author: Read, J.

text:
    [819 NE2d 1032, 786 NYS2d 416]
    In the Matter of 427 West 51st Street Owners Corp., Appellant, v Division of Housing and Community Renewal, Respondent.
    Argued October 20, 2004;
    decided November 18, 2004

      POINTS OF COUNSEL

      Kucker & Bruh, LLP, New York City (Nativ Winiarsky and Patrick K. Munson of counsel), for appellant.
    By soliciting tenants to join in a petition for administrative review determination four years after it was filed, the Division of Housing and Community Renewal has violated its own regulations and appellant’s due process rights and acted in a manner that was clearly arbitrary. (Matter of Dowling v Holland, 245 AD2d 167; Matter of LeHavre Tenants Assn. v New York State Div. of Hous. & Community Renewal, 176 AD2d 877; Matter of Lipes v State of N.Y., Div. of Hous. & Community Renewal, 174 AD2d 571; Rusty Realty Assoc. v New York State Div. of Hous. & Community Renewal, 161 AD2d 207; Matter of Black Realty Co. v State Div. of Hous. & Community Renewal, 201 AD2d 432; Matter of Kansas Leasing Ltd. Partnership v Division of Hous. & Community Renewal, 255 AD2d 384; Matter of Hart v New York State Div. of Hous. & Community Renewal, 195 AD2d 381; Matter of Boulevard Tenants Corp. v New York State Div. of Hous. & Community Renewal, 264 AD2d 444; Matter of S & M Dev. v State Div. of Hous. & Community Renewal, 182 AD2d 995; Matter of Eastern Pork Prods. Co. v New York State Div. of Hous. & Community Renewal, 187 AD2d 320.)

      Caroline M. Sullivan, New York City, and Marcia P. Hirsch for respondent.
    I. The Commissioner of the Division of Housing and Community Renewal’s decision was rationally based on the record and in accord with applicable laws and regulations. (Matter of Hyde Park Gardens v State of N.Y., Div. of Hous. & Community Renewal, 140 AD2d 351, 73 NY2d 998; Matter of ANF Co. v Division of Hous. & Community Renewal, 176 AD2d 518; Matter of Hyde Park Assoc. v Higgins, 191 AD2d 440; Matter of Hakim v Division of Hous. & Community Renewal, 273 AD2d 3, 95 NY2d 887; Matter of Weber v New York State Div. of Hous. & Community Renewal, 190 AD2d 810; Matter of M.J. Raynes, Inc.

      v State Div. of Hous. & Community Renewal, 136 Misc 2d 626; Matter of Knobler v Division of Hous. & Community Renewal, 257 AD2d 387; Matter of Lighthouse Props. v New York State Div. of Hous. & Community Renewal, 305 AD2d 283, 100 NY2d 516; 1 BK St. Corp. v New York State Div. of Hous. & Community Renewal, 302 AD2d 263, 100 NY2d 516; Matter of Gilman v New York State Div. of Hous. & Community Renewal, 99 NY2d 144.) II. The Commissioner of the Division of Housing and Community Renewal’s order should be affirmed. (Greystone Mgt. Corp. v Conciliation & Appeals Bd., 94 AD2d 614, 62 NY2d 763; Matter of Pell v Board of Educ., 34 NY2d 222; Matter of Salvati v Eimicke, 72 NY2d 784, 73 NY2d 995; Matter of McMurray v New York State Div. of Hous. & Community Renewal, 135 AD2d 235, 72 NY2d 1022, 73 NY2d 918; Barklee Realty Co. v Division of Hous. & Community Renewal, 159 AD2d 416, 76 NY2d 709, 844; Matter of Krakower v State of N.Y., Div. of Hous. & Community Renewal, 137 AD2d 688, 74 NY2d 613.)
   OPINION OF THE COURT

Read, J.

On October 2, 1996, 51 tenants of a rent-stabilized building owned by respondent landlord applied to the Division of Housing and Community Renewal (DHCR) for a rent reduction based on a diminution of building services, including loss of 24-hour access to the basement {see 9 NYCRR 2520.6 [r]; 2523.4). On September 8, 1997, DHCR issued an order generally favoring the tenants and granting a rent reduction, but determining that the complained-of cutback in basement access was a de minimis condition not warranting a finding of decreased services (9 NYCRR 2523.4 [e]). On September 22, 1997, a tenants’ representative filed a timely petition for administrative review (PAR) to contest the de minimis finding.

