With respect to Hancock and WEA's claim that Chapter 312 violates the subordination, non-disturbance and attornment agreements, defendants assert that, inter alia, SUNY's agreements with Hancock and WEA are subordinate, and therefore subject to, all of the lease provisions.
These arguments correctly frame the pivotal inquiry; that is, to determine whether Chapter 312 impairs the lease, the Court must decide whether Chapter 312 properly triggers the executory clause contained in the lease. This issue requires a review of the legal effect of the executory clause as it relates to a legislative determination.
New York courts have enforced executory clauses when, in the course of ordinary budgeting procedures, funds are not made "available." See, e.g., Amarnick v. State of New York, 84 Misc. 2d 112, 372 N.Y.S.2d 947, 951 aff'd, 52 A.D.2d 1007, 383 N.Y.S.2d 560 (3d Dept. 1976); Starling Realty Corp. v. State, 286 N.Y. 272, 276-77, 36 N.E.2d 201 (3d Dept. 1941). "The word 'available' in such context relates to the appropriation of funds by the Legislature and the allocation of such funds by the appropriate officer or body, such that the unavailability is dependent upon a legislative or budgetary determination or directive not to provide funds for the expenditure in question." Forelli v. State of New York, 179 A.D.2d 394, 577 N.Y.S.2d 844, 845 (1st Dept. 1992) (citing Starling, 286 N.Y. 272 at 278, 36 N.E.2d 201; Amarnick, 372 N.Y.S.2d at 947). As defined by other courts, "available" means "a request made by [a] responsible head of a department for [the] items only which are necessary to a proper and efficient administration of the department, and the approval of those items by the final budgetary authority." Starling Realty Corp., 286 N.Y. at 278.
A review of the following New York cases is illustrative. First, in Starling Realty Corp., 286 N.Y. at 272, plaintiff filed an action to recover rent due under an unexpired lease with a state agency. The state agency had vacated the plaintiff's premises and ceased paying rent prior to the lease's expiration. The State defended on the grounds that monies were not "available" within the meaning of the executory clause in the lease. In submitting its budget, the state agency did not request any funds for payment of the lease, as a decision had been made, in good faith and for sufficient reasons, to discontinue the branch office occupying the leased premises. The court held that no monies were "available" within the meaning of the executory clause, thus relieving the State from its rental obligations.
Second, in Drislane v. State of New York, 7 A.D.2d 141, 181 N.Y.S.2d 38 (3d Dept. 1958), plaintiffs brought an action to recover rent allegedly due under a lease with the Division of Placement and Unemployment Insurance ("Division"). Prior to the lease's termination, the State removed all of the Division offices to a new building, and stopped paying rent to the plaintiff. The State contended that, pursuant to the executory clause in the lease, no monies were "available" for rental payments. 181 N.Y.S.2d at 39. The Division budget had proposed $ 2.3 million for rents for its various offices; however, the plaintiff's building had not been included in the budget.
The court disagreed with the State that monies were not "available" within the meaning of the executory clause, as "funds continued to be received for rental of premises leased for the use of Division and that from those funds the State actually paid rental for space in the new building" now occupied by Division. Id. at 40. The court further noted that "it is clear that the State's removal was for its own convenience and not because funds were unavailable." Id.
Third, in Adson Ind., Inc. v. State of New York, 28 A.D.2d 1183, 284 N.Y.S.2d 765 (3d Dept. 1967), plaintiff brought suit against the State for allegedly due rental payments incurred by the Department of Public Works ("Department"). The State argued that it did not owe lease payments, because a legislative decision had been made that no monies were "available" for the rental payments within the meaning of the executory clause in the lease. 284 N.Y.S.2d at 766. Although the Department had submitted a budget requesting funds to pay the plaintiff, the Director of Budget deleted the appropriation request because the premises had been vacated.
The court held that the executory clause did not excuse the State's from its rental obligations to the plaintiff. The court reasoned that because the State had moved to a public building where it continued to pay-out funds, "it cannot be said that there were no moneys available for that purpose." Id. at 767. The court also cited to Drislane for the proposition that "if there were moneys available to pay for new office space for the same State employees formerly housed in [plaintiff's] property, then there were moneys available for that purpose in the sense of the law and the executory clause did not apply." Id.
