author: Pigott, J.

text:
    [906 NE2d 1042, 879 NYS2d 10]
    Steven B. Samuel, Esq., et al., Respondents-Appellants, v Druckman & Sinel, LLP et al., Appellants-Respondents.
    Argued February 17, 2009;
    decided March 31, 2009

      POINTS OF COUNSEL

      Pollack, Pollack, Isaac & De Cicco, New York City (Brian J. Isaac of counsel), for appellants-respondents.
    Defendants are entitled to one third of the total legal fee as set forth in the agreement; plaintiff in the underlying action consented to the fee-sharing agreement negotiated by the attorneys; there was no admissible proof that defendants refused to perform more work; accordingly, the majority erred in not enforcing the agreement according to its terms. (Teichman v Community Hosp. of W. Suffolk, 87 NY2d 514; Bailey v Fish & Neave, 8 NY3d 523; Chimart Assoc. v Paul, 66 NY2d 570; Greenfield v Philles Records, 98 NY2d 562; Breed v Insurance Co. of N. Am., 46 NY2d 351, 940; White v Continental Cas. Co., 9 NY3d 264; First Natl. Stores v Yellowstone Shopping Ctr., 21 NY2d 630, 22 NY2d 827;
      South Rd. Assoc., LLC v International Bus. Machs. Corp., 4 NY3d 272; Vermont Teddy Bear Co. v 538 Madison Realty Co., 1 NY3d 470; W.W.W. Assoc. v Giancontieri, 77 NY2d 157.)

      Mauro Goldberg & Lilting, LLP, Great Neck (Barbara DeCrow Goldberg, Kenneth Mauro and Elaine Sabino of counsel), and Daniel J. Dillon, Lido Beach, for respondents-appellants.
    I. Defendants are not entitled to any fee, inasmuch as they failed to comply with Code of Professional Responsibility DR 2-107 (a) (22 NYCRR 1200.12 [a]); in the alternative, defendants should be limited to compensation on a quantum meruit basis. (Aiello v Adar, 193 Misc 2d 649; Robert P. Lynn, Jr., LLC v Purcell, 40 AD3d 729; Ford v Albany Med. Ctr., 283 AD2d 843; Nicholson v Nason & Cohen, P.C., 192 AD2d 473; Dugan v Dorff Constr. Co., 281 AD2d 158.) II. If the Court determines that defendants complied with Code of Professional Responsibility DR 2-107 (22 NYCRR 1200.12), the order of the Appellate Division should be affirmed. (Benjamin v Koeppel, 85 NY2d 549; Nicholson v Nason & Cohen, 192 AD2d 473; Dugan v Dorff Constr. Co., 281 AD2d 158; Lai Ling Cheng v Modansky Leasing Co., 73 NY2d 454; 67 Wall St. Co. v Franklin Natl. Bank, 37 NY2d 245; Yudell v Israel & Assoc., 248 AD2d 189; F & M Precise Metals, Inc. v Goodman, 8 Misc 3d 1028[A], 2005 NY Slip Op 51326[U]; Borgia v City of New York, 259 AD2d 648; Robert P. Lynn, Jr., LLC v Purcell, 40 AD3d 729.) III. Defendants are not entitled to any interest; in the alternative, the determination of the Appellate Division that defendants are entitled to interest from April 7, 2007 should be affirmed. (Meiselman v Allstate Ins. Co., 197 AD2d 561; Delulio v 320-57 Corp., 99 AD2d 253; De Long Corp. v Morrison-Knudsen Co., 14 NY2d 346; High Quality Homes, Inc. v Palmer, 283 App Div 954; Gilbride v American Tr. Ins. Co., 211 AD2d 491.)
   OPINION OF THE COURT

Pigott, J.

Elliot Sinel, Esq. was retained to represent a client and her infant daughter in a medical malpractice action. After conducting an investigation into the merits of the case, Sinel advised the client that he would find suitable trial counsel and eventually contacted Steven B. Samuel, Esq., who agreed to serve in that capacity. On January 16, 2002, Sinel, on behalf of his firm, Druckman & Sinel, LLP, sent Samuel a letter memorializing their fee-sharing arrangement:

“It is agreed that your firm . . . will undertake the prosecution of the medical malpractice case against Bellevue Hospital on behalf of the [client]. It is also agreed that [your firm] will advance the costs of the litigation of this matter. Druckman and Sinel, LLP will be compensated at the rate of one-third of the entire legal fee recovered for our participation in this matter, upon its conclusion by settlement, verdict or otherwise” (emphasis supplied).

Samuel executed the agreement as written.

Sinel then notified the client, in writing, that his firm had retained Samuel’s firm as trial counsel and, although that firm would be handling most of the litigation, he would be “assisting and consulting with [Samuel’s firm] on a regular basis.” Sinel assured the client that she would not incur any additional legal fees for having both firms working on the case. The client consented to this arrangement in writing.

Due to difficulty in prosecuting the case, including responding to an application for a Frye hearing, Samuel, of his own volition, brought in another attorney, Steven Pegalis, Esq., from the law firm of Pegalis & Erickson, LLC, to assist in defeating that application. Thereafter, Pegalis assisted Samuel in trying the case and, during the third week of trial, the case settled for $6.7 million, resulting in an attorneys’ fee, under the “sliding scale” provision (Judiciary Law § 474-a [2]), of $805,767.30.

Pursuant to Judiciary Law § 474-a (4), which allows a successful attorney in a medical malpractice action to be awarded fees in excess of those set forth in subdivision (2), Samuel and Pegalis moved for an enhanced fee. On June 10, 2005, Supreme Court approved the overall settlement and awarded Samuel and Pegalis attorneys’ fees in the amount of $1.9 million, or $1,137,826.41 and $762,173.59, respectively. Samuel forwarded a check to Sinel in the amount of one third of his firm’s enhanced fee, but did not include any portion of the fees awarded to the Pegalis firm. Sinel rejected this amount, demanding one third of the entire fee recovered as per their agreement.

Samuel then commenced this declaratory judgment action against, among others, Sinel and Druckman & Sinel, LLR seeking a declaration that the Sinel firm was not entitled to any attorneys’ fees due to Sinel’s purported violation of Code of Professional Responsibility DR 2-107 (a) (22 NYCRR 1200.12 [a]). That rule provides that:

“(a) A lawyer shall not divide a fee for legal services with another lawyer who is not a partner in or associate of the lawyer’s firm, unless:
“(1) The client consents to employment of the other lawyer after a full disclosure that a division of fees will be made.
“(2) The division is in proportion to the services performed by each lawyer or, by a writing given to the client, each lawyer assumes joint responsibility for the representation.
“(3) The total fee of the lawyers does not exceed reasonable compensation for all legal services they rendered the client.”

In his complaint, Samuel claimed that, in failing to advise his client that both firms would be responsible for the representation, Sinel had violated that disciplinary rule and therefore was entitled to no fee.

Sinel interposed an answer with counterclaims, seeking one third of the entire fee as per the agreement. The parties’ respective motions for summary judgment were denied (2007 NY Slip Op 30518[U]).

In a 3-2 decision, the Appellate Division majority held that although Sinel had sufficiently complied with DR 2-107, he was entitled to only one third of the unenhanced fee of $805,767.30, with interest accruing from April 7, 2007, because he did not participate in the services that resulted in the award of the enhanced fees (see Samuel v Druckman & Sinel, LLP, 50 AD3d 322, 323-324 [1st Dept 2008]). The dissenters would have enforced the contract as written, entitling Sinel to one third of the entire legal fee awarded (see id. at 325, 330).

The Appellate Division granted both parties leave to appeal from its order and certified the following question to this Court: “Was the order of this Court, which modified the order of the Supreme Court, properly made?” We now modify and answer the certified question in the negative.

Contrary to Samuel’s contention, the Appellate Division properly found that Sinel complied with DR 2-107. It is clear from the correspondence that the client consented to Sinel’s retention of Samuel as trial counsel and was also apprised that Samuel’s involvement would not result in an increase in fees. Moreover, Sinel’s correspondence adequately conveyed that both firms had assumed responsibility for the representation, noting that Sinel would be regularly “assisting and consulting with” Samuel.

The Appellate Division erred, however, in disregarding the express language of the fee-sharing agreement and holding that Sinel was entitled to only one third of the unenhanced fee. Where, as here, an agreement “is complete, clear and unambiguous on its facet, it] must be enforced according to the plain meaning of its terms” (Greenfield v Philles Records, 98 NY2d 562, 569 [2002]). Because the language “one-third of the entire legal fee recovered” is subject to no interpretation other than the one proffered by Sinel, he is entitled to recover that amount.

Moreover, contrary to the holding of the Appellate Division, it is of no moment that Sinel did not contribute to that part of the work that resulted in the award of the enhanced fee. In the realm of fee-sharing disputes, “courts will not inquire into the precise worth of the services performed by the parties” (Benjamin v Koeppel, 85 NY2d 549, 556 [1995]). DR 2-107 also makes clear that, regardless of any division of services, where “by a writing given to the client, each lawyer assumes joint responsibility for the representation,” attorneys are free to negotiate such division of fees as they deem appropriate (Code of Professional Responsibility DR 2-107 [a] [2] [22 NYCRR 1200.12 (a) (2)]; see Robert P. Lynn, Jr., LLC v Purcell, 40 AD3d 729, 730-731 [2d Dept 2007]; see also Simon’s New York Code of Professional Responsibility Annotated, at 439 [2008]). Further, Samuel, who is bound by the same Code of Professional Responsibility as Sinel, cannot be heard to argue that the fee-sharing agreement and the obligations thereunder must be voided on ethical grounds, when he freely agreed to be bound by and received the benefit of the same agreement, particularly where, as here, there is no indication that the client was in any way deceived or misled (see Benjamin, 85 NY2d at 556).

