintiff-appellant’s notice of claim upon the New York City Comptroller was proper service as against New York City Health and Hospitals Corporation. (Mercado v New York City Health & Hosps. Corp., 247 AD2d 55; Hazell v New York City Health & Hosps. Corp., 290 AD2d 533; Stallworth v New York City Health & Hosps. Corp., 243 AD2d 704.)

      Michael A. Cardozo, Corporation Counsel, New York City (Larry A. Sonnenshein and Leonard Koerner of counsel), for respondent.
    The Appellate Division properly affirmed the dismissal of the complaint against New York City Health and Hospitals Corporation (NYCHHC) based on plaintiffs failure to serve the notice of claim on NYCHHC which is a statutory condition precedent to the commencement of litigation. (Jones v City of New York, 300 AD2d 359; Davidson v Bronx Mun. Hosp., 64 NY2d 59; Hall v New York City Health & Hosps. Corp., 304 AD2d 617; Hazell v New York City Health & Hosps. Corp., 290 AD2d 533; Viruet v City of New York, 97 NY2d 171; Stallworth v New York City Health & Hosps. Corp., 243 AD2d 704; Badgett v New York City Health & Hosps. Corp., 227 AD2d 127; Kroin v City of New York, 210 AD2d 95; Ceely v New York City Health & Hosps. Corp., 162 AD2d 492; Binyard v City of New York, 151 AD2d 712.)
   OPINION OF THE COURT

Read, J.

The issue on this appeal is whether General Municipal Law § 50-e (3) (c) excuses plaintiffs failure to serve the New York City Health and Hospitals Corporation (HHC) with a timely notice of intention to commence an action, a statutory condition precedent to suit, because she served a timely notice on the Comptroller of the City of New York and he held a General Municipal Law § 50-h hearing to examine her claim. We hold that section 50-e (3) (c), which saves claims from dismissal on account of defects in the manner of service, does not excuse a plaintiffs failure to serve a timely notice of claim on the correct public entity, which is what happened here when plaintiff served her notice on the Comptroller rather than HHC.

I.

Plaintiff Janet Olivia Scantlebury was treated for an elbow injury at HHC’s Kings County Hospital from July 31, 1999 until November 18, 1999. On November 3, 1999, the Comptroller received a notice of claim from plaintiff alleging medical malpractice against HHC. By letter dated November 23, 1999, the Comptroller served plaintiff with notice of a General Municipal Law § 50-h hearing, directing her to appear at the Office of the Corporation Counsel for this purpose. The section 50-h hearing took place on July 19, 2000.

On August 8, 2000, plaintiff filed a summons and complaint against HHC for medical malpractice and failure to obtain informed consent; on August 15, 2000, she served HHC with the complaint. Plaintiff alleged that a notice of claim had been served upon HHC within 90 days after her claim arose; that at least 30 days had elapsed since this service and that adjustment or payment had been neglected or refused; that she had complied with HHC’s demand for a section 50-h hearing; and that she was commencing her action within one year and 90 days after the happening of the event upon which her claim was based. In its answer, dated September 5, 2000, HHC denied each of these specific allegations, “except admitt[ed] that on or about November 3, 1999 a purported notice of claim was presented to the Comptroller of the City of New York, and that more than thirty days [had] elapsed since such presentation and that no adjustment thereof [had] been made; and that a hearing was held on July 19, 2000 pursuant to § 50-h of the General Municipal Law.”

Plaintiff filed a note of issue on February 7, 2003. On February 25, 2003, HHC moved for summary judgment to dismiss the complaint on the ground that plaintiff had failed to serve a timely notice of claim on HHC. HHC further noted that plaintiffs time to apply to Supreme Court for leave to serve a late notice of claim had expired on February 16, 2001, one year and 90 days after November 18, 1999, her last date of treatment. Supreme Court granted HHC’s motion for summary judgment and dismissed the complaint. The Appellate Division affirmed, as do we.

II.

