| Bordeleau v State of New York |
| 2010 NY Slip Op 05649 [74 AD3d 1688] |
| June 24, 2010 |
| Appellate Division, Third Department |
| Lee Bordeleau et al., Appellants, v State of New York et al.,Respondents. |
—[*1] Andrew M. Cuomo, Attorney General, Albany (Paul Groenwegen of counsel), for State ofNew York, respondent. Alec S. Berman, International Business Machines Corporation, White Plains (Teena-Ann V.Sankoorikal of Cravath, Swaine & Moore, L.L.P., New York City, of counsel), for InternationalBusiness Machines Corporation, respondent. Greenberg Traurig, L.L.P., Albany (Victoria P. Lane of counsel), for Advanced MicroDevices, Inc., respondent. Lippes, Mathias, Wexler & Friedman, L.L.P., Buffalo (Kevin J. Cross of counsel), for WestGenesee Hotel Associates, respondent.
Rose, J. Appeal from an order of the Supreme Court (Lynch, J.), entered March 5, 2009 inAlbany County, which granted defendants' motions to dismiss the complaint.
In this declaratory judgment action, plaintiff taxpayers challenge the constitutionality of theappropriation of state funds to the Department of Agriculture and Markets (hereinafterDepartment) and two public benefit corporations (hereinafter PBCs) for ultimate distribution toprivate entities for the avowed purpose of fostering economic development. The complaintalleges that this funding violates NY Constitution, article VII, § 8 (1), which prohibits thegiving or loaning of state money to any private entity, and NY Constitution, article VII, §7, which requires that every new appropriation distinctly specify the object or purpose of thefunds appropriated. Defendants made pre-answer motions to dismiss the complaint pursuant toCPLR 3211 (a) (1) and (7).[FN*]Supreme Court granted defendants' motions and dismissed the complaint. Plaintiffs now appeal.
"When assessing the adequacy of a complaint in light of a CPLR 3211 (a) (7) motion todismiss, the court must afford the pleadings a liberal construction, accept the allegations of thecomplaint as true and provide plaintiff . . . 'the benefit of every possible favorableinference' " (AG Capital FundingPartners, L.P. v State St. Bank & Trust Co., 5 NY3d 582, 591 [2005] [citationsomitted]; see EBC I, Inc. v Goldman,Sachs & Co., 5 NY3d 11, 19 [2005]; Crepin v Fogarty, 59 AD3d 837, 838 [2009]). On such a motion,the court's proper function is to determine whether the facts alleged fit within any cognizablelegal theory (see Leon v Martinez, 84 NY2d 83, 87-88 [1994]). Alternatively, to obtaindismissal pursuant to CPLR 3211 (a) (1), defendants were required to " 'show that thedocumentary evidence upon which the motion is predicated resolves all factual issues as a matterof law and definitively disposes of the plaintiff's claim' " (Adamkiewicz v Lansing, 288AD2d 531, 532 [2001], quoting Unadilla Silo Co. v Ernst & Young, 234 AD2d 754, 754[1996]; see Angelino v MichaelFreedus, D.D.S., P.C., 69 AD3d 1203, 1205 [2010]).
Here, the complaint can be read to allege that certain appropriations in the 2008-2009 budgetindirectly gave state funds to private entities in violation of NY Constitution, article VII, §8 (1) by passing the funds through the Department and the PBCs before disbursement. Whiledefendant State of New York can validly appropriate funds to public entities such as itsdepartments and PBCs (see Schulz v State of New York, 84 NY2d 231, 246 [1994],cert denied 513 US 1127 [1995]; Matter of Palmateer v Greene County Indus. Dev. Agency, 38 AD3d1087, 1089 [2007]), the NY Constitution prohibits gifts or loans of state funds to privateentities. Article VII, § 8 (1) provides that "[t]he money of the state shall not be given orloaned to or in aid of any private corporation or association, or private undertaking." Thisprovision was added in 1846 "in reaction to the [Legislature's] prior practices of subsidizingprivate railroad and canal companies through long-term State debt obligations, which the Stateultimately was forced to pay when many of those private enterprises failed during the depressionof 1837-1842. Thus, subsidization by gifts of public funds to private undertakings, or bypledging public credit on their behalf, was banned, irrespective of how beneficent or desirable tothe public the subsidized activity might seem to be" (Matter of Schulz v State of NewYork, 86 NY2d 225, 233-234 [1995] [citations omitted], cert denied 516 US 944[1995]; see People v Ohrenstein, 77 NY2d 38, 50-51 [1990]; Wein v State of NewYork, 39 NY2d 136, 142-143 [1976]).