Based on the foregoing, Sinel is entitled to one third of the entire legal fee of $1.9 million, less disbursements expended in the amount of $142,327.01, with interest from June 10, 2005, the date of the entry of the compromise order, the “earliest ascertainable date” the claim existed (Love v State of New York, 78 NY2d 540, 544 [1991], quoting CPLR 5001 [b]).

Accordingly, the order of the Appellate Division should be modified, with costs to defendants, by remitting to Supreme Court for further proceedings in accordance with this opinion and, as so modified, affirmed and the certified question should be answered in the negative.

Judges Ciparick, Graffeo, Read, Smith and Jones concur; Chief Judge Lippman taking no part.

Order modified, etc.

       While the better practice would have been for counsel to have expressly stated that Sinel and Samuel were assuming joint responsibility over the matter, there is no indication in this record that such was not the case, nor that the client was misled into believing otherwise.


source: Caselaw Access Project

author: Jones, J.

license: Public Domain

text:
    [907 NE2d 274, 879 NYS2d 361]
    In the Matter of 10 East Realty, LLC, et al., Respondents, v Incorporated Village of Valley Stream et al., Appellants.
    Argued February 10, 2009;
    decided March 31, 2009

      POINTS OF COUNSEL

      Ryan, Brennan & Donnelly, LLP, Floral Park (John E. Ryan of counsel), McKenna & Schneier, Valley Stream (Patrick Michael McKenna of counsel), and Minerva & D’Agostino, P.C. (Dominick M. Minerva and Ross M. Gerber of counsel), for appellants.
    A purchase-money mortgage that secures the purchase price on a sale of municipal property does not violate the Gift or Loan Clause of the New York State Constitution. (New Windsor Volunteer Ambulance Corps, Inc. v Meyers, 442 F3d 101; Matter of Taylor v McGuire, 100 Misc 2d 834; Cook v Burtis, 157 Misc 140; Sun Print. & Publ. Assn. v Mayor of City of N.Y., 152 NY 257; Wein v State of New York, 39 NY2d 136; Matter of Schulz v Warren County Bd. of Supervisors, 179 AD2d 118; Matter of Antonopoulou v Beame, 32 NY2d 126; Piro v Bowen, 76 AD2d 392; Kradjian v City of Binghamton, 104 AD2d 16, 64 NY2d 1039; Murphy v Erie County, 28 NY2d 80.)

      Law Offices of Jordan M. Hyman, Valley Stream (Jordan M. Hyman of counsel), for respondents.
    The Incorporated Village of Valley Stream does not have the authority to take back a purchase-money mortgage in connection with the sale of a parking lot to a private entity in the case at bar as the transaction violates article VIII, § 1 of the New York State Constitution. (Marine Midland Trust Co. of S. N.Y. v Village ofWaverly, 42 Misc 2d 704; Wells v Town of Salina, 119 NY 280; Sun Print. & Publ. Assn. v Mayor of City of N.Y., 152 NY 257; Cook v Burtis, 157 Misc 140; Doctors Council v New York City Employees’ Retirement Sys., 71 NY2d 669; Matter of Overton v Town of Southampton, 273 AD2d 242; Kradjian v City of Binghamton, 104 AD2d 16, 64 NY2d 1039; Brigham v McCabe, 20 NY2d 525;
      Solicitor for Affairs of His Majesty’s Treasury v Bankers Trust Co., 304 NY 282; Sundail Constr. Co. v Liberty Bank, 277 NY 137.)

      Kathleen O’Neill, Albany, for New York State Conference of Mayors and Municipal Officials, amicus curiae.
    I. A municipality is not prohibited from taking a purchase-money mortgage under the Gift or Loan Clause of the New York State Constitution. (219 Broadway Corp. v Alexander’s, Inc., 46 NY2d 506; Bozewicz v Nash Metalware Co., 284 AD2d 288; PNC Bank v Porco, 296 AD2d 451; People v Garland, 69 NY2d 144; Szerdahelyi v Harris, 67 NY2d 42; DHNH Realty Corp. v Jeantet Residence for Seniors, 105 Misc 2d 690; Barone v Frie, 99 AD2d 129; Cook v Burtis, 157 Misc 140; Lower v Village of Watkins Glen, 17 AD3d 829.) II. Public policy mandates a finding that grants a municipality the ability to take a purchase-money mortgage on a property sold to a private entity, as it serves a proper public purpose. (Matter of Antonopoulou v Beame, 32 NY2d 126; Vitucci v New York City School Constr. Auth., 289 AD2d 479; Matter of Schulz v Warren County Bd. of Supervisors, 179 AD2d 118; Sun Print. & Publ. Assn. v Mayor of City of N.Y., 152 NY 257; Smith v Smythe, 197 NY 457.)

      Michael A. Cardozo, Corporation Counsel, New York City (Leonard Koerner, Francis F. Caputo and Elizabeth I. Freedman of counsel), for City of New York, amicus curiae.
    The Incorporated Village of Valley Stream’s acceptance of a purchase-money mortgage as the consideration for its sale of municipal real property to a private entity does not violate the gift or loan prohibition in article VIII, § 1 of the New York State Constitution. (Landmark West! v City of New York, 9 Misc 3d 563; Szerdahelyi v Harris, 67 NY2d 42; Mandelino v Fribourg, 23 NY2d 145; Barone v Frie, 99 AD2d 129; C & M Air Sys. v Custom Land Dev. Group II, 262 AD2d 440; Christopher v Gurrieri, 238 AD2d 299; Steinberg v Williams, 163 AD2d 516; Cook v Burtis, 157 Misc 140; Matter of Schulz v Warren County Bd. of Supervisors, 179 AD2d 118, 80 NY2d 754; Tribeca Community Assn. v New York State Urban Dev. Corp., 200 AD2d 536, 84 NY2d 805.)
   OPINION OF THE COURT

Jones, J.

The issue before this Court is whether a purchase-money mortgage taken by a municipality to secure the payment of the consideration in connection with a sale of municipal property to a private entity violates article VIII, § 1 of the New York Constitution.

In 2002, respondent, the Incorporated Village of Valley Stream (the Village), sold a parcel of land owned by the Village to 1 E. Lincoln Realty Corp, a private entity, for $275,000. Under the purchase agreement, no money was to be paid at closing, instead the consideration was to be paid over 15 years with an interest rate of 5% per annum. The Village took a mortgage interest in the property to secure the deferred payments under the contract. Petitioners, a civic organization and several residents, then commenced the instant CPLR article 78 proceeding (1) to annul the Village’s resolution which authorized the sale and (2) to enjoin the Village from closing on the sale, alleging, among other things, that the transaction involved an unconstitutional loan under article VIII, § 1 of the New York Constitution (Gift or Loan Clause). Modifying Supreme Court’s dismissal of the petition (11 Misc 3d 1074[A], 2006 NY Slip Op 50561[U]), the Appellate Division held that the purchase-money mortgage was a loan prohibited by the Gift or Loan Clause (49 AD3d 764 [2008]). We disagree.

The Gift or Loan Clause provides that “[n]o county, city, town, village or school district shall give or loan any money or property to or in aid of any individual, or private corporation or association, or private undertaking” (NY Const, art VIII, § 1). A purchase-money mortgage is generally defined as “a mortgage executed at the time of purchase of the land and contemporaneously with the acquisition of the legal title, or afterward, but as part of the same transaction, to secure an unpaid balance of the purchase price” (Szerdahelyi v Harris, 67 NY2d 42, 46 [1986]). In Mandelino v Fribourg, this Court answered the question of “whether a purchase-money mortgage is to be regarded in law as a loan” in the negative (23 NY2d 145, 147 [1968]). Although decided in the context of the usury laws, the rationale is equally applicable in this case. “A contract which provides for [payment] of interest . . . upon a deferred payment. . . constitutes the consideration for a sale” (id. at 151) and such a transaction is not the type contemplated by the Gift or Loan Clause (see Sun Print. & Publ. Assn. v Mayor of City of N.Y., 152 NY 257, 268-269 [1897]).

Here, the Village made no loan of money or property to the purchaser. The fact that the consideration in this sale mentions an interest rate and a term of payment, or that a mortgage was taken as a security interest, does not make this transaction involving a deferred payment plan an unconstitutional loan.

Accordingly, the order of the Appellate Division, insofar as appealed from, should be reversed, with costs, and the judgment of Supreme Court reinstated.

Judges Ciparick, Graffeo, Read, Smith and Pigott concur; Chief Judge Lippman taking no part.