Three statutory provisions bear on the outcome of this appeal. They are section 7401 (2) of McKinney’s Unconsolidated Laws of New York (New York City Health and Hospitals Corporation Act [L 1969, ch 1016, § 1, as amended] § 20 [2]), which sets out notice of intention requirements and time limitations applicable to actions against HHC; section 50-e (3) (a) of the General Municipal Law, which specifies the manner of service requirements for a notice of claim; and section 50-e (3) (c), which excuses defects in a notice of claim’s manner of service under specified circumstances.

Section 7401 (2) provides that an action against HHC for personal injuries

“shall not be commenced more than one year and ninety days after the cause of action thereof shall have accrued, nor unless a notice of intention to commence such action and of the time when and the place where the tort occurred and the injuries or damage, were sustained, together with a verified statement showing in detail . . . the personal injuries alleged to have been sustained and by whom, shall have been filed with a director or officer of [HHC] within ninety days after such cause of action shall have accrued” (emphasis added).

The parties do not dispute that the “notice of intention to commence [an] action” required by section 7401 (2) is a condition precedent to a suit against HHC, the functional equivalent of a notice of claim (cf. Court of Claims Act § 10 [service on Attorney General of a “notice of intention to file a claim” extends claimant’s time to file and serve a claim]). In fact, we have treated section 7401 (2) as a notice of claim provision, and have used the terms “notice of intention” and “notice of claim” interchangeably when discussing section 7401 (2) (see e.g. Viruet v City of New York, 97 NY2d 171 [2001]).

Section 7401 (2) also states that “[a]ll the provisions of section fifty-e of the general municipal law shall apply to such notice [of intention].” Further, HHC “may require any claimant hereunder to be examined as provided in section fifty-h of the general municipal law, and all the provisions of such section shall apply to such examinations.”

Under General Municipal Law § 50-e (3) (a), proper service of a notice of claim against a public corporation such as HHC requires delivery of

“a copy thereof personally, or by registered or certified mail, to the person designated by law as one to whom a summons in an action in the supreme court issued against such corporation may be delivered, or to an attorney regularly engaged in representing such public corporation.”

General Municipal Law § 50-e (3) (c), a savings provision, specifies that if a notice of claim is timely served “but in a manner not in compliance with the provisions of this subdivision [3]” (emphasis added), service is nonetheless valid “if the public corporation against which the claim is made demands that the claimant or any other person interested in the claim be examined in regard to it” or, alternatively, “if the notice is actually received by a proper person within the time specified by this section [i.e., within 90 days after the claim arises], and the public corporation fail [sic] to return the notice, specifying the defect in the manner of service, within thirty days after the notice is received” (emphasis added).

Plaintiff asks us to apply General Municipal Law § 50-e (3) (c), the savings provision, to excuse her mistaken service on the Comptroller. In particular, she urges us to salvage her complaint by adopting the reasoning of the First Department in Mercado v New York City Health & Hosps. Corp. (247 AD2d 55 [1st Dept 1998] [where timely notice of claim names only HHC and is served on Comptroller who demands section 50-h hearing, General Municipal Law § 50-e (3) (c) applies and service of notice is valid]). HHC advocates for the contrary view, which was espoused by the Second Department here by force of its decision in Stallworth v New York City Health & Hosps. Corp. (243 AD2d 704 [2d Dept 1997], lv denied 91 NY2d 807 [1998] [service on Comptroller is insufficient to constitute service on HHC, and lack of service on HHC is not excused by its participation in section 50-h hearing or by provisions of General Municipal Law § 50-e (3) (c)]).

As an initial matter, we have long recognized that the City of New York and HHC are separate entities for purposes of a notice of claim (see Bender v New York City Health & Hosps. Corp., 38 NY2d 662 [1976]). Further, our decisions respecting the former version of the savings provision as well as the current version’s legislative history demonstrate that section 50-e (3) (c) was intended to cure improper methods of service, such as service by ordinary mail, not service on the wrong public entity (Adkins v City of New York, 43 NY2d 346, 350-351 [1977] [former savings provision “was designed to permit effective service within the statutory period by means other than (those articulated in the former statute)” (citing legislative history)]; Munroe v Booth, 305 NY 426 [1953] [former savings provision not applicable where notice of claim against board of education was served on school district business manager rather than member of board, trustee or clerk thereof, the only persons authorized by statute to receive service]).

