        SUPREME COURT OF THE STATE OF NEW YORK
           Appellate Division, Fourth Judicial Department

858
CA 13-02010
PRESENT: SCUDDER, P.J., SMITH, CENTRA, FAHEY, AND PERADOTTO, JJ.


IN THE MATTER OF COUNTY OF NIAGARA,
PETITIONER-PLAINTIFF-RESPONDENT,

                    V                             MEMORANDUM AND ORDER

NIRAV R. SHAH, M.D., M.P.H., COMMISSIONER,
NEW YORK STATE DEPARTMENT OF HEALTH AND
NEW YORK STATE DEPARTMENT OF HEALTH,
RESPONDENTS-DEFENDANTS-APPELLANTS.


ERIC T. SCHNEIDERMAN, ATTORNEY GENERAL, ALBANY (VICTOR PALADINO OF
COUNSEL), FOR RESPONDENTS-DEFENDANTS-APPELLANTS.

WHITEMAN OSTERMAN & HANNA LLP, ALBANY (CHRISTOPHER E. BUCKEY OF
COUNSEL), AND NANCY ROSE STORMER, P.C., UTICA, FOR
PETITIONER-PLAINTIFF-RESPONDENT.


     Appeal from a judgment (denominated order and judgment) of the
Supreme Court, Niagara County (Catherine R. Nugent Panepinto, J.),
entered July 1, 2013 in a CPLR article 78 proceeding and declaratory
judgment action. The judgment, inter alia, directed respondents-
defendants to pay petitioner-plaintiff’s claims for reimbursement of
overburden expenditures.

     It is hereby ORDERED that the judgment so appealed from is
unanimously reversed on the law without costs and the matter is
remitted to Supreme Court, Niagara County, for further proceedings in
accordance with the following Memorandum: Petitioner-plaintiff County
of Niagara (petitioner) commenced this hybrid CPLR article 78
proceeding and declaratory judgment action seeking, inter alia, to
compel respondents-defendants (respondents) to pay petitioner’s claims
for reimbursement for certain expenditures known as overburden
expenditures (see generally Matter of Krauskopf v Perales, 139 AD2d
147, affd 74 NY2d 730). The petition/complaint alleges that
respondent-defendant New York State Department of Health (DOH)
improperly billed petitioner for those expenditures prior to 2006, and
that respondents have a continuing duty to reimburse petitioner for
them.

     Determination of this appeal requires some discussion of the
legislation and prior litigation concerning these expenditures. With
respect to most Medicaid costs, the initial statutory scheme provided
that the federal government would reimburse the State for half of all
Medicaid expenditures that were made, and in most cases the DOH would
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then split the other half with the social services district in which
the payment was made, including petitioner (see Social Services Law §
368-a [1] [d]). With respect to Medicaid payments made to treat the
mentally ill individuals at issue in the overburden expenditures,
however, it was mandated that, commencing January 1, 1984, the DOH
would pay the entire non-federal share of the treatment (see § 368-a
[1] [h]). As the costs arising from the Medicaid program as a whole
began to grow exponentially, the Legislature changed the statutory
scheme by enacting the Medicaid Cap Statute ([Cap Statute] L 2005, ch
58, § 1, part C, as amended by L 2006, ch 57, § 1, part A, § 60).
Although the Cap Statute used a complex set of provisions to affix
each social services district’s liability for Medicaid expenses, it
essentially provided that each social services district, including
petitioner, would send the State a fixed amount of money per year,
based on the amount spent by that social services district during the
fiscal year beginning April 1, 2005, minus payments received by the
social services district for those expenses (see generally Matter of
County of St. Lawrence v Shah, 95 AD3d 1548, 1549-1550). The amounts
are to be adjusted for inflation in subsequent years (see id.).

