| Metropolitan Taxicab Bd. of Trade v New York City Taxi &Limousine Commn. |
| 2014 NY Slip Op 01683 [115 AD3d 521] |
| March 18, 2014 |
| Appellate Division, First Department |
| Metropolitan Taxicab Board of Trade et al.,Appellants, v New York City Taxi & Limousine Commission et al.,Respondents. |
—[*1] Michael A. Cardozo, Corporation Counsel, New York (Susan Paulson of counsel),for respondents.
Order, Supreme Court, New York County (Michael D. Stallman, J.), entered January8, 2013, which denied petitioners' motion for incidental damages under CPLR 7806,unanimously affirmed, without costs.
Since 1996, under the authority of section 2303 of the New York City Charter,respondent the New York City Taxi and Limousine Commission (the TLC) haspromulgated rules setting limitations of lease rates that taxi owners can charge taxidrivers who lease the taxis. The maximum amount an owner may charge a driver isknown as the "lease cap." In 2009, the TLC enacted the "Driver Protection Amendments"(the tax rule) (35 RCNY 1-78 [a] [4]). Among other things, the tax rule prohibited taxiowners from collecting from their lessees New York State sales and rental taxes inamounts above the lease cap. On May 1, 2009, the rule took effect and effectivelyreduced the lease cap by requiring that drivers' tax payments be included within the cap.While taxi drivers who lease taxis are responsible for these taxes, taxi owners arerequired to act as trustees of the State, collecting the tax from drivers and paying it to theState.
In August 2009, petitioners—taxi owners who lease their taxis todrivers—commenced this hybrid action seeking declaratory relief and a judgmentunder CPLR article 78, in which they challenged, among other things, the tax rule. Themotion court upheld the rule and this Court affirmed (71 AD3d 508 [1st Dept 2010]). Asto the requirement in the rule that sales and rental taxes be included within the lease cap,this Court found that the provision had a rational basis in that it was "aimed atstandardizing divergent practices regarding the payment of such taxes within thevehicle-for-hire industry, as demonstrated in the record" (id. at 510). However,the Court of Appeals reversed (18 NY3d 329 [2011]), annulling the rule as arbitrary andcapricious and without rational basis.
Petitioners then moved in Supreme Court for damages under CPLR 7806, seeking$15,732,437.07 from respondents to compensate them for "the monies that they allegedlycould not have collected from their taxicab lessees while the regulation was in force";petitioners [*2]argued that they were entitled to recoverthe money as incidental damages. The court denied the motion, ruling that the damagespetitioners sought to recover were not "incidental to the primary relief sought" within themeaning of CPLR 7806, because the monies at issue were not funds that respondentsimproperly withheld or collected from petitioners and could not then pay or refund topetitioners. Further, the court held that petitioners could not recover these non-incidentaldamages in a plenary action because, under the doctrine of government immunity,respondents were "immune from suit for the alleged damages arising out of theenactment of 35 RCNY 1-78 (a) (4)."
We find that the motion court properly denied petitioners' motion for an award ofincidental damages. To begin, with regard to incidental damages, CPLR 7806 states, inpertinent part: "Any restitution or damages granted to the petitioner must be incidental tothe primary relief sought by the petitioner, and must be such as he might otherwiserecover on the same set of facts in a separate action or proceeding suable in the supremecourt against the same body or officer in its or his official capacity."
Petitioners seek damages based on the Court of Appeals' determination that theTLC's effective reduction of the taxi "lease cap" had no rational basis. The Court ofAppeals' determination, however, does not lead to a conclusion that the damages are"incidental to the primary relief sought" (CPLR 7806). Contrary to petitioners' argument,monetary injury incurred as a result of agency action does not necessarily constituteincidental damages simply because a court later finds the action to have been arbitraryand capricious. Certainly, whether damages are characterized as incidental "is dependentupon the facts and issues presented in a particular case" (Matter of Gross vPerales, 72 NY2d 231, 236 [1988]). Even so, incidental damages are generallyconfined to monies that an agency either collected from or withheld from a petitioner andthen was obligated to reimburse after a court annulled a particular agency determination.
For example, in Matter of New York Tel. Co. v Nassau County (267 AD2d629 [3d Dept 1999], lv denied 95 NY2d 756 [2000]), upon which petitionerplaces much reliance, the court held that Nassau County had to refund to the petitionersthe full amount of certain overpayments. In so doing, the court rejected the County'sargument that it should not be liable for incidental damages because it had alreadyreallocated the funds it had improperly collected. Here, however, the TLC nevercollected the funds at all. Thus, the scenario in this case presents a fundamentallydifferent question from the one in Matter of New York Tel. Co., where apetitioner asked an agency to refund money that it had received and spent.
Petitioners argue that damages are considered incidental in an article 78 proceedingwhere an administrative determination must be annulled in order to render the damagesrecoverable. This view, however, constitutes an overly expansive definition of incidentaldamages. Were we to accept this definition, an agency would have to compensate anymonetary loss incurred when its action was later annulled as an improper exercise ofdiscretion. The established authority, however, holds otherwise.