Order, insofar as appealed from, reversed, etc.


text:
    [906 NE2d 1046, 879 NYS2d 14]
    LMK Psychological Services, P.C., et al., Respondents, v State Farm Mutual Automobile Insurance Company, Appellant.
    Argued February 11, 2009;
    decided April 2, 2009

      POINTS OF COUNSEL

      Rivkin Radler LLP, Uniondale (Evan H. Krinick, Cheryl F. Korman, Barry I. Levy and Stuart M. Bodoff of counsel), and Goldberg Segalla, LLP, for appellant.
    I. Under 11 NYCRR 65-4.6 (e), a prevailing assignee medical provider in a no-fault action is entitled to one attorney’s fee with respect to all claims asserted in the action on behalf of a single assignor, to be calculated based on the total amount of first-party benefits awarded by the court in connection with such claims, and is not entitled to multiple attorney’s fees on a “per claim” basis. (U.S. Underwriters Ins. Co. v City Club Hotel, LLC, 3 NY3d 592; Baker v Health Mgt. Sys., 98 NY2d 80; Hooper Assoc. v AGS Computers, 74 NY2d 487; Chapel v Mitchell, 84 NY2d 345; Diamond v Diamond, 307 NY 263; Raffellini v State Farm Mut. Auto. Ins. Co., 9 NY3d 196; Matter of Medical Socy. of State of N.Y. v Serio, 100 NY2d 854; Ostrer v Schenck, 41 NY2d 782; Breen v Cunard Lines S. S. Co., 33 NY2d 508; Pajak v Pajak, 56 NY2d 394.) II. The accrual of interest on an overdue no-fault claim is tolled under 11 NYCRR 65.15 (h) (3) and 65-3.9 (c) where the claimant fails to commence a lawsuit to recover such claim within 30 days after receipt of the denial of the claim, whether or not the insurer’s denial of no-fault benefits is timely issued. (Manufacturer’s & Traders Trust Co. v Reliance Ins. Co., 8 NY3d 583; Matter of Bello v Roswell Park Cancer Inst., 5 NY3d 170; Matter of Meloni v Goord, 267 AD2d 977, 94 NY2d 944; Matter of Aurecchione v New York State Div. of Human Rights, 98 NY2d 21; Love v State of New York, 78 NY2d 540; Dermatossian v New York City Tr. Auth., 67 NY2d 219; Cardinell v Allstate Ins. Co., 302 AD2d 772; Aetna Cas. & Sur. Co. v Whitestone Gen. Hosp.,
      142 Misc 2d 67; Barnes v Maryland Cas. Co., 124 Misc 2d 942; Globe Surgical Supply v GEICO Ins. Co., 12 Misc 3d 1185[A], 2006 NY Slip Op 51446[U].)

      Law Office of Craig Meyerson, Latham (Craig Meyerson of counsel), for respondents. I. Appellant’s arguments are not preserved for appeal.

      (B.J. 96 Corp. v Mester, 222 AD2d 798; Marazzo v Frontier Ins. Co., 189 AD2d 755.) II. The lower courts correctly determined that attorney’s fees are awarded on a per claim basis and interest is not tolled by late, invalid denials issued on valid claims. (Matter of Granger v Urda, 44 NY2d 91; Montgomery v Daniels, 38 NY2d 41; Matter of Simmons [Government Empls. Ins. Co.], 59 AD2d 468; Marigliano v New York Cent. Mut. Fire Ins. Co., 15 Misc 3d 766; Mighty Midgets v Centennial Ins. Co., 47 NY2d 12; T.D. v New York State Off. of Mental Health, 228 AD2d 95; Lincoln First Bank of Rochester v Rupert, 60 AD2d 193; St. Clare’s Hosp. v Allstate Ins. Co., 215 AD2d 641; Smithtown Gen. Hosp. v State Farm Mut. Auto. Ins. Co., 207 AD2d 338; Hempstead Gen. Hosp. v Insurance Co. of N. Am., 208 AD2d 501.) III. Interest accrues from the date a claim becomes overdue until the claim is paid. (Presbyterian Hosp. in City of N.Y. v Maryland Cas. Co., 90 NY2d 274; Nyack Hosp. v State Farm Mut. Auto. Ins. Co., 11 AD3d 664; New York Craniofacial Care, P.C. v Allstate Ins. Co., 11 Misc 3d 1071 [A], 2006 NY Slip Op 50500[U]; Cardinell v Allstate Ins. Co., 302 AD2d 772; Hempstead Gen. Hosp. v Insurance Co. of N. Am., 208 AD2d 501; Smithtown Gen. Hosp. v State Farm Mut. Auto. Ins. Co., 207 AD2d 338; Elmont Open MRI & Diagnostic Radiology, P.C. v Country-Wide Ins. Co., 15 Misc 3d 552; St. Clare’s Hosp. v Allstate Ins. Co., 215 AD2d 641; Dermatossian v New York City Tr. Auth., 67 NY2d 219; Matter of Granger v Urda, 44 NY2d 91.)

      Andrew M. Cuomo, Attorney General, New York City (Peter Karanjia, Barbara D. Underwood and Benjamin N. Gutman of counsel), for Eric R. Dinallo, amicus curiae.
    I. Attorney’s fees for recovery of medical expenses under the No-Fault Law are properly limited on a “per claim” basis, where a claim constitutes a single victim’s expenses for treatment by a single provider. (State Farm Mut. Auto. Ins. Co. v Mallela, 4 NY3d 313; Matter of Notre Dame Leasing v Rosario, 2 NY3d 459; Walton v Lumbermens Mut. Cas. Co., 88 NY2d 211; Montgomery v Daniels, 38 NY2d 41; Matter of Medical Socy. of State of N.Y. v Serio, 100 NY2d 854; Argentina v Emery World Wide Delivery Corp., 93 NY2d 554; Matter of Council of City of N.Y. v Public Serv. Commn. of State of N.Y., 99 NY2d 64; Raffellini v State

      Farm Mut. Auto. Ins. Co., 9 NY3d 196; Ostrer v Schenck, 41 NY2d 782; Matter of John Paterno, Inc. v Curiale, 88 NY2d 328.) II. The accumulation of interest on overdue payments is properly suspended by the Superintendent of Insurance’s tolling regulation during the period when the claimant does not promptly seek arbitration or judicial relief, whether or not the insurer’s denial of the claim was timely. (Hempstead Gen. Hosp. v Insurance Co. of N. Am., 208 AD2d 501; Marigliano v New York Cent. Mut. Fire Ins. Co., 15 Misc 3d 766; Mid-Island Hosp. v Empire Mut. Ins. Co., 120 AD2d 652; Matter of Medical Socy. of State of N.Y. v Serio, 100 NY2d 854; Presbyterian Hosp. in City of N.Y. v Maryland Cas. Co., 90 NY2d 274; State Farm Mut. Auto. Ins. Co. v Pfeiffer, 95 AD2d 806; East Acupuncture, P.C. v Allstate Ins. Co., 15 Misc 3d 104; New York & Presbyt. Hosp. v Allstate Ins. Co., 30 AD3d 492; Cardinell v Allstate Ins. Co., 302 AD2d 772; St. Clare's Hosp. v Allstate Ins. Co., 215 AD2d 641.)

      Short & Billy, P.C., New York City (Skip Short and Frank Piccininni of counsel), for Government Employees Insurance Company and others, amici curiae.
    I. The Insurance Department regulation relating to interest should be applied. (Matter of Medical Socy. of State of N.Y. v Serio, 100 NY2d 854; State Farm Mut. Auto. Ins. Co. v Mallela, 4 NY3d 313; Matter of Markowitz v Serio, 11 NY3d 43; Matter of New York Pub. Interest Research Group v New York State Dept. of Ins., 66 NY2d 444; East Acupuncture, P.C. v Allstate Ins. Co., 15 Misc 3d 104; Hempstead Gen. Hosp. v Insurance Co. of N. Am., 208 AD2d 501; Matter of Bello v Roswell Park Cancer Inst., 5 NY3d 170; Gonzalez v New York City Hous. Auth., 77 NY2d 663.) II. The Insurance Department regulation relating to attorney’s fees should be applied. (Matter of Medical Socy. of State of N.Y. v Serio, 100 NY2d 854.) III. The statute of limitations for no-fault has not been decided by this Court and, to the extent this issue is addressed, the amici request that their analysis of the statute of limitations for Insurance Law §§ 5103 and 5106 claims be considered. (Matter of Motor Veh. Acc. Indem. Corp. v Aetna Cas. & Sur. Co., 89 NY2d 214; Gaidon v Guardian Life Ins. Co. of Am., 96 NY2d 201; Aetna Life & Cas. Co. v Nelson, 67 NY2d 169; Gurnee v Aetna Life & Cas. Co., 55 NY2d 184; Mandarino v Travelers Prop. Cas. Ins. Co., 37 AD3d 775; Matter of Simmons [Government Empls. Ins. Co.], 59 AD2d 468; Cardinell v Allstate Ins. Co., 302 AD2d 772; City of New York v Kingsview Homes, 70 AD2d 866; Barnes v Maryland Cas. Co., 124 Misc 2d 942; Matter of Medical Socy. of State of N.Y. v Serio, 100 NY2d 854.)
   OPINION OF THE COURT

Pigott, J.

Plaintiffs, two medical providers that treated various automobile accident victims insured by defendant State Farm Mutual Automobile Insurance Company, commenced this action against State Farm after it denied no-fault insurance benefit claims assigned to plaintiffs by the insureds. Plaintiffs asserted one cause of action for each insured treated, alleging that State Farm failed to pay or deny multiple bills within the requisite 30 days.

Plaintiffs were granted summary judgment awarding them, among other things, attorneys’ fees and interest. As relevant to this appeal, attorneys’ fees were awarded “on each claim within each cause of action”; in other words, attorneys’ fees were calculated on each bill submitted for each insured. This amount differed substantially from that proposed by State Farm, which sought a calculation of attorneys’ fees on a per insured basis.

In addition, Supreme Court awarded plaintiffs interest at the statutory rate of 2% per month, without applying the tolling provision set forth in the Insurance Department regulations, which provide for the suspension of interest 30 days after denial of payment until plaintiffs commence an action seeking payment.

