New York Law Review

Tag: Impairment of Contract

  • Public Employees Federation v. Cuomo, 62 N.Y.2d 450 (1984): Constitutionality of Changes to Public Employee Retirement Benefits

    62 N.Y.2d 450 (1984)

    Changes to public employee retirement benefits that diminish or impair previously granted benefits violate the New York State Constitution, even if the statute granting the initial benefits had a limited duration.

    Summary

    This case addresses whether amendments to the Retirement and Social Security Law, specifically regarding Tier III employees’ rights to withdraw contributions and the calculation of ordinary death benefits, unconstitutionally diminished or impaired pension benefits. The Court of Appeals held that the amendments violated the New York Constitution’s provision that pension benefits shall not be diminished or impaired. The court reasoned that once the legislature grants pension benefits, they cannot be impaired, even if the statute creating them has a limited duration. The court found that both the restriction on contribution withdrawals and the change in death benefit calculations impaired the rights of Tier III employees.

    Facts

    Employees who joined the New York State public retirement system on or after July 1, 1976 (Tier III) were initially entitled to withdraw their contributions if their service terminated before completing a 10-year vesting period. Subdivision c of section 613 was enacted, changing this by allowing refunds only upon death or reaching age 62. Subdivision c of section 606 was also enacted, reducing the ordinary death benefits payable to the estates of most Tier III employees who died after September 1, 1983, compared to the previous benefit calculation under section 508.

    Procedural History

    Several lawsuits were filed challenging the constitutionality of the changes. Special Term granted summary judgment in part, declaring that subdivision c of section 613 violated the New York Constitution. The court denied the claim that subdivision c of section 606 was similarly invalid and denied the claim that Tier III employees were entitled to recover contributions made after September 1, 1983. Cross-appeals were taken, leading to a consolidated direct appeal to the Court of Appeals.

    Issue(s)

    1. Whether subdivision c of section 613 of the Retirement and Social Security Law unconstitutionally diminishes or impairs pension benefits by restricting Tier III employees’ right to withdraw contributions.

    2. Whether subdivision c of section 606 of the Retirement and Social Security Law unconstitutionally diminishes or impairs pension benefits by reducing the ordinary death benefits payable to the estates of Tier III employees.

    Holding

    1. Yes, because the right of Tier III members to the return of their contributions upon termination of their service with the State before the 10-year vested period may not be impaired by the effectuation of article 15. Moreover, the right to a return of all contributions made in reliance on section 517 of article 14 was constitutionally protected.

    2. Yes, because the death benefit was a benefit of membership in the retirement system rendered contractual in nature by section 7 of article V, regardless of whether specific funds were earmarked for a death benefit fund or not.

    Court’s Reasoning

    The court relied on Section 7 of Article V of the New York Constitution, which states that membership in any pension or retirement system of the state shall be a contractual relationship, the benefits of which shall not be diminished or impaired. The court referenced previous cases such as Birnbaum v New York State Teachers Retirement System, where it held that changes reducing annuity benefits violated the constitutional provision. The court also rejected the State’s argument that because Article 14 was enacted for a limited duration, Tier III employees had no reasonable expectation that the benefits were permanent.

    The court cited Matter of Central School Dist. No. 2 v New York State Teachers’ Retirement System, stating that the legislature often enacts new benefits on a year-to-year basis to allow for changes if a provision proves unworkable, but this does not mean the benefits are intended to be temporary. "[N]o benefit so enacted has later been discontinued." The court reasoned that interpreting statutorily conferred benefits as permanent, despite the limited duration of the statute, prevents an unconstitutional impairment where a benefit is conferred and then taken away upon the statute’s expiration. The court concluded that the right of Tier III members to a return of contributions and the death benefit was constitutionally protected and could not be impaired.