DHCR’s regulations provide that a PAR may be filed on behalf of tenants by a representative who verifies the PAR “provided that such representative includes, at the time of the filing of the PAR, written evidence of authorization to act in such representative capacity for the purpose of filing the PAR” (9 NYCRR 2529.1 [b] [2]). Further, DHCR’s instructions accompanying the PAR form allow a representative of a building-wide tenant organization to file a PAR on behalf of all the organization’s members. The representative must attach “either a resolution of the organization authorizing such representative filing, or if an officer of the organization is empowered to authorize such representative filing, the authorization of such officer.” The instructions also require the representative to attach “a statement that the representative is filing on behalf of all members of the organization . . . and a current roster of the organization’s members.” In this case, a verified PAR was filed by the co-chair of the tenants’ association, who had corresponded with DHCR on the tenants’ behalf while the original complaint was pending. She attached a statement authorizing her to pursue the PAR in a representative capacity. This statement was signed by six individuals who identified themselves as members of the building’s tenants’ association committee. She also attached a copy of the lists of signatures and addresses of the 51 tenants provided with the original complaint, which included her own name and address as well as the names and addresses of the six members of the committee.

On April 22, 1998, DHCR granted the PAR insofar as there was insufficient basis for finding that curtailment of 24-hour access to basement facilities was de minimis. DHCR remanded the matter for further consideration, with notice to the tenants whose names were on the lists attached to the PAR. Thirty-three of the tenants responded, and these responses were forwarded to the landlord. DHCR held a hearing at which five of the tenants testified, including three whose names appeared only on the lists; the landlord did not appear.

On March 28, 2000, DHCR issued an order finding a reduction in service on account of the loss of 24-hour access to the basement, and directing a rent reduction for the 51 tenants. This caused the landlord to file a PAR on May 2, 2000 to challenge both the order’s substance and its scope. On October 3, 2000, DHCR issued an order upholding the finding of decreased services, but agreeing with the landlord that those tenants whose reproduced signatures appeared on the September 22, 1997 PAR had not properly appealed the original order. Accordingly, DHCR revoked its March 28, 2000 order with respect to those tenants.

The tenants commenced a CPLR article 78 proceeding to contest DHCR’s decision, and moved to modify DHCR’s October 3, 2000 order to include all 51 tenants. DHCR cross-moved to remit for reconsideration. On May 9, 2001, Supreme Court denied the tenants’ motion and granted DHCR’s cross motion. On October 15, 2001, DHCR sent letters to the 51 tenants, briefly outlining what had happened and advising that “proper procedure should have been for DHCR to have first given all of the complaining tenants a chance to submit an affirmation authorizing the tenants’ representative to sign the September [22], 1997 PAR on their behalf.” DHCR enclosed its supplemental form for an application for a rent reduction based upon decreased building-wide services, and instructed the tenants to return the signed form within 21 days if they wished to authorize the tenants’ association’s co-chair to represent them in the September 22, 1997 PAR. Thirty-five tenants returned a signed form to DHCR.

On January 9, 2002, DHCR issued an order upon reconsideration determining that

“it was an error to . . . revok[e] the rent reduction for all but seven of the tenants, because there was substantial compliance by the tenants in filing a proper PAR. Although the list of tenants attached to the September 22, 1997 PAR did not contain original signatures for all but six tenants, DHCR precedent has established that, for such a defect, the proper procedure is for DHCR to inform the tenants of the defect and allow time for them to correct it.”

Consistent with this “proper procedure,” DHCR modified its previous orders so as to grant the rent reduction to those 35 tenants who returned the signed authorization forms to DHCR.

On March 11, 2002, the landlord brought this article 78 proceeding to challenge DHCR’s January 9, 2002 order upon reconsideration. On August 15, 2002, Supreme Court denied the landlord’s petition and dismissed the proceeding, concluding that DHCR had acted within its discretion under 9 NYCRR 2529.7 to correct technical deficiencies in a PAR. The Appellate Division subsequently affirmed, with two Justices dissenting (4 AD3d 185 [1st Dept 2004]).

The Rent Stabilization Code vests the DHCR Commissioner with discretion to permit correction of technical defects in a timely filed PAR, including (for good cause shown) to accept for filing any other papers even though not filed within the required time limitations (9 NYCRR 2529.7 [d]; see also Matter of Gilman v New York State Div. of Hous. & Community Renewal, 99 NY2d 144, 150 [2002] [Rent Stabilization Code permits DHCR to accept new evidence for good cause shown at any point before the Commissioner enters a final order]). Here, a pro se tenant representative, the co-chair of the building-wide tenants’ association, timely filed a PAR on behalf of other tenants in the association. DHCR’s regulations and instructions do not, in fact, require a signed authorization from each member of the association under these circumstances; rather, the representative is directed to provide authorization from the organization as well as a list of the organization’s members and a statement that the representative is filing on behalf of all members. In this case, a clear statement was lacking, but DHCR viewed the papers filed as a good faith effort in substantial compliance with its regulation and instructions.