On appeal, the Appellate Division rejected State Farm’s contention that Supreme Court failed to properly apply the tolling provision in awarding interest to plaintiffs (46 AD3d 1290 [2007] ). The court held that because State Farm did not issue a proper and timely denial to plaintiffs’ no-fault claims, it was not entitled to the benefit of the tolling provision.

As it pertained to attorneys’ fees, the court held that Supreme Court properly awarded fees on a per bill basis rather than a per insured basis. The court expressly rejected an opinion letter of the Superintendent of Insurance, finding it in conflict with the express language of Insurance Law § 5106, as well as case law. This Court granted defendant leave to appeal (10 NY3d 717 [2008] ) and we now reverse.

“New York’s no-fault automobile insurance system is designed ‘to ensure prompt compensation for losses incurred by accident victims without regard to fault or negligence, to reduce the burden on the courts and to provide substantial premium savings to New York motorists’ ” (Hospital for Joint Diseases v Travelers Prop. Cas. Ins. Co., 9 NY3d 312, 317 [2007] [citation omitted]). We recently reiterated that the no-fault scheme’s core objective is “to provide a tightly timed process of claim, disputation and payment” (id. at 319, quoting Presbyterian Hosp. in City of N.Y. v Maryland Cas. Co., 90 NY2d 274, 281 [1997]). In furtherance of this objective, an insurer’s failure to pay or deny a claim within the requisite time period carries significant consequences, including the payment of attorneys’ fees and interest.

Insurance Law § 5106 (a) provides that “[if] a valid claim or portion was overdue, the claimant shall ... be entitled to recover his attorney’s reasonable fee, for services necessarily performed in connection with securing payment of the overdue claim . . . .” Pursuant to the authority delegated to him by section 5106 (a), the Superintendent of Insurance promulgated regulation 11 NYCRR 65-4.6 establishing a minimum attorneys’ fee and further providing that the. “attorney’s fee shall be limited as follows: 20 percent of the amount of first-party benefits, plus interest thereon, awarded by the . . . court, subject to a maximum fee of $850” (11 NYCRR 65-4.6 [e]).

On October 8, 2003, the Superintendent issued an opinion letter interpreting that regulation and stating that the minimum amount of attorneys’ fees awarded to an assignee health care provider pursuant to Insurance Law § 5106 is

“based upon the aggregate amount of payment required to be reimbursed based upon the amount awarded for each bill which had been submitted and denied. The minimum attorney fee ... is not due and owing for each bill submitted as part of the total amount of the disputed claim sought in the court action” (Ops Gen Counsel NY Ins Dept No. 03-10-04 [Oct. 2003]).

In referring to the regulations, specifically 11 NYCRR 65-4.6 (e), the Superintendent stated:

“[That provision] makes it clear that the amount of attorney’s fees awarded will be based upon 20% of the total amount of first party benefits awarded. That total amount is derived from the total amount of individual bills disputed in either a court action or arbitration, regardless of whether one bill or multiple bills are presented as part of a total claim for benefits, based upon the health services rendered by a provider to the same eligible insured” (id.).

We have long held that the Superintendent’s “interpretation, if not irrational or unreasonable, will be upheld in deference to his special competence and expertise with respect to the insurance industry, unless it runs counter to the clear wording of a statutory provision” (Matter of New York Pub. Interest Research Group v New York State Dept. of Ins., 66 NY2d 444, 448 [1985]). The responsibility for administering the Insurance Law and, in particular, fair claims settlement under the No-Fault Law rests with the Superintendent (see Insurance Law §§ 301, 5106 [a]). For purposes of calculating attorneys’ fees, the Superintendent has interpreted a claim to be the total medical expenses claimed in a cause of action pertaining to a single insured, and not—as the courts below held—each separate medical bill submitted by the provider. Because this interpretation is neither irrational, unreasonable, nor counter to the clear wording of the statute, it is entitled to deference. Thus, this Court accepts the Insurance Department’s interpretation of its own regulation and, upon remittitur, directs Supreme Court to calculate attorneys’ fees based on the aggregate of all bills for each insured.

State Farm next contends that the Appellate Division erred in finding that an insurance company that fails to issue a proper and timely denial is not entitled to the benefit of the tolling provision. We agree.

Pursuant to Insurance Law § 5106 (a), interest accrues on overdue no-fault insurance claims at a rate of 2% per month. A claim is overdue when it is not paid within 30 days after a proper demand is made for its payment (Insurance Law § 5106 [a]; 11 NYCRR 65.15 [g]). The Superintendent’s regulation tolls the accumulation of interest if the claimant “does not request arbitration or institute a lawsuit within 30 days after the receipt of a denial of claim form or payment of benefits calculated pursuant to Insurance Department regulations” (11 NYCRR 65-3.9 [c]).

The Superintendent has interpreted this provision to mandate that the accrual of interest is tolled, regardless of whether the particular denial at issue was timely. That interpretation is similarly entitled to deference given that it is “not irrational or unreasonable” (Matter of Council of City of N.Y. v Public Serv. Commn. of State of N.Y., 99 NY2d 64, 74 [2002]). Indeed, it is consistent with section 5106, entitled “Fair claims settlement,” the purpose of which is to encourage claimants to swiftly seek to resolve any dispute concerning their entitlement to no-fault benefits. Once a denial is issued, even if an untimely one, a claimant should still be encouraged to act to resolve the dispute quickly. Supreme Court is therefore directed to calculate appropriate interest on each claim, taking into consideration the tolling provision of section 5106 (a) as interpreted by the Superintendent of Insurance.

Accordingly, the order of the Appellate Division, insofar as appealed from, should be reversed, with costs, and the matter remitted to Supreme Court for further proceedings in accordance with this opinion.

Judges Ciparick, Graffeo, Read, Smith and Jones concur; Chief Judge Lippman taking no part.

Order, insofar as appealed from, reversed, etc.


author: Graffeo, J.

text:
    [906 NE2d 381, 878 NYS2d 653]
    The People of the State of New York, Appellant, v William Kalin, Respondent.
    Argued February 12, 2009;
    decided March 31, 2009

      POINTS OF COUNSEL

      Richard A. Brown, District Attorney, Kew Gardens (William H. Branigan and John M. Castellano of counsel), for appellant.
    I. Defendant forfeited his claim when he pleaded guilty, and the Appellate Term improperly addressed that claim and reversed his conviction. (Matter of Jahron S., 79 NY2d 632; Matter of Michael M., 3 NY3d 441; People v Hansen, 95 NY2d 227; People v Casey, 95 NY2d 354; People v Zambounis, 251 NY 94; People v

      Scott, 3 NY2d 148; People v Keizer, 100 NY2d 114; People v Taylor, 65 NY2d 1; People v Konieczny, 2 NY3d 569; People v Alejandro, 70 NY2d 133.) II. Dismissal of the entire accusatory instrument was inappropriate where a sufficient instrument existed upon which to commence proceedings against defendant. (United States v Morrison, 449 US 361; United States v Blue, 384 US 251; People v Kelly, 62 NY2d 516; People v Pobliner, 32 NY2d 356; People v Casey, 95 NY2d 354; People v Dumas, 68 NY2d 729; People v Alejandro, 70 NY2d 133; People v Ramos, 99 NY2d 27; Texas v Cobb, 532 US 162.)

      Lawrence T. Hausman, New York City, Steven Banks and Jonathan Garelick for respondent.
    I. The allegations in the accusatory instrument failed to establish a prima facie case of criminal possession of a controlled substance in the seventh degree, and the accusatory instrument was accordingly jurisdictionally defective. (People v Casey, 95 NY2d 354; People v Alejandro, 70 NY2d 133; People v Weinberg, 34 NY2d 429; People v Keizer, 100 NY2d 114; People v Jones, 9 NY3d 259; People v Konieczny, 2 NY3d 569; Matter of Jahron S., 79 NY2d 632; Matter of Wesley M., 83 NY2d 898; Matter of Michael M., 3 NY3d 441; Matter of Angel A., 92 NY2d 430.) II. It is well established by this Court’s precedents that dismissal of the accusatory instrument was the appropriate remedy; in any event, that remedy was appropriate in this case. (People v Flynn, 79 NY2d 879; People v Burwell, 53 NY2d 849.)
   OPINION OF THE COURT

Graffeo, J.

In this appeal, we are asked whether defendant’s entry of a guilty plea forfeited his claim that the misdemeanor information was deficient. We answer that question in the affirmative.

In January 2006, defendant William Kalin was a passenger in an automobile that was stopped by a New York City police officer for having a faulty exhaust system. In the course of the traffic stop, the officer recovered what he believed were nine plastic bags of heroin together with a bag of marijuana from the vehicle’s center console, and a marijuana pipe from the glove compartment. Defendant and the other occupants of the car were arrested for criminal possession of a controlled substance in the seventh degree and unlawful possession of marijuana.

At his arraignment the next day, defendant pleaded guilty to seventh-degree possession of a controlled substance in return for a sentence of time served. The trial court informed defendant of the rights that he was waiving by entry of his plea, but did not advise defendant that he had the right to be prosecuted by a misdemeanor information rather than a misdemeanor complaint (see CPL 170.65 [1]). During the plea allocution, defendant admitted that he had possessed heroin.