Fourth, in Forelli, 179 A.D.2d 394, 577 N.Y.S.2d 844, a landlord brought suit against the State for breach of the lease. The lease was entered into by the Office of General Services for the use by the Department of Labor and the Department of Taxation and Finance. The state agencies vacated the leased premises and ceased paying rent prior to the lease's termination. The State again defended on the grounds that, pursuant to the executory clause, no monies were "available" to meet its contractual obligations. Id. at 395.
Although the court rejected the State's argument that funds were not "available" within the meaning of the executory clause, it declined to adopt the Court of Claims interpretation "of the executory clause as applicable only when an entire program is eliminated, such that it could never apply where a department is merely relocated. Such interpretation would lead to illogical results and unduly restrict the State in allocating admittedly limited resources." Id. Further, in finding that the executory clause did not apply, the court stressed that the decision to cancel the lease was not made pursuant to any legislative intention, but rather was made at the Departmental level without consideration of its outstanding contractual obligations. Id. at 396.
These cases teach us several important rules. First, for the State to avoid its contractual obligations by reason of funds not being "available" within the meaning of the executory clause, the decision to withhold monies must have its source in a legislative or budgetary determination. See, e.g., Forelli, 179 A.D.2d 394, 577 N.Y.S.2d 844 at 845; Amarnick, 84 Misc. 2d 112, 372 N.Y.S.2d 947 at 951. Second, Starling counsels that the executory clause may excuse nonperformance when a determination is made to withdraw all funding, thus shutting down a particular activity, branch agency office or operation. Starling Realty Corp., 286 N.Y. at 278;; see also Amarnick, 383 N.Y.S.2d at 951 (finding that executory clause properly excused State from contractual obligations with bottled water distributor when legislature decided to close down bottling plant).
Stated differently, the State may rely on the executory clause to excuse its existing contractual obligations when making substantive changes to a department, such as modifying, removing or changing operations to better accomplish its functions. Id. Third, Drislane and Adson instruct that even when a budgetary determination has been made that funds are not "available," an executory clause will not excuse nonperformance of the State's contractual obligations when funds continue to be received by the state agency for substantially the same substantive purpose. Drislane, 181 N.Y.S.2d at 39-40; Adson, 284 N.Y.S.2d at 768. In such instances, the State will not be permitted to terminate a contract merely to suit its own convenience.
In the present case, Section 4 of chapter 312 Provides that monies are not "available" for the lease
on and after July 1, 1996, or as soon thereafter as the state university college of optometry shall complete relocation to facilities owned and financed for public purposes . . . to reflect the elimination of such funding support due to fiscal deficiencies and unavailability of funds.
Applying the principles articulated above, Chapter 312 does not trigger the executory clause in the TM-SUNY lease. Although Chapter 312 purports to make a legislative determination that funds are not available due to fiscal deficiencies; in fact, it ties this determination to SUNY's unilateral decision to move to another location. Thus funds only become "unavailable" if SUNY decides that it is convenient for it to move out.
Chapter 312 also resembles the Drislane and Adson scenario. Here, the statute seeks no substantive modification of the purpose of the College of Optometry. Starling Realty Corp., 286 N.Y. at 278; Amarnick, 372 N.Y.S.2d 947 at 951. Rather, Chapter 312 seeks merely to transplant the school some eighteen blocks north of its present location. This is not sufficient reason to permit the State to disallow its legitimate contractual obligations. Drislane, 181 N.Y.S.2d at 39-40; Adson, 284 N.Y.S.2d at 768. The statute also states that monies will be made available for purposes of improving and maintaining the new facilities. Specifically, Chapter 312 provides a $ 17 million appropriation for the College of Optometry's moving costs, and Chapter 313 provides in excess of $ 80 million to acquire the B. Altman Building and relocate both institutions. As such, the Court disagrees that money is not "available" to the State to satisfy its lease obligations within the meaning of the executory clause. Id.
In addition, the Court finds that by its terms, Chapter 312 does not state that money is presently unavailable to fund the TM-SUNY lease, or that such money necessarily will ever become unavailable. To the contrary, monies are available until some unspecified point after July 1, 1996 when SUNY decides to relocate. If SUNY never moves, then monies will be "available" for the remainder of the lease term. To date, SUNY makes all lease payments to TM as they become due. SUNY also expects to fulfill all future rental payments that become due prior to its move.
With this understanding of how Chapter 312 functions, the Court cannot understand why funds are "available" to SUNY until the College of Optometry's departure, but that if SUNY departs, then funds suddenly will become "unavailable" due to fiscal deficiencies.