“[T]he interpretation given to a regulation by the agency which promulgated it and is responsible for its administration is entitled to deference if that interpretation is not irrational or unreasonable” (Matter of Gaines v New York State Div. of Hous. & Community Renewal, 90 NY2d 545, 548-549 [1997] [citations omitted]). DHCR’s interpretation of its regulation permitting a PAR to be filed by an authorized representative (9 NYCRR 2529.1 [b] [2]) is neither irrational nor unreasonable. DHCR’s action allowing the tenants to remedy a defect in authorization that it did not notice when accepting the PAR for filing (see 9 NYCRR 2529.7 [d]) was not arbitrary or capricious or an abuse of discretion. The tenants’ intention for the co-chair of the tenants’ association to represent them was clear, if imperfectly expressed. Moreover, the deficient authorization did not mislead the landlord into thinking that only seven individual tenants supported the PAR; 33 tenants responded to the notice of remand. The landlord did not question the authorization’s legitimacy until after the hearing had been held and an order adverse to its interests issued. In light of these circumstances, DHCR reasonably afforded the tenants an opportunity to cure the deficiency in authorization.

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.

      . The September 22,1997 PAR was consolidated with another PAR signed and filed at roughly the same time by an individual tenant. This tenant’s name also appeared on the lists attached to the September 22, 1997 PAR.

      . The 35 tenants included those seven tenants for whom DHCR had previously authorized a rent reduction.


source: Caselaw Access Project

author: R.S. Smith, J.

license: Public Domain

text:
    [819 NE2d 1029, 786 NYS2d 413]
    Roger Mason, Appellant, v Central Suffolk Hospital et al., Respondents.
    Argued October 12, 2004;
    decided November 18, 2004
    POINTS OF COUNSEL

      Robert G. Spevack, New York City, and Michael P. Barnes for appellant.
    I. The holdings of the Appellate Division departments have deprived physicians of any effective remedy for violations and abuse of hospital bylaws. (Tedeschi v Wagner Coll., 49 NY2d 652; Chalasani v Neuman, 97 AD2d 806, 64 NY2d 879; Gianelli v St. Vincent’s Hosp. & Med. Ctr., 160 AD2d 227; Bogdan v Peekskill Community Hosp., 168 Misc 2d 856; Chime v Sicuranza, 221 AD2d 401; Falk v Anesthesia Assoc. of Jamaica, 228 AD2d 326; Gelbard v Genesee Hosp., 255 AD2d 882; Moallem v Jamaica Hosp., 264 AD2d 621.) II. The Public Health Law was never intended to eliminate a physician’s cause of action for monetary damages and replace it with a statutory cause of action for injunctive relief only. (Gianelli v St. Vincent’s Hosp. & Med. Ctr., 160 AD2d 227; Wasserman v Maimonides Med. Ctr., 268 AD2d 425; Leider v Beth Israel Hosp. Assn., 11 NY2d 205; Chalasani v Neuman, 97 AD2d 806; Tedeschi v Wagner Coll., 49 NY2d 652; Gelbard v Genesee Hosp., 87 NY2d 691; Tassy v Brunswick Hosp. Ctr., Inc., 296 F3d 65; Falk v Anesthesia Assoc. of Jamaica, 228 AD2d 326; Murphy v American Home Prods. Corp., 58 NY2d 293; Weiner v McGraw-Hill, Inc., 57 NY2d 458.) III. Plaintiff has stated a cause of action pursuant to CPLR 3211 (a) (7). (Matter of Katz, 81 AD2d 145, 55 NY2d 904.) IV Even under the Appellate Division’s view of the law, plaintiff has stated a prima facie case. (Chuz v St. Vincent’s Hosp., 186 AD2d 450; Chime v Sicuranza, 221 AD2d 401; Wasserman v Maimonides Med. Ctr., 268 AD2d 425.) V. Plaintiff has sufficiently pleaded a case against Dr. Jon Zelen based upon tortious interference with contractual relations. (Foster v Churchill, 87 NY2d 744.)

      Nixon Peabody LLP, Garden City (Michael S. Cohen, James Fabian and Christopher J. Porzio of counsel), for respondents.
    I. This Court should not recognize a contractual cause of action for monetary damages arising out of an alleged violation of hospital or medical staff bylaws. (Guibor v Manhattan Eye, Ear & Throat Hosp., 46 NY2d 736; Gelbard v Genesee Hosp., 87 NY2d 691; Moallem v Jamaica Hosp., 264 AD2d 621; Gelbard v Genesee Hosp., 255 AD2d 882, 93 NY2d 916; Dolgin v Mercy Hosp., 127 AD2d 557; Leider v Beth Israel Hosp. Assn., 11 NY2d 205; Yates v Cohoes Mem. Hosp., 64 AD2d 726; Rockland Physician Assoc., P.C. v Grodin, 616 F Supp 958; Tedeschi v Wagner Coll., 49 NY2d 652; Maas v Cornell Univ., 94 NY2d 87.) II. Even if this Court does recognize a cause of action for damages for breach of medical staff bylaws, it should do so consistent with current Appellate Division precedent and affirm the dismissal of Dr. Roger Mason’s claim. (Wasserman v Maimonides Med. Ctr., 268 AD2d 425; Chuz v St. Vincent’s Hosp., 186 AD2d 450; Saha v Record, 177 AD2d 763; Farooq v Millard Fillmore