Defendants do not dispute plaintiffs' allegation that the challenged funds were ultimatelydistributed by the Department and the PBCs to private entities. Instead, they contend that, as amatter of law, the appropriations did not violate the NY Constitution because the grant of statefunds to the Department and to the PBCs was permissible, those entities then disbursed the fundsfor proper public purposes with only incidental private benefits and, in any event, the privaterecipients agreed to perform services or provide other consideration in exchange for the funds. Inresponse, plaintiffs argue that the complaint states a viable cause of action under the NYConstitution because the challenged appropriations subsidize private entities.[*2]
First, we cannot accept defendants' premise that passingstate funds through the hands of the Department or a PBC before distribution to private entitieswill avoid the constitutional proscription. Giving the funds to private entities by channeling themthrough authorized public entities will not shield these appropriations from challenge, for theState may not do " 'indirectly that which cannot be done directly' " (Wein v State of NewYork, 39 NY2d at 145, quoting People ex rel. Burby v Howland, 155 NY 270, 280[1898]; accord Schulz v State of New York, 84 NY2d at 241). An analogouscircumvention was rejected by the Court of Appeals when it stated: "If the gift of the bonds ofthe state to a railroad corporation would be such a gift—and it undoubtedly wouldbe—then so would be an issue of bonds by the state with the express condition that theirproceeds should be given to the same corporation. The evasion of the constitutional prohibitionwould be palpable and it could not and should not be permitted" (People v WestchesterCounty Natl. Bank of Peekskill, N.Y., 231 NY 465, 476 [1921]).
Nor can we accept defendants' argument that proof of a public purpose for the funds thatwere disbursed by the intermediaries here establishes the legitimacy of the appropriations. TheCourt of Appeals has made clear that the existence of a public purpose for an appropriation thataids a private undertaking is not the test of whether it is lawful. "However important, howeveruseful the objects designed by the legislature, they may not be accomplished by a gift or a loanof credit to an individual or to a corporation. It will not do to say that the character of the act is tobe judged by its main object—that because the purpose is public, the means adoptedcannot be called a gift or a loan. To do so would be to make meaningless the provision adoptedby the [constitutional] convention of 1846. Gifts of credit to railroads served an important publicpurpose. That purpose was distinctly before the legislatures that made them. Yet they were stillgifts and so were prohibited" (id. at 475).
Defendants next contend that the state funds here were not gifts because they were disbursedby the Department and the PBCs in exchange for services or other valuable consideration. Insupport of this contention, the State produced an attorney's affirmation on behalf of theDepartment asserting that its funds were expended for activities designed to increase theproduction, marketing and consumption of certain agricultural products grown and distributed byprivate interests. The record also contains an affidavit of a senior vice-president of defendantEmpire State Development Corporation which alleges that public benefits were derived from itsexpenditures to private business enterprises, such as reduction of their costs, promotion of theirgrowth and retention of their jobs in New York. These submissions regarding consideration areunavailing, however, because they "do not constitute documentary evidence upon which aproponent of dismissal can rely" (Crepin v Fogarty, 59 AD3d 837, 838 [2009], supra; seeRealty Invs. of USA v Bhaidaswala, 254 AD2d 603, 605 [1998]).
In any event, defendants' submissions do not establish, as a matter of law, that theappropriations challenged here pass constitutional muster. Defendants' argument that the publicbenefits received constitute adequate consideration for disbursing public funds to private entitiesis premised on our observation in Matter of La Barbera v Town of Woodstock (29 AD3d 1054[2006], lv dismissed 7 NY3d 844 [2006]) that the consideration for the transfer of publicproperty to a private entity "may take the form of public benefits or services rendered pursuant toa contract" (id. at 1056). In that case, however, we found that a town's grant of aconservation easement to a not-for-profit conservation organization in exchange for thepreservation of the land as an undeveloped public park provided a clear public benefit inperpetuity and, as a matter of law, constituted adequate consideration (id. at 1056). Wedid not consider whether NY Constitution, article VII, § 8 would permit state funds to begiven to private entities in exchange for the sort of benefits alleged here.[*3]
Nor do the other cases cited by defendants support theirargument that, as a matter of law, there was adequate consideration here. We have held that apublic entity's expenditure of public funds for promotional activities, such as advertising andmarketing, will meet the constitutional requirement that a corresponding benefit be receivedwhere, unlike here, the activities promote the public entity itself (see Matter of Schulz vWarren County Bd. of Supervisors, 179 AD2d 118, 122 [1992], lv denied 80 NY2d754 [1992]). And while we have also found that payments made by the Commissioner ofAgriculture and Markets for publicity designed to create new markets for apples did not violateNY Constitution, article VII, § 8 (1) in Wickham v Trapani (26 AD2d 216[1966]), there the moneys disbursed were the proceeds of assessments against the parties to bebenefitted and not public funds (id. at 219-220). In the other cases cited by defendants,the public funds were given to PBCs that disbursed them to build facilities and for other properpublic purposes that only incidentally benefitted private entities (see Comereski v City ofElmira, 308 NY 248 [1955]; Matterof Palmateer v Greene County Indus. Dev. Agency, 38 AD3d 1087 [2007],supra; Tribeca Community Assn. v New York State Urban Dev. Corp., 200 AD2d536 [1994], lv denied 84 NY2d 805 [1994]). In the very different circumstances presenthere, defendants' submissions do not establish that the public benefits of the appropriations wereso dominant and their private benefits so incidental as to constitute adequate consideration as amatter of law.
