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City of New York v. Novello

June 4, 2009


Petitioner appeals from orders of the Supreme Court, New York County (Debra A. James, J.), entered on March 30, 2006, and February 5, 2007, which, to the extent appealed from as limited by the briefs, denied the petition, granted respondents' cross motion declaring lawful their intercept of $28.6 million, and dismissed this proceeding.

The opinion of the court was delivered by: Renwick, J.

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This opinion is uncorrected and subject to revision before publication in the Official Reports.

Peter Tom, J.P., John T. Buckley, Karla Moskowitz and Dianne T. Renwick, JJ.

Index 400705/05

In this case of statutory interpretation, the issue is whether the State can disregard a particular statutory directive to act within a specified time. The issue arises within the context of a dispute between New York State and the City of New York over the timeliness of the State's revocation of a $27 million reimbursement to the City for home health care services the City provided. The State argues that the statutory deadline to invoke the revocation is merely directory. This Court, however, finds that the State may not disregard peremptory language that contains a plain, clear and distinct expression of mandatory legislative intent.

The seeds of this dispute were sown by the State Legislature when it promulgated legislation intended to reduce the recent spiraling costs of home health care-related services. Home health care services provided throughout the State by localities like the City of New York are eligible for reimbursement under the State's medicaid program, which is jointly funded by the federal government and participating states (Social Services Law § 365-a). The State pays 40% of the cost of home health care services provided by localities, the federal government pays 50%, and the locality itself pays the remaining 10%.

The Legislature enacted a target method to compel local social service districts to reduce the cost of home health care. Specifically, pursuant to Chapter 62, part Z2, § 26 of the Laws of 2003, the New York State Department of Health (DOH) developed "district-specific targets" (savings targets) to create incentives for each local district, such as the City of New York, to efficiently manage the cost of home health care services. The statute provides a methodology for calculating savings targets for a given year, and identifies "target periods" for DOH to analyze in determining if the City, as well as the other localities, is meeting the savings target set for it. Since 1997, the Legislature has enacted the target methodology, and re-enacts it periodically to cover specific periods of time.

The statute provides that if the local district fails to meet the savings target, DOH will "intercept" home health care service payments and other payments to the district in an amount "sufficient to reimburse the state for [the amount the district exceeded] the savings target" (id., amending L 1997, ch 433 § 36 [6]). The intercept process occurs in four stages. In the first stage, by January 1 of the applicable year, DOH notifies each district as to its progress toward reaching the savings target (L 1996, ch 43, § 36[3], as amended by L 1999, ch 412, pt F, § 36[3], L 1999, ch 1, § 43 and L 2003, ch 62, pt Z2, § 26). By March 1, DOH again notifies the district as to its progress toward reaching the savings target, and specifies an amount, if any, by which DOH projects that the district will fall short, and the amount of State payments DOH would intercept (L 1997, ch 433, § 36[4][a], as amended through L 2003, ch 62, pt Z2, § 26). In the third step, DOH makes an initial intercept by March 31, if it projects that a district will fail to meet its savings target (L 1997, ch 433, § 36[5][a], as amended through L 2003, ch 62, pt Z2, § 26). Finally, "as soon as possible, but in no event later than three months after the end of the target period" (emphasis added), DOH makes the final intercept if its final calculation indicates the district failed to meet the savings target, or issue a refund if the initial intercept exceeded the final calculation ((L 1997, ch 433, § 6, as amended through L 2003, ch 62, pt Z2, § 26).

The relevant target period in this case is fiscal year 2003-2004. At the inception, DOH set a savings target amount of $32,003,775. On or about March 24, 2004, it made an initial estimate that the City of New York would fall short of the target by $1,391,461, but did not set a final interceptor by the end of the required statutory deadline of June 30, 2004. Instead, for some unexplained reason, DOH delayed its decision for another four months. Specifically, on October 29, 2004, DOH notified the City of its final calculation, demanding a final intercept of $27,375,822.*fn1

Faced with this dilatory final intercept, which was more than $25 million over the initial estimate, the City of New York commenced this Article 78 petition, challenging the timeliness of the final intercept and the calculations that went into it, and issue has been joined. Initially, Supreme Court found that the language requiring the final intercept to occur "in no event later than three months after the end of the target period" was not merely directory but mandatory. Accordingly, Supreme Court held that the final intercept, which occurred well after the June 30, 2004 deadline, was invalid, and granted the petition to this extent. However, DOH was properly held to have retained the initial intercept amount because the City had failed to carry its burden of demonstrating that the methodology used by DOH in calculating the final intercept was improper.

On reargument, the court adhered to the part of its prior decision that DOH's calculations were rational, but reversed itself as to the timeliness of the final intercept, reasoning that provisions directing a public officer to do an act at a certain time are generally directory without any negative words restraining it from doing the act afterwards. The court thus found the final intercept timely, and denied the petition.

While mindful that the line between mandatory and directory statutes cannot be drawn with precision (People v Karr, 240 NY 348, 351 [1925]), we disagree with the court's directory reading of the provision limiting the time for the State to perform the final intercept. This type of issue must be resolved on a case-by-case basis, but in determining whether a statute is mandatory or directory, our primary consideration must be to ascertain and give effect to the intent of the Legislature (Matter of McCulloch v New York State Ethics Commn., 285 AD2d 236, 238-239 [2001]; see also Majewski v Broadalbin-Perth Cent. School Dist., 91 NY2d 577, 583 [1998]).

With regard to provisions directing public officials to take action within certain time limits, the general rule is that such limits will be considered directory, absent evidence that such requirements were intended by the Legislature as a limitation on the authority of the body or officer (Matter of Grossman v Rankin, 43 NY2d 493, 501 [1977]; see also Munro v State of New York, 223 NY 208 [1918]). Conversely, a mandatory interpretation is justified where "the nature of the act to be performed, or the language used by the legislature [shows] that the designation of the time was intended as a limitation of the power of the ...

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