      Hosp., 172 AD2d 1063; Falk v Anesthesia Assoc. of Jamaica, 228 AD2d 326, 89 NY2d 916; Giordano v Victory Mem. Hosp., 273 AD2d 353; Moallem v Jamaica Hosp., 264 AD2d 621; Gelbard v Genesee Hosp., 255 AD2d 882, 93 NY2d 916; Matter of Chong-Hwan Wee v City of Rome, 233 AD2d 876; Harris v Eisenberg, 199 AD2d 305.) III. The proposed amended complaint fails to allege adequately any violation of the bylaws. (Fried v Straussman, 41 NY2d 376; Maltz v New York Univ. Med. Ctr., 121 AD2d 323.) IV Dr. Roger Mason has not adequately alleged any breach of contract induced by Dr. Jon Zelen, requiring an affirmance of the dismissal of the cause of action for tortious interference with contract. (Foster v Churchill, 87 NY2d 744; Falk v Anesthesia Assoc. of Jamaica, 228 AD2d 326, 89 NY2d 916; Gelbard v Genesee Hosp., 255 AD2d 882.)

      O’Connell and Aronowitz, Albany (Jane Bello Burke and J. Alex Augustin of counsel), for Healthcare Association of New York State, amicus curiae.
    I. A physician has no right, under common law or statute, to recover damages from a hospital for a denial of staff privileges. (Gelbard v Genesee Hosp., 87 NY2d 691; Matter of Cohoes Mem. Hosp. v Department of Health, 48 NY2d 583; Guibor v Manhattan Eye, Ear & Throat Hosp., 46 NY2d 736; Fried v Straussman, 41 NY2d 376; Leider v Beth Israel Hosp. Assn., 11 NY2d 205; Van Campen v Olean Gen. Hosp., 210 App Div 204, 239 NY 615; Matter of Fritz v Huntington Hosp., 39 NY2d 339; Moallem v Jamaica Hosp., 264 AD2d 621.) II. Tedeschi v Wagner Coll. (49 NY2d 652 [1980]) does not provide a basis to challenge a hospital staff privileges decision based upon a violation of the medical staff bylaws. (Maas v Cornell Univ., 94 NY2d 87; Matter of Amodei v New York State Chiropractic Assn., 77 NY2d 891; Matter of De Petris v Union Settlement Assn., 86 NY2d 406; Gertler v Goodgold, 107 AD2d 481, 66 NY2d 946; Chalasani v Neuman, 97 AD2d 806, 64 NY2d 879; Matter of Murphy v St. Agnes Hosp., 107 AD2d 685; Bogdan v Peekskill Community Hosp., 168 Misc 2d 856; Gianelli v St. Vincent’s Hosp. & Med. Ctr., 160 AD2d 227; Chime v Sicuranza, 221 AD2d 401.) III. On public policy grounds, the decision should be affirmed. (Sithian v Spence, 283 AD2d 566.)
   OPINION OF THE COURT

R.S. Smith, J.

In Gelbard v Genesee Hosp. (87 NY2d 691, 698 [1996]), we left open the question “whether a breach of contract action can be predicated on a violation of medical staff bylaws.” We now answer that question in part, holding that no action for damages may be based on a violation of medical staff bylaws, unless clear language in the bylaws creates a right to that relief.

Facts

Doctor Roger Mason was a member of the medical staff of Central Suffolk Hospital and a specialist in laparoscopic surgery (surgery performed by means of a narrow tube called a laparoscope inserted through the abdominal wall). On February 3, 1998, the Hospital suspended Dr. Mason’s privileges to perform “advanced” laparoscopic procedures, and required him to obtain a concurring second opinion before performing certain other kinds of surgery. The Hospital based its decision on a review of Dr. Mason’s cases by another doctor, who reported that in some of those cases Dr. Mason’s skills and judgment appeared to be flawed, and that his failings may have caused patients to be injured.

Dr. Mason sought internal review of this decision pursuant to the Hospital’s bylaws. Lengthy proceedings followed, with the net result that the Hospital found the initial suspension to be justified; discontinued the requirement for a second opinion, but required a period of monitoring of certain procedures; and provided for reinstatement of Dr. Mason’s advanced laparoscopic surgery privileges on certain conditions. Dr. Mason then complained to the Public Health Council of the Department of Health, pursuant to Public Health Law § 2801-b. The Public Health Council rejected his complaint.

After the Public Health Council’s ruling, Dr. Mason brought this action against the Hospital and Dr. Jon Zelen, a former employee of Dr. Mason’s surgical practice group who had left before February 1998 to form a competing group. Dr. Mason alleged that Dr. Zelen had stood to gain from restrictions being placed on Dr. Mason’s privileges, and that he had therefore made false accusations and stirred up an unwarranted investigation by the Hospital. Dr. Mason claimed that the Hospital’s bylaws were a contract between him and the Hospital, and that the Hospital breached that contract by failing to follow the procedures the bylaws required and by suspending him “without legitimate cause.” He sought damages from the Hospital for breach of contract, and from Dr. Zelen for inducing the breach.