The former savings clause was part of General Municipal Law § 50-e (3), which provided that the notice

“shall be served on the party against whom the claim is made by delivering a copy thereof, in duplicate, personally, or by registered mail, to the person, officer, agent, clerk or employee, designated by law as a person to whom a summons in an action in the supreme court issued against such party may be delivered; provided that if service of such notice be made within the period prescribed by this section, but in a manner not in compliance with the provisions of this subdivision, such service shall be - deemed valid if such notice is actually received by such person, officer, agent, clerk or employee and such party against whom the claim is made shall cause the claimant or any other person interested in the claim to be examined in regard to such claim” ([emphasis added]; Graziano, Recommendations Relating to Section 50-e of the General Municipal Law and Related Statutes, 21st Ann Report of NY Jud Conf, at 368 [1976]).

In Adkins, we reviewed the legislative history of the former savings provision as well as the cases applying it. Noting the “harsh” results when complaints were dismissed because timely service was made by ordinary rather than registered mail, we concluded that the former savings provision was added “to permit effective service within the statutory period by means other than registered mail or personal delivery” (43 NY2d at 350, 351).

We also observed in Adkins that the former savings provision contained two requirements—first, that timely notice of claim was “actually received” by a person designated by law to receive service on behalf of the party against whom the claim was made; and second, that this party demanded an examination of the claimant (id. at 351). Only where both conditions were met could defects in the “manner” of service be cured (id.; see also Munroe, 305 NY at 428 [construing the former provision, and noting that the savings provision would not apply unless the notice was “actually received” by a statutorily designated representative of the public entity]; Camarella v East Irondequoit Cent. School Bd., 34 NY2d 139, 142 [1974] [noting severe consequences of former section 50-e with regard to procedure for obtaining relief from late filing of notice of claim; dictum rejects suggestion that other papers be deemed a notice of claim where “it is not at all clear that (these papers) were served on the proper parties” and cites former subdivision (3)]).

In 1976, the Legislature amended section 50-e (3), turning it into four paragraphs. Paragraph (a) contains the requirement that service be made on “the person designated by law” to receive service. Paragraphs (a) and (b) now allow service by personal service, registered or certified mail. Paragraph (c) still applies only where service is timely, and refers only to defects in the “manner” of service. The Legislature also refashioned former section 50-e (3) slightly to create two separate and alternative circumstances which, if fulfilled, allow for defects in the manner of service to be excused—if the public corporation demands a section 50-h hearing, or if the notice is actually timely received by a proper person and the public corporation does not return it within 30 days of receipt, specifying the defect in the manner of service.

Plaintiff, who relies solely on the demand for a hearing, correctly notes that the 1976 amendments were designed to incorporate some flexibility into section 50-e (see Mem of Off of Ct Admin in Support, Bill Jacket, L 1976, ch 745 [“The purpose of this bill is to follow the suggestion of the Court of Appeals in (Camarella): to reconsider the harsher aspects of section 50-e”]). In this regard, however, the legislative history primarily discusses revisions to relax the provisions governing late filing. References to section 50-e (3) focus strictly on the manner of service, consistent with the statutory language. If the amendments to section 50-e (3) were nonetheless also intended to relieve a plaintiff from the consequences of serving a notice of claim on the wrong public entity, one would expect to find some comment somewhere in the legislative history to this effect.

Here, plaintiff served a notice of claim on the City of New York. The proper—and different—party was HHC. A “party sustaining injury allegedly attributable to these health facilities [must] file a verified notice of claim with [HHC] prior to the commencement of a lawsuit” (Bender, 38 NY2d at 665). Plaintiff was put on notice of her error by HHC’s answer to the complaint, which was served on September 5, 2000. She had ample time to seek leave to serve a late notice of claim before her time to do so expired on February 16, 2001.

Plaintiff, as noted, counts on Mercado, a case in which the First Department reasoned that where the notice of claim names only HHC and is served on the Comptroller who then demands a section 50-h hearing, HHC is the only public entity on whose behalf the section 50-h hearing could have been demanded. But this reading of section 50-e (3) (c) disregards plaintiffs obligation to comply with subdivision (3) (a) by serving the correct public entity before defects in the manner of service may be excused (Mercado, 247 AD2d at 60 [“In order for (General Municipal Law § 50-e [3] [c]) to apply . . . service must have been made on the proper party; service cannot be ‘valid’ if it was never made”] [Tom, J., dissenting]).