Defendant subsequently appealed, arguing that the accusatory instrument was jurisdictionally defective because it did not satisfy the prima facie case requirement for a misdemeanor information as specified in CPL 100.40. Relying on Matter of Jahron S. (79 NY2d 632 [1992]) and People v Alejandro (70 NY2d 133 [1987]), defendant argued that the police officer’s reliance on his experience and training in determining that defendant possessed heroin was insufficient to support the charge of criminal possession of a controlled substance in the seventh degree. The Appellate Term agreed with defendant, reversing the conviction and dismissing the accusatory instrument (17 Misc 3d 131[A], 2007 NY Slip Op 51998[U] [2007]). A Judge of this Court granted leave (10 NY3d 865 [2008]), and we now reverse and reinstate the conviction.

The usual instrument filed to obtain jurisdiction over an accused for a misdemeanor offense is a misdemeanor complaint (see CPL 100.05, 100.10 [4]). A complaint contains an accusatory portion that charges the designated offense (see CPL 100.15 [2]) and a factual section that alleges “facts of an evidentiary character supporting or tending to support the charges” (CPL 100.15 [3]). The factual part of a complaint must establish “reasonable cause” to believe that the defendant committed the charged offense (see CPL 100.40 [4] [b]).

A misdemeanor complaint, however, may not serve as the basis for a prosecution unless the accused expressly waives the right to be prosecuted by a misdemeanor information (see CPL 100.10 [4]; 170.65 [1], [3]). Thus, in the absence of such consent, the sufficiency of the accusatory instrument—even if it was intended to be a complaint—must be evaluated under the standards that apply to an information (see People v Weinberg, 34 NY2d 429, 431 [1974]). In this case, even if the People intended to prosecute defendant using a misdemeanor complaint, the accusatory instrument must be treated as an information for the purpose of assessing its jurisdictional sufficiency because defendant was not informed of his right to be prosecuted on an information and did not waive that protection (see id.).

In addition to the reasonable cause requirement, an information must also set forth “nonhearsay allegations which, if true, establish every element of the offense charged and the defendant’s commission thereof’ (People v Henderson, 92 NY2d 677, 679 [1999]; see CPL 100.40 [1] [c]). This is referred to as the “prima facie case requirement” (People v Jones, 9 NY3d 259, 262 [2007]). An information that does not satisfy this standard by failing to allege a complete element of the charged offense is jurisdictionally defective and may be challenged on appeal even though a defendant never raised the alleged insufficiency prior to entering a guilty plea (see e.g. People v Jones, 9 NY3d at 262; People v Casey, 95 NY2d 354, 364 [2000]; People v Alejandro, 70 NY2d at 136). Standing alone, a conclusory statement that a substance seized from a defendant was a particular type of controlled substance does not meet the reasonable cause requirement (see People v Dumas, 68 NY2d 729, 731 [1986]). Rather, the factual allegations must establish the basis of the arresting officer’s belief that the substance seized was an illegal drug— for example, an officer may allege that the accused made a statement identifying the drug.

Here, defendant pleaded guilty to criminal possession of a controlled substance in the seventh degree, the elements of which are the knowing and unlawful possession of a controlled substance in the State of New York (see Penal Law § 220.03). In the accusatory instrument, the officer asserted that his “experience as a police officer as well as [his] training in the identification and packaging of controlled substances and marijuana” provided the foundation for his conclusion that he had discovered marijuana and heroin in the vehicle. The Appellate Term, however, believed that under Jahron S., an allegation of this nature is insufficient to establish a prima facie case of drug possession for purposes of an information (as opposed to the complaint that was at issue in Dumas).

The primary issues we considered in Jahron S. were whether the sufficiency of a juvenile delinquency petition was subject to the same legal standards as a misdemeanor information, whether the factual allegations of a juvenile delinquency petition can be supplemented by a supporting deposition and whether facts asserted after a petition is filed can be considered when assessing the sufficiency of the petition. After an analysis that resulted in the first two questions being answered in the affirmative and the third being answered in the negative, it was then necessary for us to consider whether the petition was, in fact, sufficient.

The police officer in Jahron S. submitted a juvenile delinquency petition accompanied by a supporting deposition that stated

“he had observed [the] appellant in possession of 33 vials of cocaine in crack form, and that ‘based upon [his] training and experience as a police officer assigned to a special narcotics unit with respect to the appearance, handling and packaging of narcotics and other controlled substances,’ he believed the substance to be crack cocaine” (79 NY2d at 634).

In reviewing the sufficiency of the petition, we rejected the accused’s argument that a laboratory report is required to establish a prima facie case of drug possession (see id. at 640). This Court also held, in a perfunctory fashion, that the officer’s reliance on his experience and training was insufficient to satisfy the prima facie standard (see id.). We now revisit this issue.

A “prima facie case requirement is not the same as the burden of proof beyond a reasonable doubt required at trial” (People v Henderson, 92 NY2d at 680), nor does it rise to the level of legally sufficient evidence that is necessary to survive a motion to dismiss based on the proof presented at trial (see Preiser, Practice Commentaries, McKinney’s Cons Laws of NY, Book 11 A, CPL 100.40, at 388 [2004 ed]). In the years since Jahron S. was decided, we have explained that “ ‘[s]o long as the factual allegations of an information give an accused notice sufficient to prepare a defense and are adequately detailed to prevent a defendant from being tried twice for the same offense, they should be given a fair and not overly restrictive or technical reading’ ” (People v Konieczny, 2 NY3d 569, 575 [2004], quoting People v Casey, 95 NY2d at 360).

These core concerns were clearly satisfied in this case. Defendant was on notice that: (1) he was charged with possessing heroin and marijuana discovered in the car in which he was a backseat passenger at approximately 10:50 p.m. on January 21, 2006 at the corner of Cypress and Myrtle Avenues in Queens; (2) the heroin was contained in nine separate plastic bags in the center console of the vehicle; and (3) the marijuana was found in a “plastic zip lock bag” inside the center console and a “marijuana pipe containing a quantity of marijuana” was found in the glove compartment. Based on these details, defendant could prepare a defense (e.g., he could attempt to demonstrate an actual lack of knowledge that the drugs were in the car to rebut the statutory presumption in Penal Law § 220.25 [1]). These facts were also specific enough to allow defendant to invoke the protection of double jeopardy in the event that he was acquitted of these charges but later subject to further prosecution. And, accepting the officer’s statements as true, the assertions were enough to inform defendant that the substances seized were heroin and marijuana—the officer had been trained to identify those drugs and their packaging, he had experience with narcotics as a law enforcement officer and his observations of the substances, along with the presence of drug paraphernalia, supplied the basis upon which he drew the conclusion that he had discovered heroin and marijuana.

Defendant claims that the officer’s allegations present an inadequate foundation for identification of the drugs because the officer did not describe what the substances looked like, nor did he attach a laboratory report indicating that the substances had been tested and found to be heroin and marijuana. We have already rejected the notion that a laboratory report is necessary to set forth a prima facie case and we unanimously adhere to that holding today. And, as detailed previously, the officer in this case presented more in the accusatory instrument than merely stating that he used his experience and training as the foundation in drawing the conclusion that he had discovered illegal drugs. He asserted that he also relied on the packaging of the substance that he determined to be heroin and that the recovery of a marijuana pipe further supported his belief that he had found marijuana.

In our view, the pleading standards of the Criminal Procedure Law would be extended beyond what the Legislature intended if we were to require the recitation of a mandatory catechism in an information that otherwise adequately identifies the particular drug, alleges that the accused possessed that illegal substance, states the officer’s familiarity with and training regarding the identification of the drug, provides some information as to why the officer concluded that the substance was a particular type of illegal drug, and supplies sufficient notice of the charged crime to satisfy the demands of due process and double jeopardy. To the extent Jahron S. suggests otherwise, we are modifying that portion of the holding.

Requiring police officers to supply a few additional words describing the appearance of the substance seized would necessitate the adoption of a formulaic recitation. An information charging possession of cocaine, for example, could state that the substance was “white in color” and “powdery,” or “off-white” and “rock-like” in appearance, whereas a charge of marijuana possession could be supported by a statement that the substance was “green and leafy.” While it may be the safer practice for law enforcement to routinely use these descriptive phrases, unlike our dissenting colleagues, we would not hold that the absence of such phraseology rendered the information in this case jurisdictionally deficient.

We also note that the facts alleged here can be contrasted with the omission that was fatal to the accusatory instrument in People v Alejandro (70 NY2d 133 [1987]). The information in that case was defective because there was a failure to plead an entire element of resisting arrest, “that the defendant had resisted an ‘authorized’ arrest” (People v Casey, 95 NY2d at 362 [emphasis omitted], quoting Penal Law § 205.30). Similarly, the information in People v Jones (9 NY3d 259 [2007]) was insufficient because it failed to allege an essential element of disorderly conduct—how the defendant had the intent to or recklessly created a risk of causing public annoyance, alarm or inconvenience (see id. at 262). The information here, in comparison, adequately stated that the substances seized were heroin and marijuana, and the police officer provided an adequate basis for that conclusion. Since the accusatory instrument sufficiently pleaded each element of the charged crimes, it was not jurisdictionally defective. Consequently, defendant’s challenge to the information was forfeited by operation of law upon his entering a guilty plea (see People v Keizer, 100 NY2d at 123) and his conviction of criminal possession of a controlled substance in the seventh degree should be reinstated.

Accordingly, the order of the Appellate Term should be reversed and the judgment of Criminal Court reinstated.