Defendants’ motion to dismiss the complaint for failure to state a cause of action was denied by Supreme Court. The Appellate Division reversed and ordered the complaint dismissed. We now affirm the Appellate Division’s order.

Discussion

A number of our cases reject claims by doctors complaining of the denial of hospital privileges. One of these was Leider v Beth Israel Hosp. Assn. (11 NY2d 205, 208 [1962]), in which we held “that the plaintiff, a surgeon, has no vested right to the use of the hospital’s facilities for the care and treatment of his private patients.” In Guibor v Manhattan Eye, Ear & Throat Hosp., Inc. (46 NY2d 736, 737 [1978]), we cited Leider for the broad proposition that “[a]t common law, absent a contractual obligation to the contrary, a physician’s continued professional association with a private hospital was within the unfettered discretion of the hospital’s administrators.”

We noted in Guibor that “this seemingly harsh common-law rule” had been “tempered” by the enactment of Public Health Law § 2801-b. (Id.) The statute provides that it “shall be an improper practice” for a hospital’s governing body to “curtail, terminate or diminish in any way a physician’s . . . professional privileges in a hospital, without stating the reasons therefor, or if the reasons stated are unrelated to standards of patient care, patient welfare, the objectives of the institution or the character or competency of the applicant” (§ 2801-b [1]). It also provides that any person “claiming to be aggrieved by an improper practice as defined in this section” can make a complaint to the Public Health Council, which, if it upholds the complaint, shall direct the hospital’s governing body to review its actions (§ 2801-b [2], [3]); and that the statute’s provisions “shall not be deemed to impair or affect any other right or remedy” (§ 2801-b [4]). Public Health Law § 2801-c provides that Supreme Court “may enjoin violations or threatened violations of any provisions of this article.” In Guibor, we held that an action seeking an injunction under section 2801-c was premature where the doctor had not first presented his claim to the Public Health Council.

In Gelbard v Genesee Hosp. (87 NY2d 691 [1996]), a physician sought an order restoring his staff privileges, relying not on the Public Health Law, but on the hospital’s bylaws. Dr. Gelbard claimed, as Dr. Mason does here, that the bylaws were a contract, and he sought an injunctive remedy for their breach. Without reaching the merits of Dr. Gelbard’s claim we held that the lawsuit, as in Guibor, was premature; even where a doctor who is seeking reinstatement sues for breach of contract, his claim must first be presented to the Public Health Council, for otherwise the “statutory requirement of threshold [Public Health Council] review” might be “circumvented by artful pleading” {id. at 697).

This case differs from Gelbard in two ways: Dr. Mason is not seeking reinstatement, but damages, and he has already presented his claim to the Public Health Council. No argument can be or is made that Dr. Mason’s suit is premature, and therefore we must decide in this case, as we did not need to do in Gelbard, whether the claim is legally sufficient.

While we have never decided whether hospital bylaws constitute a contract for breach of which a doctor may sue, several Appellate Division decisions have dealt with that question, producing mixed and perhaps inconsistent results. Some cases decline to dismiss complaints alleging breach of medical staff bylaws, holding them legally sufficient as suits for injunctive relief (e.g., Chalasani v Neuman, 97 AD2d 806 [2d Dept 1983]) or damages (Giannelli v St. Vincent’s Hosp. & Med. Ctr. of N.Y., 160 AD2d 227 [1st Dept 1990]; Chime v Sicuranza, 221 AD2d 401 [2d Dept 1995]). Other decisions, however, appear to limit the effect of these holdings in damages actions by rejecting complaints for wrongful termination of staff privileges based on alleged bylaw violations (Falk v Anesthesia Assoc. of Jamaica, 228 AD2d 326 [1st Dept 1996]; Gelbard v Genesee Hosp., 255 AD2d 882 [4th Dept 1998]). There appears to be no appellate case in which a damages award for breach of medical staff bylaws has been upheld after trial.

The decisions of our Court, and many of those of the Appellate Division, are consistent with an important, though generally unexpressed, policy consideration: It is preferable for hospital administrators who decide whether to grant or deny staff privileges to make those decisions free from the threat of a damages action against the hospital. It is not just in a hospital’s interest, but in the public interest, that no doctor whose skill and judgment are substandard be allowed to treat or operate on patients. A decision by those in charge of a hospital to terminate the privileges of, or deny privileges to, a doctor who may be their colleague will often be difficult. It should not be made more difficult by the fear of subjecting the hospital to monetary liability.

This does not mean, of course, that the hospital may not expose itself to such liability if it chooses to do so. A clearly written contract, granting privileges to a doctor for a fixed period of time, and agreeing not to withdraw those privileges except for specified cause, will be enforced. But the bylaws in this case are not such a contract.