Accordingly, inasmuch as plaintiffs allege that the Department and the PBCs passed theappropriated funds on to private entities, and that allegation must be accepted as true, we findthat the complaint indeed states a cause of action for violation of NY Constitution, article VII,§ 8. Thus, it should not have been dismissed under CPLR 3211 (a) (7). Similarly, since thepropriety of the appropriations challenged here depends upon whether their public benefitsconstitute sufficient consideration while the private benefits are merely incidental, defendants'submission of documentary evidence showing their public purposes fails to resolve any materialissue in their favor as a matter of law and dismissal is not warranted under CPLR 3211 (a) (1)(see Weston v Cornell Univ., 56AD3d 1074, 1076 [2008]; Heslin vMetropolitan Life Ins. Co., 9 AD3d 581, 583 [2004]).
We turn next to plaintiffs' additional cause of action alleging violations of NY Constitution,article VII, § 7. Article VII, § 7 prescribes that "[n]o money shall ever be paid. . . except in pursuance of an appropriation by law . . . [which] shalldistinctly specify the sum appropriated, and the object or purpose to which it isto be applied" (emphases added). Plaintiffs allege in their complaint that numerousappropriations in the 2008-2009 budget merely provide that the money appropriated will bespent according to some future agreement between the Governor, Speaker of the Assembly andMajority Leader of the Senate. They contend that these appropriations are not only insufficientlyspecific as to their object or purpose, but that they also improperly delegate legislative controlover expenditures, promote secrecy and reduce public accountability for cash grants to favoredprivate interests. Many of these challenged appropriations refer to memoranda of understandingto be executed in the future. Others refer to a past memorandum that granted sole and largelyunfettered discretion to the Governor, the Majority Leader of the Senate and the Speaker of theAssembly to designate, in the future, the ultimate recipients of funds for the undefined purposeof "economic development." In addition, neither the appropriations nor the referencedmemoranda of understanding state the recipients, projects or specific purposes of the funding.Nonetheless, we are constrained by the decision of the Court of Appeals in Saxton vCarey (44 NY2d 545 [1978]) to conclude that plaintiffs' allegations that the appropriationslack specificity fail to state a justiciable controversy. In Saxton, the Court of Appealsheld: "[T]he degree of itemization necessary in a particular budget is whatever degree ofitemization is necessary for the Legislature to effectively review that budget. This is a decisionwhich is best left to the Legislature, for it is not something which can be accurately delineated bya [*4]court. It is, rather, a function of the political process,. . . [and] the remedy lies not in the courtroom, but in the voting booth" (Saxtonv Carey, 44 NY2d at 550-551; seePataki v New York State Assembly, 4 NY3d 75, 97 [2004]). Accordingly, we cannotsay that Supreme Court erred in dismissing plaintiffs' cause of action for violations of NYConstitution, article VII, § 7.
Finally, we find no merit in the argument by defendants International Business MachinesCorporation and West Genesee Hotel Associates that this action was properly dismissed asagainst them because plaintiffs lack standing to sue them. Since the complaint alleges that statefunds were unlawfully disbursed to those defendants and they do not deny that they havereceived at least some of the funds, plaintiffs have standing to join them as recipients of thefunds pursuant to State Finance Law § 123-b (2) (see Huron Group, Inc. v Pataki, 5 Misc 3d 648, 686-687 [2004],affd 23 AD3d 1051 [2005], appeal dismissed 6 NY3d 803 [2006]; cf. Matter of Quigley v Town ofUlster, 66 AD3d 1295, 1297 [2009]).
Mercure, J.P., Peters, Spain and Kavanagh, JJ., concur. Ordered that the order is modified,on the law, without costs, by reversing so much thereof as granted defendants' motions todismiss the first cause of action; motions denied to that extent and matter remitted to theSupreme Court to permit defendants to serve answers within 30 days of the date of this Court'sdecision; and, as so modified, affirmed. [Prior Case History: 22 Misc 3d 1131(A), 2009 NYSlip Op 50380(U).]
Footnote *: Although some defendants alsobased their motions upon CPLR 3211 (a) (3) and (10), they abandoned any claim for dismissalbased upon an alternate ground by failing to address it in their briefs on appeal (see Jock v Landmark Healthcare Facilities,LLC, 62 AD3d 1070, 1074 n 2 [2009]).