Also troubling is how the legislature, in 1995, could determine that fiscal deficiencies at some point in the unknown future will prevent the state from fulfilling its contractual obligations with the plaintiff. Such a determination does not square with ordinary budgeting procedures in which budgets are prepared only for the forthcoming fiscal year. Amarnick, 372 N.Y.S.2d at 951; Starling Realty Corp., 286 N.Y. at 276-77.
Consequently, Chapter 312's assertion that funds are not "available" is insufficient to trigger the executory clause in the lease.
The Court is mindful that the executory clause is "intended to be utilized as a shield against the imprudent use of taxpayers' dollars and not as a sword to divorce the State, for purposes of its own convenience, from a contract fairly entered into and honestly performed." Green Island Contracting v. State of New York, 117 Misc. 2d 435, 458 N.Y.S.2d 828, 831 (N.Y. Ct. Cl. 1983), aff'd, 99 A.D.2d 330, 473 N.Y.S.2d 55 (3rd Dept. 1984), appeal denied, 66 N.Y.2d 605, 489 N.E.2d 770, 498 N.Y.S.2d 1025 (1985); see also Forelli, 577 N.Y.S.2d at 845.
Because the executory clause does not apply, the Court finds that section 4 of Chapter 312 impairs the plaintiffs' contracts. Turning to the third component of the inquiry, whether the impairment is substantial, only requires brief comment. With respect to TM, Chapter 312 clearly works a substantial impairment to the TM-SUNY lease. By its terms, Chapter 312 eliminates the State's obligations under the lease, and changes a long-term contract into a month-to-month tenancy at the sole will of SUNY. This transformation reduces the current value both of the lease and 315 Park Avenue South. Further, the lease will become substantially impaired when SUNY moves to its new location and stops making its rental payments. See Haley v. Pataki, 883 F. Supp. 816, 825 (N.D.N.Y. 1995).
With respect to Hancock and WEA, SUNY agreed pursuant to the subordination, non-disturbance and attornment agreements that it would neither terminate nor modify the TM-SUNY lease without the written consent of Hancock and WEA. Notwithstanding, SUNY developed, proposed and actively lobbied for the legislation that became Chapter 312. Indeed, SUNY's attorneys drafted section 4 of Chapter 312 that purports to substantially modify or eliminate SUNY's obligations to TM under the lease. Yet neither SUNY nor the State obtained the written consent of Hancock or WEA prior to Chapter 312's enactment. Thus, Chapter 312 substantially impaired Hancock and WEA's rights to consent to modification or termination of the lease.
ii) Reasonable and Necessary to Serve an Important Public Purpose?
An impairment of a contract may be constitutional if the statute is reasonable and necessary to serve an important public purpose. United States Trust Co., 431 U.S. at 25. As a general rule, courts will defer to legislative judgment in determining whether particular actions are reasonable and necessary. Id.; Association of Surrogates, 940 F.2d at 771 (stating that legislation that "impairs the obligations of private contracts is tested under the contract clause by reference to a rational-basis test"). "But courts are not so deferential when the state's legislation is self-serving and impairs the obligations of its own contracts." Association of Surrogates, 940 F.2d at 771 (emphasis in original). As noted by the Supreme Court, "a government can always find use for extra money, especially when taxes do not have to be raised. If a State could reduce its financial obligations whenever it wanted to spend the money for what it regarded as an important public purpose, the Contract Clause would provide no protection at all." U.S. Trust Co., 431 U.S. at 25-26.
In the instant case, defendants argue that Chapter 312 is reasonable and necessary to serve an important public purpose. Defendants posit that the statute eliminates costs and inadequate leased space, provides new facilities to benefit its academic mission and assists the College of Optometry in its provision of publicly assisted health care. Plaintiffs, by contrast, maintain that these reasons are insufficient to justify Chapter 312. According to the plaintiffs, less oppressive methods are available to the defendants to achieve its purposes.
Assuming that cost savings
and meeting the school's mission constitute an "important public purpose," it was not necessary for Chapter 312 to abrogate the State's rental obligations to accomplish these objectives. See U.S. Trust Co., 431 U.S. at 31 (finding that the repeal of statutory bond covenant relied upon by bond purchasers was not reasonable and necessary when "an evident and more moderate course would serve its purposes equally well"); Condell v. Bress, 983 F.2d 415, 420 (2d Cir. 1993) (concluding that fiscal deficiencies did not require lag payroll to finance the expansion of the state court system); Association of Surrogates, 940 F.2d at 771 (same). Rather, a menu of alternatives was available to the State to accomplish its relocation plan while also satisfying its rental obligations. For example, taxes could have been raised or other programs cut to ensure the availability of funds for the lease. Association of Surrogates, 940 F.2d at 773. Alternatively, the State could simply have delayed the move of the College of Optometry until the year 2004. In the same vein, the State might have arranged for another tenant to occupy the premises on a temporary basis.