Not a word in the bylaws that are now before us says or implies that doctors have a vested right to hospital privileges. The most relevant provisions of the bylaws are procedural, not substantive: They are contained in article V (Procedure for Appointment and Reappointment) and article VI (Hearing and Appeal Procedures). It is most unlikely that these bylaw provisions were intended by anyone to create a monetary claim in favor of a doctor for wrongful termination or suspension of privileges. Dr. Mason also relies on section 7.4 of the bylaws, which provides that no representative of the Hospital or staff shall be liable for action taken “in good faith and without malice” (subsection 7.4-1). Dr. Mason claims that the Hospital acted in bad faith and with malice, and that therefore he may sue. It is farfetched, however, to suggest that section 7.4, entitled “Immunity from Liability,” was intended to create a liability where one would otherwise not exist.

Dr. Mason claims that a rule imposing liability for a breach of institutional bylaws can be traced to our decision in Tedeschi v Wagner Coll. (49 NY2d 652 [1980]), but Tedeschi actually supports the rejection of Dr. Mason’s damages claim. We held in Tedeschi that the plaintiff, a college student, was entitled to a judgment directing the college that was seeking to suspend her to comply with its own written guidelines; but we also held that “[s]o much of the complaint as sought money damages . . . was properly dismissed ...” (49 NY2d at 661-662). In Maas v Cornell Univ. (94 NY2d 87 [1999]), we distinguished Tedeschi in a case brought by a professor challenging a university’s disciplinary action. We held that the professor could not sue for breach of contract based on the university’s “failure to observe bylaws and procedures” (id. at 90). We see no reason why the bylaws of the Hospital here should be read to confer more rights on Dr. Mason than the institutional documents in Tedeschi and Maas did on the plaintiffs in those cases.

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

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

Order affirmed, with costs.


author: Graffeo, J.

text:
    [820 NE2d 855, 787 NYS2d 211]
    David Lang, Appellant, v Hanover Insurance Company et al., Respondents.
    Argued October 12, 2004;
    decided November 18, 2004

      POINTS OF COUNSEL

      Greene & Reid, LLP, Syracuse (Jeffrey G. Pomeroy of counsel), for appellant.
    I. Plaintiff-appellant, as an injured party and potential beneficiary under the subject policy of insurance, has standing to bring a declaratory judgment action against defendant-respondent, Hanover Insurance Company, prior to obtaining a judgment pursuant to Insurance Law § 3420 (a) (2). (James v Alderton Dock Yards, 256 NY 298; Neubeck v McDonald, 128 Misc 768; Watson v Aetna Cas. & Sur. Co., 246 AD2d 57; Jacob Goodman & Co. v New York Tel. Co., 309 NY 258; Nationwide Mut. Ins. Co. v Dennis, 14 AD2d 188; Curreri v Allstate Ins. Co., 37 Misc 2d 557; State Farm Fire & Cas. Co. v LiMauro, 103 AD2d 514; Reliance Ins. Co. v Garsart Bldg. Corp., 122 AD2d 128; Costa v Colonial Penn Ins. Co., 204 AD2d 591; Town of Islip v S. Zara & Sons Contr. Co., 207 AD2d 339.)

      Roe, Shantz & Iacono, Liverpool {Frederick F. Shantz of counsel), for respondents.
    I. Because plaintiff is a stranger to the insurance contract and had no judgment against a purported insured under the policy, the lower court properly found that he had no standing to bring the present proceeding. (Burke v London Guar. & Acc. Co., 47 Misc 171, 126 App Div 933, 199 NY 557; Jackson v Citizens Cas. Co., 277 NY 385; Clarendon Place Corp. v Landmark Ins. Co., 182 AD2d 6; Greyhound Corp. v General Acc. Fire & Life Assur. Corp., 19 AD2d 419, 14 NY2d 380; Thrasher v United States Liab. Ins. Co., 19 NY2d 159; Abdalla v Yehia, 246 AD2d 373; Tower Ins. Co. v Skate Key, 273 AD2d 158; University Garden Apts. v Nationwide Mut. Ins. Co., 284 AD2d 975; Hershberger v Schwartz, 198 AD2d 859; New York Pub. Interest Research Group v Carey, 42 NY2d 527.) II. Even if plaintiff is found to have standing to maintain the action, dismissal of the present action was appropriate because plaintiff failed to join as a necessary party the alleged tortfeasor for whom plaintiff sought to establish coverage. (Bello v Employees Motor Corp., 240 AD2d 527; Wrobel v La Ware, 229 AD2d 861; Watson v Aetna Cas. & Sur. Co., 246 AD2d 57; White v Nationwide Mut. Ins. Co., 228 AD2d 940; Green v Welsh, 956 F2d 30.)