     Petitioner contends that respondents failed to reimburse it for
numerous overburden expenditures that it made prior to 2006, and it
began submitting claims for reimbursement. Upon enactment of the Cap
Statute, respondents began to deny those claims on the ground that the
Cap Statute extinguished petitioner’s right to seek reimbursement for
those claims. On appeal from a judgment rejecting that ground for
denial, this Court concluded that, “in light of the lack of
legislative history or statutory language indicating that the
Legislature intended that the statute . . . should be applied
retroactively” (Matter of County of Niagara v Daines, 60 AD3d 1456,
1457, lv denied 13 NY3d 707), respondents’ duty to reimburse social
services districts for overburden expenditures incurred prior to
January 1, 2006 was not extinguished by the Cap Statute (id.). In
addition, we also rejected respondents’ contention that petitioner’s
claims “were time-barred pursuant to 18 NYCRR 601.3 (c)” (Matter of
County of Niagara v Daines, 79 AD3d 1702, 1705, lv denied 17 NY3d
703). Respondents thereafter took the position that petitioner’s
right to seek reimbursement for overburden expenditures was
extinguished by a 2010 amendment to the Cap Statute (L 2010, ch 109, §
1, part B, § 24), and we likewise rejected that contention. We
concluded that, “inasmuch as the plain language of the 2010 amendment
does not mention overburden expenditures or respondents’ preexisting
duty to reimburse petitioner for such expenses incurred prior to 2006,
that duty is not extinguished by the amendment” (Matter of County of
Niagara v Daines, 91 AD3d 1288, 1289). We further stated that
“[t]here is nothing in the legislative history indicating that the
Legislature acted in response to the prior judicial decisions
concerning the Medicaid Cap Statute” in enacting the 2010 amendment
(id.).

     Subsequent to our determination in that case, however, the
Legislature inserted a provision in the executive budget for 2012-
2013, stating that, “[n]otwithstanding the provisions of section 368-a
of the social services law or any other contrary provision of law, no
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                                                         CA 13-02010

reimbursement shall be made for social services districts’ claims
submitted on and after the effective date of this paragraph, for
district expenditures incurred prior to January 1, 2006, including,
but not limited to,” overburden expenditures (L 2012, ch 56, § 1, part
D, § 61 [hereafter, section 61]). Furthermore, the memorandum in
support of the executive budget indicated that section 61 was proposed
“to clarify that local governments cannot claim for overburden
expenses incurred prior to January 1, 2006, when the [Cap Statute]
took effect. This is necessary to address adverse court decisions
that have resulted in State costs paid to local districts for pre-cap
periods, which conflict with the original intent of the” Cap Statute.

     After the effective date of section 61, petitioner submitted the
claims at issue in this appeal. The DOH denied those claims on the
ground that they were barred by section 61, and petitioner commenced
this action. Respondents moved and petitioner cross-moved for summary
judgment on the petition/complaint. Respondents appeal from a
judgment that, inter alia, granted petitioner’s cross motion and
directed respondents to pay the claims. We agree with respondents
that section 61 has retroactively changed the law with respect to this
issue, and we therefore reverse.

     Section 61 clearly states that no further claims for
reimbursement of overburden expenditures will be paid, notwithstanding
Social Services Law § 368-a. Thus, the unequivocal wording of section
61 retroactively extinguishes petitioner’s right to submit claims for
reimbursement of overburden expenditures made prior to 2006. “The
retroactivity of a statute which is expressly retroactive, as here,
will generally be defeated only if such retroactivity would violate
due process or some other specific constitutional precept” (Matter of
City of New York v Lawton, 128 AD2d 202, 206).

     Here, however, in granting the cross motion, Supreme Court
ordered that petitioner’s claims be “treated under Social Services Law
§ 368-a as [they] existed at the time that Petitioner incurred the
Overburden expenses on Respondents’ behalf, pursuant to the special
facts exception.” We agree with respondents that the special facts
exception does not apply in this situation. Insofar as relevant here,
that exception provides that “a court may deny an agency the benefit
of a change in the law when it has intentionally or even negligently
delayed action on [a claim] until after the law had been amended to
authorize denial of the” claim (Matter of Faymor Dev. Co. v Board of
Stds. & Appeals of City of N.Y., 45 NY2d 560, 565). There is no
indication that resolution of the claims at issue was delayed until
section 61 was enacted. To the contrary, respondents denied the
claims immediately upon their submission, based on section 61.
Although respondents unquestionably denied other, earlier claims based
on other rationales, those claims have since been paid and are not at
issue in this appeal. We reject petitioner’s contention that the
initial alleged failure of the State’s computer to flag these payments
as overburden expenditures, and all subsequent denials or delays in
paying claims submitted by petitioner and other social services
districts, should be classified as the requisite intentional or
negligent failure to act. Any intentional or negligent computer
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                                                         CA 13-02010