The City properly cites Stallworth for the propositions that service on “the Comptroller of the City of New York is insufficient to constitute service on [HHC], the proper party to be served,” and that “[t]he lack of service . . . [is] not cured by the participation of [HHC] in the General Municipal Law § 50-h hearing or by the provisions of General Municipal Law § 50-e (3) (c)” (243 AD2d at 704-705). In short, because plaintiff served the wrong public entity, the savings provision of General Municipal Law § 50-e (3) (c), which is limited in scope to defects in the manner of serving a notice of claim on the correct public entity, does not rescue her complaint from dismissal.

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

Chief Judge Kaye and Judges G.B. Smith, Ciparick, Rosenblatt, Graffeo and R.S. Smith concur.

Order affirmed, with costs.

      . Reading Unconsolidated Laws § 7401 (2) and General Municipal Law § 50-e (3) (a) together, we held in Viruet that a plaintiff may file a notice of intention on HHC by serving a director or officer or, alternatively, the Corporation Counsel, HHC’s attorney.

      . Plaintiff has never alleged or argued that the notice was “actually received by a proper person” (a director or officer of HHC or the Corporation Counsel) within 90 days of the claim’s accrual.

      . Because timely service of a notice of claim is a statutory condition precedent to a suit against HHC, a plaintiff must plead timely service in the complaint and HHC must therefore either admit or deny timely service in the answer. Accordingly, a plaintiff who unwittingly fails to serve HHC with a notice of claim would always have time to seek leave to serve a late notice assuming, of course, that the plaintiff served the complaint against HHC sufficiently before expiration of the one-year-and-90-day limitations period, not at the last minute.


author: R.S. Smith, J.

text:
    [830 NE2d 298, 797 NYS2d 400]
    Heary Bros. Lightning Protection Co., Inc., et al., Appellants, v Intertek Testing Services, N.A., Inc., Formerly Known as ETL Testing Laboratories, Inc., and Others, Respondent.
    Argued March 29, 2005;
    decided May 5, 2005

      POINTS OF COUNSEL

      Schroder, Joseph & Associates, LLP, Buffalo (Linda PL. Joseph of counsel), for appellants.
    I. The Appellate Division committed an error of law when it concluded that the terms of the listing agreement required a published standard. (Greenfield v Philles Records, 98 NY2d 562; Thomas v Scutt, 127 NY 133.) II. The Appellate Division committed an error of law when it concluded that the award of damages after April 2000 was against the weight of the evidence. (Ohdan v City of New York, 268 AD2d 86; Lolik v Big V Supermarkets, 86 NY2d 744.)

      Thaler & Thaler, Ithaca (Richard T. John of counsel), for respondent.
    I. The Appellate Division did not err in finding that any award of damages after April 2000 was against the weight of the evidence. (Morales v County of Nassau, 94 NY2d 218; Mc-Murren v Carter, 38 NY2d 742; Sage v Fairchild-Swearingen Corp., 70 NY2d 579; Matter of Von Bulow, 63 NY2d 221; Cohen v Hallmark Cards, 45 NY2d 493; Ashland Mgt. v Janien, 82 NY2d 395; Kenford Co. v County of Erie, 73 NY2d 312; Kenford

      Co. v County of Erie, 67 NY2d 257; Lolik v Big V Supermarkets, 86 NY2d 744; Matter of De Zimm v Connelie, 64 NY2d 860.) II. The Appellate Division did not err as a matter of law in limiting damages to April 2000. (Freund v Washington Sq. Press, 34 NY2d 379; Swain v Schieffelin, 134 NY 471; Bogdan & Faist v CAI Wireless Sys., 295 AD2d 849; Kenford Co. v County of Erie, 67 NY2d 257; Kenford Co. v County of Erie, 73 NY2d 312.) III. Plaintiff is not entitled to reinstatement of the jury award of damages. (O’Connor v Papertsian, 309 NY 465; Morales v County of Nassau, 94 NY2d 218.)
   OPINION OF THE COURT

R.S. Smith, J.