Ciparick, J. (dissenting). Because this case is governed by our holding in Matter of Jahron S. (79 NY2d 632 [1992]), I disagree with the majority’s position that the charging instrument used here was sufficient to meet the prima facie case requirement of an information in a misdemeanor narcotics possession case.

An information is required to give a defendant sufficient notice of the charged crimes for the purpose of preparing a defense and opposing a subsequent prosecution on double jeopardy grounds (see People v Casey, 95 NY2d 354, 360 [2000]). It must also contain nonhearsay allegations establishing every element of the offenses charged (see CPL 100.40 [1] [c]). We have held that a failure to establish a prima facie case is a jurisdictional defect (see People v Alejandro, 70 NY2d 133, 138 [1987]; People v Jones, 9 NY3d 259, 262 [2007]) and cannot be forfeited by a plea of guilty. Unless the defendant waives the right to be prosecuted by information and agrees to be charged by a misdemeanor complaint, we evaluate the sufficiency of the charging instrument under the prima facie case standard of an information (see CPL 100.10 [4]; 170.65 [l]-[3]; People v Weinberg, 34 NY2d 429, 431 [1974]).

In Jahron S., we held that an allegation by an officer identifying a substance as cocaine based upon his training and experience “as a police officer assigned to a special narcotics unit with respect to the appearance, handling and packaging of narcotics and other controlled substances” was insufficient to establish the prima facie element of the existence of a controlled substance (79 NY2d at 634, 637). The charging instrument in Jahron S. alleged that a juvenile possessed 33 vials of cocaine in crack form (see id. at 634). We declined to require the filing of a laboratory report as “always necessary” to establishing a prima facie case because, we noted, in some circumstances a deposition providing the “personal knowledge” and “expertness” of the officer might meet the prima facie standard for a case involving possession of a controlled substance (see id. at 640).

Here, the charging instrument—a misdemeanor complaint—alleges that defendant, who was seated in a rear passenger seat of a car, and two others seated in the front, collectively possessed heroin and marijuana. The officer allegedly recovered nine plastic bags containing heroin and one plastic zip-lock bag containing a quantity of marijuana from the center console of the vehicle and a pipe containing a quantity of marijuana from the glove compartment. The instrument states that the substances were heroin and marijuana based solely upon the officer’s “experience as a police officer as well as training in the identification and packaging of controlled substances and marijuana”—in purely conclusory language and stating no further details. Neither was a laboratory report nor a field test filed along with the misdemeanor complaint. Defendant pleaded guilty to the heroin charge, criminal possession of a controlled substance in the seventh degree (Penal Law § 220.03), without Criminal Court first obtaining a waiver of the right to be prosecuted by information.

Since the same prima facie standard applies to both Family Court petitions and criminal court informations, there is simply no reason why the result in Jahron S. should not be controlling here. In each case, the petition or the information serves as the sole instrument of prosecution and, in both, the allegations must be sufficient to establish a prima facie case. Here, defendant pleaded guilty to the highest count of the misdemeanor complaint without waiving the right to be prosecuted by information. The misdemeanor complaint must thus be evaluated under the standard applicable to an information. Applying this higher standard requires that the information on its face establish a prima facie case. This requirement has been long settled and has been consistently applied without a problem for decades (see e.g. Jones, 9 NY3d at 261-262; Casey, 95 NY2d at 365-367; Alejandro, 70 NY2d at 136-137; see also People v Dumas, 68 NY2d 729, 731 [1986]).

By holding that the charging instrument here is sufficient to allow a defendant to plead thereunder, and in effect overruling Jahron S., the majority brushes aside the protections that must be afforded to misdemeanor defendants to ensure that such prosecutions do not become routinized or treated as insignificant or unimportant. No undue burden will fall upon the People if they are required to expand the description of the drugs and packaging or provide specific information as to an officer’s training and experience. Nor will the trial courts be unduly burdened by requiring that a defendant specifically waive prosecution by information, thus avoiding the stricter jurisdictional defect standard.

Thus, I conclude that the charging instrument here is insufficient to establish a prima facie case and the order of the Appellate Term reversing the Criminal Court conviction should be affirmed.

Judges Read, Smith and Pigott concur with Judge Graffeo; Judge Ciparick dissents and votes to affirm in a separate opinion in which Chief Judge Lippman and Judge Jones concur.

Order reversed, etc.

      . This additional showing is required because, unlike a felony complaint, a misdemeanor information “is not followed by a preliminary hearing and a Grand Jury proceeding” and, consequently, there is no pretrial proceeding at which the People are required to “present actual evidence demonstrating a prima facie case, as with an indictment following a felony complaint” (People v Alejandro, 70 NY2d at 138).

      . In contrast, a “hearsay defect in an accusatory instrument is nonjurisdictional and, thus, forfeited by a guilty plea” (People v Keizer, 100 NY2d 114, 121 [2003]).

      . The charging instrument in Jahron S. was a Family Court petition; however, we made clear that both Family Court petitions and local criminal court informations must meet the same prima facie standard (see 79 NY2d at 639).

      . The complaint likewise charged defendant with the offense of marijuana possession—a violation.


author: Read, J.

text:
    [906 NE2d 1049, 879 NYS2d 17]
    Kerusa Co. LLC, Respondent, v W10Z/515 Real Estate Limited Partnership et al., Appellants.
    Argued February 12, 2009;
    decided April 2, 2009

      POINTS OF COUNSEL

      Landman Corsi Ballaine & Ford P.C., New York City (William G. Ballaine, James E. Davies and Jennifer A. Coughlin of counsel), for appellants.
    Plaintiff-respondent’s cause of action for common-law fraud is barred because of the Martin Act’s statutory scheme and the Attorney General’s exclusive authority over enforcement of the offering plan’s disclosures. (Kralik v 239 E. 79th St. Owners Corp., 5 NY3d 54; Vermeer Owners v Guterman, 78 NY2d 1114; CPC Intl. v McKesson Corp., 70 NY2d 268; 511 W. 232nd Owners Corp. v Jennifer Realty Co., 285 AD2d 244, 98 NY2d 144; State of New York v Metz, 241 AD2d 192; People v World Interactive Gaming Corp., 185 Misc 2d 852; State of New York v 7040 Colonial Rd. Assoc. Co., 176 Misc 2d 367; State of New York v First Invs. Corp., 156 Misc 2d 209; State of New York v Manhattan View Dev., 191 AD2d 259; Whitehall Tenants Corp. v Estate of Olnick, 213 AD2d 200.)

      Gibson, Dunn & Crutcher LLP, New York City (Robert L. Weigel, Jennifer H. Rearden, Alison L. Wollin and Anne M. Coyle of counsel), for respondent.
    I. The Appellate Division’s October 2007 order is consistent with settled Court of Appeals precedent. (CPC Inti, v McKesson Corp., 70 NY2d 268; Vermeer Owners v Guterman, 78 NY2d 1114; Kralik v 239 E. 79th St. Owners Corp., 5 NY3d 54.) II. The Martin Act is designed to protect consumers, not real estate developers. (Matter of Badem Bldgs, v Abrams, 70 NY2d 45; State of New York v Fine, 72 NY2d 967; Matter of Charles H. Greenthal & Co. v Lefkowitz, 32 NY2d 457; Burns Jackson Miller Summit & Spitzer v Lindner, 59 NY2d 314; Transit Commn. v Long

      Is. R.R. Co., 253 NY 345; 511 W 232nd Owners Corp. v Jennifer Realty Co., 98 NY2d 144.) III. The October 2007 order is consistent with the decisions of other departments of the Appellate Division that have considered this issue as well as with those of other courts. (Residential Bd. of Mgrs. of Zeckendorf Towers v Union Sq.-14th St. Assoc., 190 AD2d 636; 17 E. 80th Realty Corp. v 68th Assoc., 173 AD2d 245; 1113 8th Ave. Owners Corp. v Rivieccio, 165 AD2d 714; Horn v 440 E. 57th Co., 151 AD2d 112; Whitehall Tenants Corp. v Estate of Olnick, 213 AD2d 200; Caboara v Babylon Cove Dev., LLC, 54 AD3d 79; Keh Hsin Shen v Astoria Fed. Sav. & Loan, 295 AD2d 319; Scalp & Blade v Advest, Inc., 281 AD2d 882; Breakwaters Townhomes Assn. of Buffalo v Breakwaters of Buffalo, 207 AD2d 963; Marcus v Frome, 329 F Supp 2d 464.) IV. Kerusa Co. LLC has adequately pleaded a claim for common-law fraud. (Orbit Holding Corp. v Anthony Hotel Corp., 121 AD2d 311; CPC Inti, v McKesson Corp., 70 NY2d 268; Vermeer Owners v Guterman, 78 NY2d 1114; Whitehall Tenants Corp. v Estate of Olnick, 213 AD2d 200; Eagle Tenants Corp. v Fishbein, 182 AD2d 610; 17 E. 80th Realty Corp. v 68th Assoc., 173 AD2d 245; Haberman v Greenspan, 82 Misc 2d 263; Junius Constr. Corp. v Cohen, 257 NY 393; Tahini Invs. v Bobrowsky, 99 AD2d 489; Noved Realty Corp. v A. A. P. Co., Inc., 250 App Div 1.) V. Arthur and William Zeckendorf can be held liable for fraud as individuals. (Birnbaum v Yonkers Contr. Co., 272 AD2d 355; Zanani v Savad, 217 AD2d 696; Residential Bd. of Mgrs. of Zeckendorf Towers v Union Sq.-14th St. Assoc., 190 AD2d 636.)