  • Matter of Department of Bldgs. of City of New York, 14 N.Y.2d 293 (1964): Constitutionality of Receivership Law for Nuisance Abatement

    Matter of Department of Buildings of City of New York, 14 N.Y.2d 293 (1964)

    A state’s exercise of its police power to remedy unsafe housing conditions can permissibly impair existing mortgage contracts, provided the measures are reasonable and appropriate to address a legitimate public concern, and due process is afforded to the mortgagee.

    Summary

    This case concerns the constitutionality of New York’s Receivership Law, which allows the city to appoint a receiver to remedy dangerous conditions in multiple dwellings. The Department of Buildings sought a receiver for a building with numerous violations. The owner and mortgagee challenged the law, arguing it impaired the mortgagee’s contract rights and denied due process. The New York Court of Appeals upheld the law, finding it a valid exercise of police power to address a housing emergency. The court emphasized that the amended statute provided sufficient notice and opportunity for the mortgagee to be heard, distinguishing it from a prior unconstitutional version.

    Facts

    The Department of Buildings of New York City certified that a nuisance existed at 221 West 21st Street, a five-story rent-controlled building, due to numerous violations of housing codes. The Department issued an order to the owner and mortgagee to remove the nuisance. Re-inspections revealed no changes and the Department applied to the Supreme Court for the appointment of a receiver. The building was also deemed unsafe and tenants were ordered to vacate due to the risk of collapse. The owner had started repairs but hadn’t completed them by the deadline.

    Procedural History

    The Department of Buildings petitioned the Supreme Court for the appointment of a receiver under Multiple Dwelling Law § 309. The Supreme Court granted the motion but stayed the appointment to allow the owner time to complete repairs. After extensions, the court appointed the receiver when the violations remained uncorrected. The Appellate Division affirmed the Supreme Court’s decision. The owner and mortgagee appealed to the New York Court of Appeals as of right, challenging the constitutionality of the statute and the validity of the receivership order.

    Issue(s)

    1. Whether the Receivership Law unconstitutionally impairs the mortgagee’s rights under a prior mortgage contract in violation of Article I, Section 10 of the U.S. Constitution.

    2. Whether the owner and mortgagee were denied due process during the proceedings.

    3. Whether the facts warranted the appointment of a receiver under the statute.

    Holding

    1. No, because the law is a valid exercise of the state’s police power to address a public emergency, and the impairment of the mortgagee’s contract is reasonable and necessary.

    2. No, because the statute provides for notice and an opportunity to be heard, and the appellants were in fact given multiple hearings.

    3. Yes, because the record supported the finding of a serious nuisance constituting a fire hazard and threat to life and safety.

    Court’s Reasoning

    The Court reasoned that the legislation was enacted to eliminate dangerous housing conditions and increase the supply of safe housing, addressing a declared public emergency. The Court stated that “the state may establish regulations reasonably necessary to secure the general welfare of the community by the exercise of its police power although the rights of private property are [thereby] * * * curtailed and freedom of contract is abridged.” The Court distinguished this case from Central Sav. Bank v. City of New York, which invalidated a prior version of the law because it lacked due process protections for mortgagees. The amended statute provides notice and an opportunity for the mortgagee to participate in the proceedings, contest the existence of a nuisance, and seek reimbursement for repairs. The court noted that the statute now gives the receiver only a prior right to the rents, not a superior lien on the property itself. The court emphasized the limited nature of the impairment, stating the mortgagee shall not be entitled “to any of the rents” or “to a discharge of the receiver” until the cost of repairs and alterations has been satisfied. The Court concluded that the measures taken by the Legislature were reasonable and appropriate, stating, “The same public interest which supports the statute when directed against an owner, even though it impinges on his right to deal freely with his property, equally justifies the legislation as a reasonable exercise of the police power insofar as it affects the rights of the mortgagee.” The Court found that the appellants were afforded due process with multiple hearings and opportunities to present evidence. The Court emphasized that the law allows the appellants to terminate the receivership by reimbursing the receiver for the cost of removing the nuisance.