In this breach of contract case, the issue is the extent to which plaintiffs can recover for lost profits. We hold, as did the Appellate Division, that plaintiffs have no viable claim for lost profits attributable to any time later than April 2000.

Facts and Procedural History

Plaintiffs are two affiliated companies that manufacture and distribute hghtning protection systems. Defendant is a private testing laboratory. The parties entered into an agreement in 1994 pursuant to which defendant would test and certify plaintiffs’ “Early Streamer Emission” (ESE) products.

ESE was a controversial technology that, according to plaintiffs, represented a significant improvement on traditional lightning rods. In 1994, no officially adopted industry standard for ESE products existed; a draft of such a standard, known as “Draft NFPA 781,” did exist, and plaintiffs were engaged in what proved to be a long and fruitless effort to obtain final approval of the draft by the National Fire Protection Association (NFPA). After much analysis and controversy, the NFPA finally and definitively rejected the draft on April 28, 2000.

Meanwhile defendant agreed to, and for some years did, test plaintiffs’ products for compliance with the requirements contained in Draft NFPA 781. Defendant certified the products when they passed the tests—meaning, among other things, that plaintiffs were allowed to affix defendant’s “certification mark” to the products. After a rocky relationship whose details need not be recounted, defendant informed plaintiffs in 1998 that it would no longer permit plaintiffs to use its mark. As a result, plaintiffs sued defendant on various theories. Only their breach of contract claims survive.

The case was tried in 2001. At trial, plaintiffs presented, through an expert, evidence of the profits they claimed to have lost, based on historical data, through November 2000, and of profits they expected to lose, based on projections, through 2014. The jury found that defendant had breached the contract and awarded plaintiffs $2,208,360 in lost profits damages, of which only $197,449 was attributable to the period ending in November 2000.

On defendant’s posttrial motion, Supreme Court upheld the liability verdict but ordered a new trial on damages unless plaintiffs accepted the reduced amount of $410,000. The Appellate Division modified, ordering a new trial on damages without offering the option of a smaller judgment, and providing that no damages could be awarded for the period after April 2000. Plaintiffs appeal to this Court as of right pursuant to CPLR 5601 (c), on a stipulation for judgment absolute. We affirm.

Discussion

A. Reviewability

Defendant argues that we have no power to review the Appellate Division’s decision because it resolved a question of fact, not a question of law (see CPLR 5501 [b]). We disagree, and hold that the decision is reviewable.

The problem arises because the Appellate Division opinion says that Supreme Court’s order is “modified on the law,” but also says that “the jury’s award of damages is against the weight of evidence” (9 AD3d 870, 870, 872 [2004]). A “weight of the evidence” determination is a factual one that we have no power to review (see Cohen v Hallmark Cards, 45 NY2d 493, 498-500 [1978]).

The result reached shows that in reality the Appellate Division ruled on the sufficiency, not the weight, of the evidence. The Appellate Division held that the new trial it ordered “shall be on damages from September 1998 to April 2000,” thus prohibiting any award of damages for a later time (9 AD3d at 871). In effect, the Appellate Division directed a verdict against plaintiffs as to post-April 2000 damages—a ruling of law that this Court is empowered to review (see Cohen, 45 NY2d at 497-498, 500; Karger, Powers of the New York Court of Appeals § 77 [c], at 475-476 [3d ed]).

B. The Merits

We agree with the Appellate Division that no legally sufficient evidence supports an award of damages attributable to any time after April 2000.

April 28, 2000 is a key date, because that was when the NFPA rejected Draft NFPA 781 for the last time, putting an end to plaintiffs’ long efforts to get the draft adopted as the industry standard for ESE products. Defendant argues in substance that, even if it had complied with what the jury found to be its contractual duties, it would not and could not have tested and certified plaintiffs’ products after April 2000 because there was not even a tentative or prospective industry standard to test them against. It may have made sense, defendant’s argument runs, to test and certify products for compliance with the draft standard while there was still a possibility that the industry would adopt it, but testing products against a definitively rejected standard made no sense. No credible testing laboratory could certify products as complying with a rejected standard, and plaintiffs were not entitled to, and could not benefit from, such a meaningless certification. Thus, defendant argues, its breach of contract did not cause plaintiffs to lose any profits after April 2000. We find this argument to be sound.