coding error occurred, if at all, when a computer coding process was
allegedly changed at some unknown date prior to 2006, and section 61
was not enacted until six years later. It therefore cannot be said
that the changes in the computer coding were made in anticipation of
the imminent enactment of section 61, which was not contemplated at
that time. Similarly, respondents’ prior denial of claims and
litigation occurred years before section 61 was first contemplated,
and we therefore reject the contention that the delay was for the
purpose of awaiting that legislative action. Thus, the court erred in
determining that the special facts exception applies.

     Petitioner further contends that section 61 is inapplicable
because respondents have an ongoing duty to reimburse petitioner for
all prior overburden expenditures without regard to whether petitioner
submits a claim. Thus, according to petitioner, no claim for
reimbursement is necessary, and section 61 therefore does not apply to
this situation because it merely bars payment of claims. We reject
that contention.

     It is well settled that, in interpreting a statute, a court
“ ‘must assume that the Legislature did not deliberately place a
phrase in the statute that was intended to serve no purpose’ ” (Matter
of Rodriguez v Perales, 86 NY2d 361, 366, quoting Matter of Smathers,
309 NY 487, 495), and must avoid an interpretation that “ ‘result[s]
in the nullification of one part of [a statute] by another’ ”
(Rangolan v County of Nassau, 96 NY2d 42, 48). Thus, “[a]
construction that would render a provision superfluous is to be
avoided” (Majewski v Broadalbin-Perth Sch. Dist., 91 NY2d 577, 587;
see Matter of Branford House v Michetti, 81 NY2d 681, 688). If we
accept petitioner’s contention that respondents must forthwith search
out all prior possible instances of unreimbursed overburden
expenditures and submit payment for them to petitioner notwithstanding
section 61, then there is no situation in which a claim for such
payment will be submitted. Thus, there will be no situation in which
section 61 will apply, rendering it a nullity. Similarly, to accept
petitioner’s “proffered interpretation would be to return to the prior
version of the statute, rendering the amendment a nullity” (People v
Thompson, 99 NY2d 38, 42). We therefore reject petitioner’s
interpretation of the statutory scheme.

     In its cross motion for summary judgment, petitioner sought,
inter alia, judgment declaring that section 61 is unconstitutional
because the statute deprived petitioner of due process by removing its
vested rights. “[T]he traditional principle throughout the United
States has been that municipalities and other local governmental
corporate entities and their officers lack capacity to mount
constitutional challenges to acts of the State and State legislation.
This general incapacity to sue flows from judicial recognition of the
juridical as well as political relationship between those entities and
the State. Constitutionally as well as a matter of historical fact,
municipal corporate bodies—counties, towns and school districts—are
merely subdivisions of the State, created by the State for the
convenient carrying out of the State’s governmental powers and
responsibilities as its agents. Viewed, therefore, by the courts as
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                                                         CA 13-02010

purely creatures or agents of the State, it followed that municipal
corporate bodies cannot have the right to contest the actions of their
principal or creator affecting them in their governmental capacity or
as representatives of their inhabitants” (City of New York v State of
New York, 86 NY2d 286, 289-290).

     It is equally well settled, however, that “[t]he issue of lack of
capacity to sue does not go to the jurisdiction of the court, as is
the case when the plaintiffs lack standing. Rather, lack of capacity
to sue is a ground for dismissal which must be raised by motion and is
otherwise waived” (id. at 292). Here, petitioner cross-moved for
summary judgment on several grounds, including the unconstitutionality
of the statute, and it appears that the Attorney General was invited
to participate based upon the challenge to the constitutionality of
section 61. The record does not reflect whether respondents contested
that part of the cross motion, or whether the Attorney General
appeared with respect to that issue. Because the court decided the
cross motion solely on the ground that the special facts exception
barred the application of section 61, the court did not reach the
issue. We therefore remit the matter to Supreme Court for
consideration of the issue, after any further briefing and motion
argument that the court deems proper.




                                                Frances E. Cafarell




Entered:   November 14, 2014
                                                Clerk of the Court