For example, in Matter of Gross v Perales (72 NY2d 231 [1988]), a leadingCourt of Appeals case on the meaning of incidental damages, the Court found that theNew York State Department of Social Services had acted in an arbitrary and capriciousmanner in making a determination to [*3]withhold $20million in reimbursements from the New York City Human Resources Administration.Thus, the Court noted, the article 78 court had properly annulled the determination.Rejecting the State's argument that the claim was essentially one for money damages andthus not incidental to the article 78 proceeding, the Court stated that "the City was. . . entitled to the withheld reimbursements under the Social Services Law. . . whether or not the court directed payment, since upon nullification ofthe underlying administrative action, the State had a statutory duty to reimburse the City"(id. at 236). Accordingly, the Court concluded, "the demand for monetary reliefwas unquestionably incidental to the facts and issues presented" (id.).
Petitioners cite the Gross Court's emphasis on the threshold inquiry as to"whether the State acted arbitrarily and capriciously" (id.). However, theGross Court did not hold that annulment of the agency action required the state tocompensate the City for any and all losses it suffered as a result of the arbitrary action.Rather, as noted above, the Court stated that the City was entitled to the "withheldreimbursements" that the State was statutorily "obligated to reimburse" (id.).Here, on the other hand, as the motion court held, the City had no statutory duty toreimburse the damages that petitioners sought. While a statutory duty is not essential fora finding of incidental damages, the key point here is that the obligation to reimbursemust arise from the agency's withholding of amounts it should have paid to the petitioneror its retention of amounts it should not have collected. Neither action occurred in thiscase. Thus, the losses that petitioners incurred as a result of the arbitrary reduction in thetaxi lease cap in this case do not qualify as incidental damages.
We turn now to the issue of governmental immunity. This doctrine applies "whenofficial action involves the exercise of discretion or expert judgment in policy matters,and is not exclusively ministerial" (Haddock v City of New York, 75 NY2d 478,484 [1990]).
Petitioners first argue that the doctrine is inapplicable here because it does not applyin article 78 proceedings. In support of this proposition, petitioners rely on cases thataddress public employees' claims for back pay and benefits (see e.g. Matter of Pollock v KiryasJoel Union Free School Dist., 52 AD3d 722 [2d Dept 2008] [granting damagesas a result of school board's decision to terminate teacher in violation of the EducationLaw]). However, because the petitioners' right to damages in those cases arose out of theemployer-employee relationship, not out of the article 78 relief, the damages could beconsidered incidental to the "primary relief." Therefore, unlike here, the petitioners inthose cases could have recovered damages "on the same set of facts in a separate actionor proceeding . . . in the supreme court" (CPLR 7806).
In addition, as respondents aptly point out, CPLR 7806 explicitly limits theavailability of damages in an article 78 proceeding (see Gross, 72 NY2d at 237["(t)he statute was adopted for the sole purpose of immunizing the State from payingconsequential damages in cases where a State agency improperly denied, revoked orsuspended a petitioner's license"]). That article 78 permits the court, in certaincircumstances, to award damages in an action that also reviews the validity of agovernment determination does not create a right to damages that does not otherwiseexist.
Finally, governmental immunity shields respondents from the payment of damages ina plenary action because imposition of the annulled rule was a "discretionary action[ ]taken during the performance of government functions" (Valdez v City of New York,18 NY3d 69, 76 [2011]). In this regard, petitioners assert that the doctrine ofgovernmental immunity does not apply here because imposition of the tax rule did not"involve[ ] the exercise of discretion" (citing Haddock, 75 NY2d at 484). That is,petitioners contend that the TLC simply did not exercise discretion at [*4]all in this case.
In support of their position, petitioners cite Haddock v City of New York (75 NY2d 478 [1990]). In that case, the plaintiff, a nine-year-old girl, sued the City ofNew York when she was raped by a Parks Department employee with a history of violentcrime, claiming that the City had negligently retained the employee. The Court ofAppeals held that governmental immunity did not protect the City because it had failed tocomply with its own procedures requiring informed discretion in the hiring of employeeswith criminal records. Thus, the Haddock Court found, the City had, in essence,exercised no discretion at all.
Petitioners try to liken this case to Haddock, noting that when the Court ofAppeals considered this case (18 NY3d 329 [2011]), it found nothing in the record tojustify imposition of the tax rule. Further, petitioners note, the Court of Appeals in thiscase rejected at least one rationale for respondents' position, characterizing that rationaleas something that the "Commission never thought about" (id. at 333).
Nevertheless, the TLC's determination in this case, however unjustified it may havebeen, was an exercise of discretion; the TLC did consider the issue of imposing the taxrule and decided to impose it. Putting aside the merits of its decision, there is no escapingthat the TLC exercised its discretion. Indeed, a governmental function such asrulemaking is necessarily an "exercise of judgment and discretion performed in thepublic interest," and is protected as a discretionary act (Flacke v Salem Hills SewageDisposal Corp., 91 AD2d 739, 741 [3d Dept 1982] [citation omitted]). Accordingly,in a plenary action, governmental immunity would preclude petitioners from recoveringincidental damages.
We have considered the parties' remaining arguments and find them unavailing.Concur—Sweeny, J.P., Saxe, Moskowitz and Clark, JJ. [Prior Case History:38 Misc 3d 936.]