Plaintiffs’ response is that, even after April 2000, defendant could have tested plaintiffs’ products against the requirements contained in the now-defunct draft standard, and could have certified that the products passed the tests. The parties’ contract, plaintiffs point out, did not require tests to be against an industry standard. Indeed, the contract, which is on a standard form used by defendant with all its clients, refers to “the published Standard or Standards, if any, applicable from time to time” (emphasis added).

No doubt it would have been physically possible, after April 2000, to run tests comparing plaintiffs’ products to the requirements contained in the rejected Draft NFPA 781. And we assume that there are times when it makes sense for defendant to test a client’s products against something other than an industry-wide standard; defendant suggests that this may occur, for example, where a customer of the client (perhaps a municipality or other public body) has specifications of its own that the client must meet. But plaintiffs do not explain why it would have made any sense in this case to test their products against requirements contained in a draft standard that had been abandoned. Nothing in the record suggests that a certification showing that such tests were passed would have had commercial value to plaintiffs, or that the absence of such a certification could have caused plaintiffs to lose any profits. There was, in short, no evidence from which a jury could conclude that defendant’s breach of contract caused plaintiffs any damages after April 2000.

Accordingly, the order of the Appellate Division should be affirmed with costs, and judgment absolute ordered against plaintiffs on the stipulation.

Chief Judge Kaye and Judges G.B. Smith, Ciparick, Rosenblatt, Graffeo and Read concur.

Order affirmed, etc.


author: Rosenblatt, J.

text:
    [830 NE2d 1127, 797 NYS2d 799]
    Svetlana Tikhonova, Respondent, v Ford Motor Company et al., Appellants, et al., Defendants.
    Argued March 22, 2005;
    decided May 5, 2005

      POINTS OF COUNSEL

      Nixon Peabody LLP, Garden City (Frank L. Amoroso, Joseph J. Ortego and Santo Borruso of counsel), for appellants,.
    I. Since a mandatory liability insurance requirement was imposed when diplomatic immunity was enacted, there is no justification for imposing vicarious liability under Vehicle and Traffic Law § 388 on the lessor of a motor vehicle driven by a diplomat. (Fried v Seippel, 80 NY2d 32; Windsor v State Farm Ins. Co., 509 F Supp 342; Kenny v Bacolo, 61 NY2d 642; Finkel v Blair & Co., 213 AD2d 588; Mowczan v Bacon, 92 NY2d 281.) II. Since the Appellate Division’s reversal of the trial court’s order of dismissal conflicts with existing authority of this Court, and the Second and Fourth Departments, as well as the lower courts, the order appealed should be reversed. (Naso v Lafata, 4 NY2d 585; Rauch v Jones, 4 NY2d 592; Rodriguez v Lodato Rental, 267 AD2d 293; Jaglall v Supreme Petroleum Co. of N.J., 185 AD2d 971; Ulysse v Nelsk Taxi, 135 AD2d 528, 73 NY2d 702; Trizzino v Mildank Taxi Corp., 128 AD2d 607; Samba v Delligard, 116 AD2d 563; Sikora v Keillor, 17 AD2d 6, 13 NY2d 610; Nelson v Garcia, 152 AD2d 22; Padlo v Spoor, 90 Misc 2d 1002, 72 AD2d 665.)

      Pollack, Pollack, Isaac & De Cicco, New York City (Brian J. Isaac of counsel), and Sherman & Basichas LLP (Alyssa Lebensohn and Mark Basichas of counsel), for respondent.
    The Appellate Division majority rightly upheld plaintiffs right to sue Ford Motor Company, which was vicariously liable for Alexey Konovalov’s negligence under the Vehicle and Traffic Law, as the decision did not permit avoidance of a direct action statute or conflict with any public policy; Ford, according to this record, charged the Russian mission its normal rate, and is not entitled to a special benefit; upholding plaintiff’s right of action comported with the strong public policy of ensuring that those injured in automobile accidents have access to adequate and fair compensation from a responsible party. (Plath v Justus, 28 NY2d 16; Rolfe v Hewitt, 227 NY 486; Morris v Snappy Car Rental, 84 NY2d 21; Mills v Gabriel, 259 App Div 60; Plaumbo v Ryan, 213 App Div 517; Motor Veh. Acc. Indem. Corp. v Continental Natl. Am. Group Co., 35 NY2d 260; Fried v Seippel, 80 NY2d 32; Continental Auto Lease Corp. v Campbell, 19 NY2d 350; Murdza v Zimmerman, 99 NY2d 375; Reich v Manhattan Boiler & Equip. Corp., 91 NY2d 772.)
   OPINION OF THE COURT

Rosenblatt, J.