      Ohrenstein & Brown, LLP, New York City {Michael D. Brown
      of counsel), for CCC Insurance Company, Ltd. and another, amici curiae.
    I. Plaintiff has no standing to bring any action against insurer Hanover Insurance Company because he has no rights under the insurance policy and he has not fulfilled the requirements of Insurance Law § 3420. (Clarendon Place Corp. v Landmark Ins. Co., 182 AD2d 6; Richards v Select Ins. Co., 40 F Supp 2d 163; University Garden Apts. v Nationwide Mut. Ins. Co., 284 AD2d 975; Abdalla v Yehia, 246 AD2d 373; Hershberger v Schwartz, 198 AD2d 859; Vargas v Boston Chicken, Inc., 269 F Supp 2d 92; Hartford Fire Ins. Co. v Mitlof, 123 F Supp 2d 762; 175 E. 74th Corp. v Hartford Acc. & Indem. Co., 51 NY2d 585; NAP, Inc. v Shuttletex, Inc., 112 F Supp 2d 369; Tower Ins. Co. of N.Y. v Skate Key, 273 AD2d 158.) II. New York declaratory judgment law does not permit an injured claimant to bring an action against an insurer prior to a finding of liability against the insured. (Clarendon Place Corp. v Landmark Ins. Co., 182 AD2d 6; Aetna Cas. & Sur. Co. v Liberty Mut. Ins. Co., 91 AD2d 317.) III. Allowing a declaratory judgment action by an injured claimant prior to obtaining a judgment against the insured would have serious adverse effects on captive insurers and on the liability insurance industry in New York overall.
   OPINION OF THE COURT

Graffeo, J.

Insurance Law § 3420 grants an injured plaintiff the right to . sue a tortfeasor’s insurance company to satisfy a judgment obtained against the tortfeasor. The issue presented in this appeal is whether the injured party may bring a declaratory judgment action against the insurance company before securing a judgment against the tortfeasor. We hold that a judgment is a statutory condition precedent to a direct suit against the tortfeasor’s insurer.

Plaintiff David Lang was injured when he was struck in the eye while playing “paintball” at the home of John and Elizabeth Durbin. The paintball shot that hit plaintiff was fired by Richard Bachman, a houseguest of the Durbins. When notified of the incident, defendant Hanover Insurance Company, the Durbins’ homeowners’ liability insurance carrier, promptly disclaimed coverage for Bachman’s acts on the ground that Bachman was not an insured party under the terms of the policy.

A year after the incident, plaintiff commenced a personal injury action against Bachman seeking damages for his alleged negligent conduct. After serving the complaint, plaintiff learned that Bachman had filed a chapter 7 bankruptcy petition. A bankruptcy discharge was issued in April 2002.

While the personal injury case was pending, plaintiff also initiated this declaratory judgment action against Hanover challenging the disclaimer of coverage. Plaintiff sought a declaration that Bachman was an insured under the Durbin policy and that Hanover was therefore obligated to compensate Lang for the injuries Bachman negligently caused. Hanover answered and moved to dismiss the complaint. Among other arguments, Hanover asserted that plaintiff lacked standing to sue Hanover directly because plaintiff had not yet obtained a judgment against Bachman, Hanover’s purported insured.

Supreme Court denied the motion to dismiss. On appeal, the Appellate Division reversed and dismissed the declaratory judgment action on the ground that Insurance Law § 3420 precludes a direct action by an injured party against a tortfeasor’s insurance company until a judgment has been secured against the tortfeasor and that judgment has been served on the insurance company but has remained unpaid for 30 days. We affirm.

There is no dispute that parties to an insurance contract—the issuer, a named insured or a person claiming to be an insured under the policy—may bring a declaratory judgment action against each other when an actual controversy develops concerning the extent of coverage, the duty to defend, or other issues arising from the insurance contract. The question presented in this case is whether, and under what circumstances, a stranger to the policy—an injured party who has sued a tortfeasor—can bring a direct action against the tortfeasor’s insurance company for a determination of coverage issues.

Under the common law, “an injured person possessed no cause of action against the insurer of the tort feasor” (Jackson v Citizens Cas. Co., 277 NY 385, 389 [1938]). When a plaintiff acquired a judgment against the insured and the insured failed to satisfy the judgment due to insolvency, the plaintiff could not sue the insurance company directly because there was no privity of contract between plaintiff and the insurance carrier (Burke v London Guar. & Acc. Co., 47 Misc 171 [Kings County 1905], affd 126 App Div 933 [2d Dept 1908], affd 199 NY 557 [1910]). A direct suit by an injured party against the tortfeasor’s insurer was thus unknown to the common law (Thrasher v United States Liab. Ins. Co., 19 NY2d 159, 166 [1967]).

As a result, even when a tortfeasor had coverage under an existing insurance policy, the common-law rule created a hardship for an injured party who lacked the means to sue the insolvent tortfeasor’s insurance company directly and was therefore unable to gain access to available insurance proceeds. “[I]f the insured was insolvent, so that the person injured or the estate of one killed was unable to satisfy the judgment against him, the insurer in effect would be released. The policy being one of indemnity against loss suffered by the principal, it followed that the insured having suffered no damage, there was no loss for the insurer to indemnify” (Jackson v Citizens Cas. Co., 277 NY at 389). Insurance companies thus were able to avoid paying judgments for losses that would have been covered under policies issued to their insureds.