      Kramer Levin Naftalis & Frankel LLP, New York City (Charlotte Moses Fischman and Jay A. Neveloff of counsel), for Real Estate Board of New York, amicus curiae.
    The fraud claim is indistinguishable from a Martin Act violation and fails the common-law standard. (CPC Intl. v McKesson Corp., 70 NY2d 268; Vermeer Owners v Guterman, 78 NY2d 1114; Board of Managers of Fairways at N. Hills Condominium v Fairways at N. Hills, 150 AD2d 32; Kralik v 239 E. 79th St. Owners Corp., 5 NY3d 54; Rego Park Gardens Owners v Rego Park Gardens Assoc., 191 AD2d 621; Whitehall Tenants Corp. v Estate of Olnick, 213 AD2d 200; 15 E. 11th Apt. Corp. v Elghanayan, 220 AD2d 295; Thompson v Parkchester Apts. Co., 249 AD2d 68; 167 Hous. Corp. v 167 Partnership, 252 AD2d 397; Thompson v Parkchester Apts. Co., 271 AD2d 311.)
   OPINION OF THE COURT

Read, J.

This appeal involves a lawsuit seeking damages for common-law fraud as a result of alleged construction and design defects in a 42-story, 39-unit luxury condominium building located at the corner of Park Avenue and 60th Street in New York City, having 515 Park Avenue as its address. For the reasons that follow, we hold that a purchaser of a condominium apartment may not bring a claim for common-law fraud against the building’s sponsor when the fraud is predicated solely on alleged material omissions from the offering plan amendments mandated by the Martin Act (General Business Law art 23-A) and the Attorney General’s implementing regulations (13 NYCRR part 20).

I.

On August 24, 1999, plaintiff Kerusa Co. LLC executed a purchase agreement for the penthouse apartment, a suite on a lower floor, two storage units, and a wine cellar in the building at 515 Park Avenue. The purchase price was $13.3 million. The closings on the apartment and the other units took place in March and December 2000 respectively. Kerusa purchased the penthouse unit as raw space—without, for example, drywall, studding and insulation, except at exterior walls; plumbing fixtures and branch piping; appliances; or electrical distribution (electrical service was terminated at the panel box)—and spent $8 million building it out.

On May 22, 2003, Kerusa filed suit against those sponsoring, designing, constructing, marketing and selling units in the building, alleging causes of action for fraud, breach of contract and negligence among others. Kerusa complained generally that various construction and design defects caused significant water damage to the building and led to substantial water leaks, systems failures, widespread condensation and levels of mold posing serious health risks. As a result, Kerusa claimed to have “suffered a substantial, if not total, loss in the value of [its] investment.”

After Kerusa filed a first amended complaint, Supreme Court on October 7, 2004 dismissed the cause of action for fraud because the allegations lacked particularity (see CPLR 3013, 3016 [b]; Channel Master Corp. v Aluminium Ltd. Sales, 4 NY2d 403, 406-407 [1958]; Barclay Arms v Barclay Arms Assoc., 74 NY2d 644, 646-647 [1989]). Accordingly, on May 13, 2005, Kerusa moved for permission to file a second amended complaint, which asserted a claim against W10Z/515 Real Estate, L.E (the condominium building sponsor); Arthur W and William Lie Zeckendorf (two principals of the sponsor); 515/ ZGR LLC (the sponsor’s managing general partner); W10Z/515 Gen-Par, LLC (the sponsor’s general manager); and Zeckendorf Realty, L.E (the sponsor’s selling agent) (collectively, the sponsor defendants) for “fraudulent inducement to sign and fraud and fraudulent concealment in connection with purchase agreements and closing of purchase of units.”

The purported fraud stemmed from supposedly false and fraudulent representations and material omissions in the sponsor defendants’ sales brochures and advertisements; and construction and design defects or problems alleged to have been known to the sponsor defendants but not disclosed in the offering plan amendments filed as construction progressed. On the latter point, while alleging no specific misrepresentations, Kerusa protested that the sponsor repeated in each amendment that “[e]xcept as set forth in this Amendment, there have been no material changes of facts or circumstances affecting the Property or the offering” (see 13 NYCRR 20.5 [a] [2]). According to Kerusa, this statement concealed and omitted various construction and design defects and problems encountered during construction but either ignored or inadequately remedied, as evidenced by minutes of weekly meetings to review construction status, field reports and change orders.

Kerusa further alleged that the sponsor defendants knew that “these statements and representations were false” and “omissions . . . were material”; that “[t]hese misrepresentations and omissions” were made and “the defects were concealed” to induce Kerusa to purchase and close on units in the building; and that Kerusa believed the sponsor’s “statements and representations to be true and reasonably relied on them in deciding to” make its purchases. It is clear that the complained-of “representations” and “misrepresentations” in the amendments were simply representations that nothing material had been omitted. The allegedly undisclosed and concealed defects included holes in the building’s concrete structure; an ongoing “water condition” in the cellars and elevator pits; inadequately insulated pipes that froze; and flooding during construction in November 1999 and January 2000, which caused water damage in the building. Finally, in the proposed second amended complaint, Kerusa also pleaded a new cause of action against the sponsor defendants for gross negligence.

By order entered December 8, 2005, Supreme Court denied Kerusa’s motion. “With respect to allegedly false statements in brochures and advertisements,” the court concluded that “Kerusa fail[ed] to plead the element of falsity with particularity” (Kerusa Co. LLC v W10Z/515 Real Estate, L.P., 10 Misc 3d 929, 935 [Sup Ct, NY County 2005]). In addition, “[s]ome of these statements [were] sales puffery . . . and Kersua [did] not set forth in what manner the remaining statements [were] false” (id.).

While stating that Kerusa had cured the pleading deficiencies as to the alleged fraud of the offering plan amendments, Supreme Court held that the Martin Act ruled out this claim (id. at 935-936). The court reasoned that Kerusa’s theory of fraud was “too intertwined with the disclosure obligations of the Martin Act” (id. at 936); and, if allowed to go forward, would “enlarge disclosure beyond that required under the Martin Act, and intrude upon the purview of the Attorney General” (id. at 931) as well as “significantly expand a sponsor’s disclosure obligations and burdens” (id. at 936). As for gross negligence, Supreme Court opined that there were “no allegations of [a] duty of care owed to Kerusa by the sponsor defendants (other than the sponsor itself) that, in its breach, caused the alleged harm” (id. at 935). Kerusa appealed.

On October 16, 2007, the Appellate Division modified Supreme Court’s decision and order so as to permit Kerusa to replead common-law fraud against the sponsor defendants and assert the proposed claim for gross negligence against the sponsor. With respect to Kerusa’s cause of action for fraud related to the offering plan amendments, the court stated generally that the Martin Act “does not preclude a private party from prosecuting an otherwise valid common-law fraud claim in connection with the sale of securities whenever the alleged fraudulent conduct is such that the Attorney General would be authorized to bring an action against the defendant under the Martin Act” (Kramer v W10Z/515 Real Estate Ltd. Partnership, 44 AD3d 457, 458 [1st Dept 2007]). In essence, the Appellate Division seems to have been of the view that a private party may bring an action for fraud grounded solely in alleged omissions from Martin Act disclosures so long as the elements of common-law fraud (a false representation—here, that there were no omissions; in relation to a material fact; scienter; reliance; and injury) are pleaded with particularity. Finally, the court rejected the sponsor defendants’ objection that Kerusa had not alleged active concealment as simply “without merit” (id. at 460).

While this appeal was pending in the Appellate Division, Supreme Court granted sponsor defendants’ motion for summary judgment to dismiss the remaining causes of action in Kerusa’s first amended complaint. After the Appellate Division’s decision, however, the parties stipulated to reopen the action to allow Kerusa to make its common-law fraud and gross negligence claims against the sponsor defendants.

Meanwhile, the sponsor defendants filed a motion for reargument or, alternatively, for permission to appeal so much of the Appellate Division’s order as allowed Kerusa to amend its first amended complaint to replead common-law fraud. On April 24, 2008, the Appellate Division entered an order denying reargument, but granting the motion for leave to appeal and certifying the following question to us: “Was the order of [the Appellate Division], which modified the order of the Supreme Court[,] properly made?”

On April 24, 2008, the Appellate Division also upheld Supreme Court’s order dismissing Kerusa’s remaining causes of action (Kerusa Co. LLC v W10Z/515 Real Estate Ltd. Partnership, 50 AD3d 503 [1st Dept 2008]). The court concluded that Kerusa had not shown any evidence of mold or other damage to its condominium units, or any other injury for which it would be entitled to hold the sponsor defendants liable for breach of contract or negligence (id. at 504).

II.

The Martin Act authorizes the Attorney General to investigate and enjoin fraudulent practices in the marketing of stocks, bonds and other securities within or from New York State (see General Business Law §§ 352, 353). At the time of its enactment in 1921, “no one realized” that the statute would eventually “come to embrace a then-unknown species of investment activity”; namely, “the offer and sale of cooperative apartments (‘coops’) and condominiums” (see Kaufmann, Introduction and Commentary Overview, McKinney’s Cons Laws of NY, Book 19, General Business Law art 23-A, at 9). In 1960, however, the Legislature “was asked to choose a legislative approach for the protection of purchasers in offerings of cooperative and condominium units. The choice was incorporated into the state’s blue sky law (the Martin Act) and was a disclosure approach—full disclosure of risks and unit purchasers’ self-protection by analysis of risks” (Di Lorenzo, Disclosure as Consumer Protection: Unit Purchasers’ Need for Additional Protections, 73 St John’s L Rev 43, 45-46 [1999] [suggesting that New York should enact certain substantive protections to supplement disclosure]; see also L 1960, ch 987, codified at General Business Law § 352-e; Council for Owner Occupied Hous. v Abrams, 72 NY2d 553, 557 [1988] [section 352-e is “a disclosure statute, designed to protect the public from fraudulent exploitation in the sale of real estate securities”]).