It also will not become "necessary" for the State to stop paying its rent because of fiscal deficiencies. By its terms, Chapter 312 purports that funds become "unavailable" due to fiscal deficits when SUNY decides to move to its new location at some unspecified point in the future. The State does not allege, however, that a financial crisis exists now, or what basis it has to know that a financial crisis will occur in the future. This Court does not possess the ability to predict when a fiscal crisis will occur, and doubts that the State possesses such ability either.
Accordingly, surmised fiscal deficiencies do not provide the "necessity" required to permit the State to escape its contractual obligations under the Contract Clause. See Association of Surrogates, 940 F.2d 766 at 773-74 (finding that present fiscal deficiencies were insufficient to permit the State to avoid obligations).
Although the TM-SUNY lease may not best suit the needs of SUNY and the College of Optometry, "the contract clause bars such expedient post hoc changes in contractual obligations, for a 'state is not completely free to consider impairing the obligations of its own contracts on a par with other policy alternatives.'" Association of Surrogates, 940 F.2d at 773 (citing United States Trust Co., 431 U.S. 1 at 30-31). Indeed, when, as in the instant case, the State "enters into a contract it cannot simply walk away from its financial obligations." Energy Reserves Group, Inc. v. Kansas Power & Light Co., 459 U.S. 400, 412 n.14, 74 L. Ed. 2d 569, 103 S. Ct. 697 (1983). "If a state contract could so cavalierly disregard the obligations of its own contracts, of what value would its promises ever be?" Association of Surrogates, 940 F.2d at 774. Accordingly, the Court holds that Section 4 of Chapter 312 is not reasonable and necessary to serve an important government interest.
In sum, the Court finds that Section 4 of Chapter 312 violates the Contract Clause of the federal constitution. However, the Court need not declare Chapter 312 wholly unconstitutional, as unconstitutionality of part of a statute does not necessarily defeat the validity of its remaining provisions. United States v. Jackson, 390 U.S. 570, 585, 20 L. Ed. 2d 138, 88 S. Ct. 1209 (1968); Champlin Refining Co. v. Commission, 286 U.S. 210, 76 L. Ed. 1062, 52 S. Ct. 559 (1932); Singer, 1 Sutherland Statutory Construction § 2.06, at 33 (5th ed. 1994). Rather, the remainder of the statute should be sustained, "unless the invalid provisions are deemed so essential, and are so interwoven with others, that it cannot reasonably be presumed that the legislature intended the statute to operate otherwise than as a whole." Moore v. Fowinkle, 512 F.2d 629, 632 (6th Cir. 1975). Here, the Court discerns no reason why the remainder of Chapter 312 should not be sustained to permit CUNY and the College of Optometry to continue with their relocation and consolidation plans.
f) Fourteenth Amendment
Because section 4 of Chapter 312 violates the Contract Clause, the Court need not decide whether the statute also violates the Fourteenth Amendment.
For the reasons stated herein, defendants' cross motion for summary judgment is GRANTED insofar as defendants seek to dismiss the plaintiffs' claims against the State of New York, State University of New York and New York State Department of Audit and Control. All remaining claims, seeking prospective relief based upon violations of federal law, against the Dormitory Authority and the individual defendants, both in their individual and official capacities, are properly before this Court. Further, defendants' motion for summary judgment is DENIED insofar as it seeks any other relief.
Plaintiffs' motions for summary judgment are GRANTED insofar as they seek a declaration that section 4 of Chapter 312 is void under the contract clause, and to enjoin the defendants from terminating payments to TM Park pursuant to the lease under the authority of Chapter 312. However, the Court holds that the remainder of Chapter 312 does not impair plaintiffs' contracts, and thus insofar as plaintiffs seek a declaration that the remainder of Chapter 312 is unconstitutional, plaintiffs' motions for summary judgment are DENIED
IT IS SO ORDERED.
Dated October 18, 1997
at Binghamton, New York
Thomas J. McAvoy
Chief U.S. District Judge