In 1917, the Legislature remedied this inequity by creating a limited statutory cause of action on behalf of injured parties directly against insurers (Coleman v New Amsterdam Cas. Co., 247 NY 271, 275 [1928]). That statutory right, presently codified at Insurance Law § 3420, requires that every insurance policy issued in New York contain a provision “that the insolvency or bankruptcy of the person insured, or the insolvency of his estate, shall not release the insurer from the payment of damages for injury sustained or loss occasioned during the life of and within the coverage of such policy or contract” (Insurance Law § 3420 [a] [1]).

Section 3420 (b) (1) authorizes “any person who . . . has obtained a judgment against the insured ... for damages for injury sustained or loss or damage occasioned during the life of the policy or contract” to maintain an action against the insurer “[s]ubject to the limitations and conditions of paragraph two of subsection (a) hereof.” Subsection (a) (2) states: “in case judgment against the insured . . . shall remain unsatisfied at the expiration of thirty days from the serving of notice of entry of judgment upon the attorney for the insured, or upon the insured, and upon the insurer, then an action may ... be maintained against the insurer.”

Insurance Law § 3420 therefore grants an injured party a right to sue the tortfeasor’s insurer, but only under limited circumstances—the injured party must first obtain a judgment against the tortfeasor, serve the insurance company with a copy of the judgment and await payment for 30 days. Compliance with these requirements is a condition precedent to a direct action against the insurance company (see Thrasher v United States Liab. Ins. Co., 19 NY2d at 166). As Chief Judge Cardozo described it, “[t]he effect of the statute is to give to the injured claimant a cause of action against an insurer for the same relief that would be due to a solvent principal seeking indemnity and reimbursement after the judgment had been satisfied. The cause of action is no less but also it is no greater” (see Coleman v New Amsterdam Cas. Co., 247 NY at 275). Once the statutory prerequisites are met, the injured party steps into the shoes of the tortfeasor and can assert any right of the tortfeasor-insured against the insurance company.

Here, it is undisputed that plaintiff did not obtain a judgment against Bachman, the alleged tortfeasor. Having failed to fulfill the condition precedent to suit, plaintiff could not pursue a direct action against Hanover and the Appellate Division properly granted Hanover’s motion to dismiss the complaint.

Plaintiffs reliance on CPLR 3001, the statute that governs declaratory judgment actions, is misplaced. CPLR 3001 authorizes a court to declare “the rights and other legal relations of the parties to a justiciable controversy,” providing a procedure for parties to resolve disputes over existing rights and obligations. What distinguishes declaratory judgment actions from other types of actions or proceedings is the nature of the primary relief sought—a judicial declaration rather than money damages or other coercive relief (Solnick v Whalen, 49 NY2d 224, 229 [1980]). But nothing in the language of CPLR 3001 alters the precedent regarding an injured party’s standing to sue a tortfeasor’s insurer. Plaintiff has no common-law right to seek relief directly from a tortfeasor’s insurer, and the statutory right created in Insurance Law § 3420 arises only after plaintiff has obtained a judgment in the underlying personal injury action.

That Bachman has obtained a bankruptcy discharge does not change our analysis. Far from supplying a reason for disregarding the statutory requirements, the bankruptcy or insolvency of an insured is precisely the situation Insurance Law § 3420 was intended to address. The statute makes clear that bankruptcy does not reheve the insurance company of its obligation to pay damages for injuries or losses covered under an existing policy (Insurance Law § 3420 [a] [1]). Where there has been a discharge in bankruptcy, federal courts have held that the permanent injunction that follows does not bar a plaintiff in a personal injury action from obtaining a judgment against the bankrupt defendant for the limited purpose of pursuing payment from defendant’s insurance carrier (see e.g. Green v Welsh, 956 F2d 30 [2d Cir 1992]). Even if we were to assume that the potential personal liability judgment was listed in Bachman’s bankruptcy petition, the discharge would not prevent plaintiff from obtaining a judgment against Bachman, thereby satisfying the section 3420 condition precedent to suit against Hanover.

Finally, we note that an insurance company that disclaims in a situation where coverage may be arguable is well advised to seek a declaratory judgment concerning the duty to defend or indemnify the purported insured. If it disclaims and declines to defend in the underlying lawsuit without doing so, it takes the risk that the injured party will obtain a judgment against the purported insured and then seek payment pursuant to Insurance Law § 3420. Under those circumstances, having chosen not to participate in the underlying lawsuit, the insurance carrier may litigate only the validity of its disclaimer and cannot challenge the liability or damages determination underlying the judgment.

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

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

Order affirmed, with costs.