The Martin Act makes it illegal for a person to make or take part in a public offering of securities consisting of participation interests in real estate unless an offering statement is filed with the Attorney General (General Business Law § 352-e [1] [a]); details the numerous items of information that an offering statement must include, and also requires disclosure of “such additional information as the attorney general may prescribe in rules and regulations promulgated under [General Business Law § 352-e (6)] as will afford potential . . . purchasers ... an adequate basis upon which to found their judgment and shall not omit any material fact or contain any untrue statement of a material fact” (General Business Law § 352-e [1] [b]); directs the Attorney General to issue within a specified time period either a letter stating that the offering statement has been filed or written notification of the deficiencies in it (General Business Law § 352-e [2]); authorizes the Attorney General to adopt rules and regulations to carry out the provisions of section 352-e, “including regulations for the method, contents and filing procedures with respect to the statements required by [General Business Law § 352-e (1)] and the making of amendments thereto” (General Business Law § 352-e [6] [a]); and makes all filings available for inspection by a purchaser (General Business Law § 352-e [9]).

The disclosure regulations adopted by the Attorney General pursuant to General Business Law § 352-e (6) to cover newly constructed condominiums—such as 515 Park Avenue—fill more than 60 pages in the NYCRR (see 13 NYCRR part 20). They detail the format and content of offering plans and filings, including the word-for-word representation that must be made in the certification to be sworn to by the sponsor and the sponsor’s principals in the offering plan (13 NYCRR 20.4 [b]); and the requirements for offering plan amendments, including the direction that “[a]n amendment must include a representation that all material changes of facts or circumstances affecting the property or the offering are included unless the changes were described in prior amendment(s) submitted to but not yet filed with the Department of Law” (13 NYCRR 20.5 [a] [2]).

The Martin Act authorizes the Attorney General to enforce its provisions and implementing regulations (see General Business Law §§ 352, 352-c, 353, 354); he may seek restitution and damages for injured parties (General Business Law § 353; State of New York v Metz, 241 AD2d 192, 195 [1st Dept 1998]). Indeed, “[t]he Attorney General bears sole responsibility for implementing and enforcing the Martin Act” (Kralik v 239 E. 79th St. Owners Corp., 5 NY3d 54, 58 [2005]); there is no private right of action under the statute (CPC Intl. v McKesson Corp., 70 NY2d 268, 276-277 [1987]). This serves the Martin Act’s purpose, which was

“to create a statutory mechanism in which the Attorney-General would have broad regulatory and remedial powers to prevent fraudulent securities practices by investigating and intervening at the first indication of possible securities fraud on the public and, thereafter, if appropriate, to commence civil or criminal prosecution; and that consistency of purpose with the statute includes consistency with this enforcement mechanism” (id. at 277).

By requiring a broad class of sellers of real estate to make disclosures to buyers, the Martin Act dramatically altered the common-law rule. Prior to enactment of article 23-A,

“New York adhere[d] to the doctrine of caveat emptor and impose[d] no duty on the seller or the seller’s agent to disclose any information concerning the premises when the parties deal[t] at arm’s length, unless there [was] some conduct on the part of the seller or the seller’s agent . . . constituting] active concealment. If however, some conduct (i.e., more than mere silence) on the part of the seller [rose] to the level of active concealment, a seller [might] have a duty to disclose information concerning the property. To maintain a cause of action to recover damages for active concealment, the plaintiff [would have to] show, in effect, that the seller or the seller’s agents thwarted the plaintiff’s efforts to fulfill . . . responsibilities fixed by the doctrine of caveat emptor” (Jablonski v Rapalje, 14 AD3d 484, 485 [2d Dept 2005] [internal quotation marks and citations omitted]; see also 37 Am Jur 2d, Fraud and Deceit § 203).

The question on this appeal is whether Kerusa has any common-law claim for fraud, as distinct from a claim under the Martin Act, which only the Attorney General may bring. We conclude that Kerusa has no such claim.

Kerusa alleges in its proposed second amended complaint that the sponsor defendants did not disclose various construction and design defects in the offering plan amendments, and represented therein that there were no “material changes of facts or circumstances affecting the property or the offering” (see 13 NYCRR 20.5 [a] [2]) when, in fact, problems arising during construction alerted them to the existence of major defects, which they either ignored or inadequately remedied. But for the Martin Act and the Attorney General’s implementing regulations, however, the sponsor defendants did not have to make the disclosures in the amendments. Thus, to accept Kerusa’s pleading as valid would invite a backdoor private cause of action to enforce the Martin Act in contradiction to our holding in CPC Inti, that no private right to enforce that statute exists. It would, as amicus Real Estate Board of New York points out, “expand the already detailed disclosure requirements of the Martin Act by forcing parties to disclose the normal kinds of problems [encountered] in the course of construction that are described in field reports, project meetings and change orders” in order to avoid transforming every potential latent construction defect case into a claim for common-law fraud on account of alleged omissions in Martin Act disclosures.

Similarly, Kerusa’s claim of fraudulent concealment rests on the theory that the sponsor defendants actively concealed fraud by repeatedly representing in plan amendments that there were no material changes of facts or circumstances, bolstered by the occasional inclusion of only “minor changes” such as “a change in the model of dishwashers installed”—devices which Kerusa says “thwarted . . . efforts to fulfill . . . responsibilities fixed by the doctrine of caveat emptor” (Jablonski, 14 AD3d at 485). Again, Kerusa relies on purported omissions from disclosures required by the Martin Act and the Attorney General’s implementing regulations—specifically, 13 NYCRR 20.5 (a) (2)—to make out its case. Although Kerusa somewhat deemphasized section 20.5 (a) (2) in its brief in our Court, the proposed second amended complaint at most alleges only that the sponsor defendants tolerated shoddy construction; Kerusa does not contend, for example, that drywall was painted over or taped over to cover up or prevent discovery of water damage; Kerusa does not allege that walls or bricks were put up to hide or prevent it from finding leaking pipes or holes in the foundation. Nothing in the proposed second amended complaint supports active concealment unrelated to alleged omissions from Martin Act disclosures.

Finally, our decisions in CPC Intl. and Vermeer Owners v Guterman (78 NY2d 1114 [1991]) do not support Kerusa. The lawsuit in CPC Inti, arose from McKesson’s sale of the stock of its wholly-owned subsidiary, C.F. Mueller Corporation, a leading producer of pasta, to CPC. The “crux” of CPC’s complaint was that McKesson, its investment bankers, and certain former McKesson and Mueller employees “deliberately and fraudulently prepared false projections of revenues, operating expenses and profits of Mueller and intentionally withheld other accurate projections for the purpose of selling Mueller for more than it was worth” (CPC Intl. 70 NY2d at 274). We concluded that CPC had sufficiently pleaded common-law fraud because, given its most favorable intendment, the complaint described a scheme to defraud CPC. Unlike this case, CPC Intl. did not turn on alleged nondisclosure of information required by the Attorney General’s Martin Act regulations. In Vermeer Owners, we affirmed the Appellate Division’s dismissal of a lawsuit arising out of a real estate syndicate offering. Nothing in our writing suggests that the defendants in Vermeer Owners made the argument advanced by the sponsor defendants in this case. Certainly, we did not address this issue, or need to do so in light of the plaintiffs neglect to prove reliance.

In sum, Kerusa’s remaining cause of action for fraud relies entirely on alleged omissions from filings required by the Martin Act and the Attorney General’s implementing regulations. That Kerusa alleged the elements of common-law fraud does not transmute a prohibited private cause of action to enforce Martin Act disclosure requirements into an independent common-law tort.

Accordingly, the Appellate Division’s order, insofar as appealed from, should be reversed, with costs; that branch of plaintiffs motion that sought to amend the complaint to add a common-law cause of action for fraud should be denied; and the certified question should be answered in the negative.

Judges Ciparick, Graffeo, Smith, Pigott and Jones concur; Chief Judge Lippman taking no part.

Order, insofar as appealed from, reversed, etc.

      . Kerusa, a limited liability company, is a wholly-owned subsidiary of Gañida S.A., which is majority owned by French businessman Francois Pinault.

      . On appeal, Kerusa did not contest Supreme Court’s adverse ruling regarding its proposed fraud claim for allegedly false statements in brochures and advertisements.

      . The Kramer lawsuit, initially part of this appeal, was settled in September 2008. In addition, an action brought in 2002 by the building’s board of managers against the sponsor defendants and others was settled, after negotiations begun under the aegis of the Attorney General, in January 2006. The board sued on its own behalf and on behalf of individual unit owners in the building. In common with this action, both these lawsuits sought damages for purported design and construction defects at 515 Park Avenue.

      . Sponsor defendants have moved in Supreme Court to dismiss the gross negligence claim, and that motion, as of the filing of the briefs in this Court, was still pending.

      . As a result, we need not and do not decide whether the alleged misrepresentation of an item of information that the Martin Act or the Attorney General’s implementing regulations require to be disclosed would support a cause of action for fraud, so long as the elements of common-law fraud are pleaded.