On this appeal two statutes intersect: on the one hand, vehicle owners are vicariously liable for the negligence of those whom they allow to drive their vehicles (Vehicle and Traffic Law § 388). On the other, a diplomat who drives a vehicle negligently is immune from suit (22 USC § 254d). The question before us is whether a vehicle owner is vicariously hable for the negligence of a diplomat, himself immune from suit. Put differently, when these two statutes go head to head, does the driver’s immunity extinguish the vicarious liability of the owner?

At issue is the scope of 28 USC § 1364. That statute is part of the Diplomatic Relations Act, which requires members of a diplomatic mission to secure automobile liability insurance and gives injured persons the right to sue the wrongdoers’ insurance carriers in federal court. We must decide whether 28 USC § 1364 is an exclusive remedy that bars the action before us.

We hold that the driver’s immunity does not shield the owner. Moreover, because 28 USC § 1364 does not provide an exclusive remedy, the suit before us is tenable.

Alexey Konovalov, a Russian diplomat driving in New York City, rear-ended another car. Konovalov’s passenger, plaintiff here, was seriously injured and sued Konovalov and Ford, the car’s owner. Supreme Court dismissed the suit against Konovalov owing to his diplomatic immunity. By way of affirmative defense, Ford asserted that given the driver’s immunity it could not be held vicariously liable. Plaintiff moved for summary judgment against Ford, which cross-moved to dismiss. Supreme Court agreed with Ford, concluding that the company could not be held vicariously liable, and further, that 28 USC § 1364 relegated plaintiff to a federal court action against Konovalov’s insurance carrier.

The Appellate Division reversed and reinstated the complaint against Ford (10 AD3d 185 [1st Dept 2004]). We affirm.

Under the Diplomatic Relations Act (22 USC § 254a et seq.) an action against an individual entitled to immunity must be dismissed where immunity is established “upon motion or suggestion by or on behalf of the individual” (22 USC § 254d). Konovalov’s diplomatic immunity is conceded.

In pertinent part, section 388 of the Vehicle and Traffic Law provides that:

“Every owner of a vehicle used or operated in this state shall be liable and responsible for death or injuries to person or property resulting from negligence in the use or operation of such vehicle, in the business of such owner or otherwise, by any person using or operating the same with the permission, express or implied, of such owner” (§ 388 [1]).

In 1924, the Legislature enacted Highway Law § 282-e, the predecessor to section 388. In the 80 years since then, the Legislature has amended or consolidated the section 14 times, but never once has it retreated from its intention to assure injured plaintiffs that there will be a financially responsible party to provide compensation for negligent driving.

In arguing against liability, Ford asserts that, in other contexts, this Court has declined to impose derivative liability where the tortfeasor enjoys immunity. In Naso v Lafata (4 NY2d 585, 589 [1958]), we explained that a worker injured in a car driven negligently by a coemployee (and in the course of their employment) may not resort to the Vehicle and Traffic Law for a cause of action against the car’s owner. The Workers’ Compensation Law, we held, offers the only remedy for injuries caused by the coemployee’s negligence. This conclusion flowed directly from the statutory language in what was then Workmen’s Compensation Law § 29 (6), which stated that “[t]he right to compensation or benefits under this chapter, shall be the exclusive remedy to an employee . . . when such employee is injured or killed by the negligence or wrong of another in the same employ” (quoted in Naso, 4 NY2d at 589 [emphasis omitted]). Similarly, in the companion case of Rauch v Jones (4 NY2d 592, 596 [1958]), we confirmed that the statute prohibits any remedy but that provided by the Workers’ Compensation Law.

