New York Law Review

Tag: Council of City of New York v. Giuliani

  • Council of City of New York v. Giuliani, 93 N.Y.2d 60 (1999): Limits on a Public Benefit Corporation’s Power to Sublease

    Council of City of New York v. Giuliani, 93 N.Y.2d 60 (1999)

    A public benefit corporation’s power to lease or sublease property is limited by its corporate purpose and the legislative intent behind its creation; it cannot enter into agreements that conflict with its statutory mission, such as transferring operational control of a public hospital to a for-profit entity.

    Summary

    This case addresses whether the New York City Health and Hospitals Corporation (HHC) could sublease Coney Island Hospital to a private, for-profit entity. The New York Court of Appeals held that the proposed sublease was not authorized by the HHC Act. The court reasoned that the Act intended for HHC to operate municipal hospitals as long as HHC existed, and transferring control to a for-profit entity would conflict with HHC’s public mission to provide healthcare to all residents, regardless of ability to pay. The court emphasized that HHC’s powers are defined by its corporate purpose, and the proposed sublease exceeded those powers.

    Facts

    In 1995, New York City explored transferring the operation of Coney Island Hospital, along with two other public hospitals, to private entities. The City, through the New York City Economic Development Corporation, and HHC issued an Offering Memorandum requesting proposals from health care providers for the operation and management of Coney Island Hospital under a long-term sublease. In June 1996, the City and PHS New York, Inc. (PHS-NY), a private entity, executed a letter of intent to negotiate a long-term sublease of Coney Island Hospital to PHS-NY, under which PHS-NY would operate Coney Island Hospital.

    Procedural History

    The City Council commenced a declaratory judgment action against the Mayor and HHC, alleging that the sublease required City Council approval and was subject to the Uniform Land Use Review Procedure (ULURP). A second declaratory judgment action, raising the same issues, was commenced by two unincorporated associations. The Supreme Court granted summary judgment to the plaintiffs, declaring that the subleasing was subject to ULURP and required mayoral and City Council approval, and that HHC lacked the statutory authority to sublease. The Appellate Division affirmed, holding the sublease was not authorized by HHC’s governing statute. The Court of Appeals granted leave to appeal.

    Issue(s)

    Whether the New York City Health and Hospitals Corporation Act authorizes HHC to sublease Coney Island Hospital to PHS-NY, a private, for-profit entity.

    Holding

    No, because the proposed sublease would frustrate the clear statutory purposes and legislative intent behind the HHC Act, which was to ensure the continued operation of municipal hospitals by a public benefit corporation. The act of subleasing to a for-profit entity would transfer “the performance of an essential public and governmental function” to the private sector.

    Court’s Reasoning

    The court began by examining the plain meaning of the words in the HHC Act, considering the spirit and purpose of the act and the objects to be accomplished. The court noted the legislature’s intent for municipal hospitals to remain a governmental responsibility, operated by HHC. The court cited the legislative declaration that providing healthcare and operating the City’s health facilities were of “vital and paramount concern.” The court found no indication that the legislature intended to authorize HHC to operate City hospitals only to later transfer that authority to a private entity. The court rejected the argument that Section 5(6) and 5(8) of the Act authorized the sublease. It determined that those sections should not be interpreted to permit a wholesale transfer of control to a for-profit entity. The court also noted the inherent conflict between HHC’s statutory mission and the profit-maximizing goals of a private corporation, stating that “A public benefit corporation like HHC is ‘organized to construct or operate a public improvement wholly or partly within the state, the profits from which inure to the benefit of this or other states, or to the people thereof’ (General Construction Law § 66 [4]). In contrast, a private, for-profit corporation exists to provide maximum economic returns to its shareholders.” Finally, the court observed the absence of a “suicide provision” in the Act allowing HHC to dissolve itself or divest its assets; only legislative action could permit HHC to exit the hospital business.