Contrary to Ford’s assertion, the basis for these decisions was not that derivative liability could never derive from an immune party’s negligence. Rather, both decisions rest on the statutory language making plain that in the special context of workers’ compensation, the system of remedies provided by the Workers’ Compensation Law supplants all other statutory or common-law causes of action. The federal statute providing diplomats’ tort victims with a direct action against the diplomats’ insurance carriers contains nothing like the “exclusive remedy” clause specified in the Workers’ Compensation Law (see 28 USC § 1364).

Ford also argues that our precedents denying the liability of owners of cars lent to emergency workers should apply here. In Sikora v Keillor (13 NY2d 610 [1963], affg 17 AD2d 6, 8 [2d Dept 1962]), we affirmed, without opinion, the Appellate Division’s determination that no liability attaches to a vehicle owner where the negligent driver (a volunteer firefighter) was immune from suit under General Municipal Law § 205-b. That case does not govern the appeal before us. The Appellate Division reasoned that the owner’s vicarious liability could derive only from a finding of liability against the driver. On policy grounds, a contrary result would have discouraged volunteers from responding to emergencies by reducing the number of people willing to lend vehicles to those volunteers. By interpreting section 388 as we did, the Court stood behind the strong policy interest in protecting those who aid emergency workers. That result, however, is not compelled in every instance in which the vehicle’s operator benefits from some immunity. We do not see a strong state policy in favor of renting cars to diplomats.

Moreover, a finding that the owner was not liable did not leave the injured party without the opportunity to seek full compensation, because General Municipal Law § 205-b holds the fire district liable for the negligence of its volunteer firefighters. Here, by contrast, the Russian mission’s insurance, although greater than the state minimum, would likely not be enough to compensate the victim in full.

Ford would have us interpret section 388 to necessarily absolve the owner of liability whenever the driver cannot be held liable. The statute, however, is not written that way. It hinges the owner’s liability not on the driver’s liability but on the driver’s negligence.

As a final argument, Ford maintains that 28 USC § 1364 bars this action. Congress enacted that statute to assure that deserving plaintiffs can look to financially responsible parties to answer for injuries negligently caused by diplomats. Section 6 (b) of the Act requires members of the diplomatic mission to acquire liability insurance for risks “arising from the operation in the United States of any motor vehicle, vessel, or aircraft” (22 USC § 254e [b]), while section 7 authorizes an injured party to sue the diplomat’s carrier directly in federal court (28 USC § 1364).

Ford argues that because plaintiff has this right, she is barred from suing the company in state court. We disagree. There is nothing in the federal statutes that can be read to prohibit this action. Allowing a federal suit against the driver’s carrier does not foreclose a state court suit against another party—in this case, Ford.

Accordingly, the order of the Appellate Division should be affirmed, with costs, and the certified question answered in the affirmative.

Chief Judge Kaye and Judges G.B. Smith, Ciparick, Graffeo, Read and R.S. Smith concur.

Order affirmed, etc.

      . Ford Motor Credit Company owned the car; Ford Motor Company was the lessor, pursuant to a long-term lease with the Russian mission. For convenience, and because the defendants are jointly and severally liable if they are liable at all, we refer to both companies jointly as Ford.

      . See generally Sean D. Murphy, Contemporary Practice of the United States Relating to International Law, 95 Am J Int’l L 873 (2001). Article 31 of the Vienna Convention on Diplomatic Relations, April 18, 1961 (23 UST 3227, 3240-3241, 500 UNTS 96, 112) forecloses suit against certain foreign agents in American courts.

      . See Windsor v State Farm Ins. Co. (509 F Supp 342, 343 [D DC 1981] [“The Diplomatic Relations Act (the Act) was designed, in part, to deal with the inequities associated with the immunity of members of diplomatic missions in civil court proceedings”]).

      . Plaintiff also argues that the diplomat’s minimum statutory insurance coverage is far short of what it would take to compensate her for her injuries. Further, she asserts that although the lease between Ford and the Russian mission obligates the mission to indemnify Ford for any losses in excess of the federally mandated insurance, diplomatic immunity would extend to any counterclaim or indemnification agreement. Given the grounds for our decision, we need not address these arguments.