New York Law Review

Tag: Incorporation by Reference

  • Medical Society of New York v. New York State Department of Health, 83 N.Y.2d 447 (1994): Upholding Statutes Incorporating Federal Standards

    Medical Society of New York v. New York State Department of Health, 83 N.Y.2d 447 (1994)

    A state statute that references federal regulations for a specific calculation or standard does not violate the state constitution’s prohibition against incorporation by reference if the state statute is complete in itself and the legislature was aware of the implications of referencing the federal standard.

    Summary

    The Medical Society of New York challenged Public Health Law § 19, arguing it became unenforceable after amendments to the Medicare Act changed how Medicare rates were calculated. They also claimed it violated the state constitution’s prohibition against incorporation by reference. The Court of Appeals held that the statute remained enforceable, as the term “reasonable charge” referred to Medicare’s recognized payment amount regardless of the calculation method. The Court also found no unconstitutional incorporation by reference because the statute was complete and the legislature was aware of the federal changes.

    Facts

    In 1990, New York enacted Public Health Law § 19 to limit physician charges to Medicare beneficiaries, addressing concerns about “balance billing” (charging patients more than Medicare’s approved rate). The law capped charges above the federal “reasonable charge.” In 1992, the federal government changed its Medicare reimbursement methodology from the “reasonable charge” system to a resource-based relative value scale (RBRVS) fee schedule.

    Procedural History

    The Medical Society of New York filed a combined CPLR article 78 proceeding and declaratory judgment action, arguing that Public Health Law § 19 became unenforceable after the Medicare Act amendments in 1992 and that it violated the state constitution. The Appellate Division upheld the law. The Court of Appeals granted leave to appeal and affirmed the Appellate Division’s order.

    Issue(s)

    1. Whether Public Health Law § 19 became unenforceable after January 1, 1992, when the federal government stopped using the “reasonable charge” method for Medicare reimbursement.
    2. Whether Public Health Law § 19 violates the proscription against legislative incorporation by reference contained in article III, § 16 of the State Constitution.

    Holding

    1. No, because the Legislature intended the term “reasonable charge” to refer to Medicare’s recognized payment amount, regardless of the specific methodology used to calculate it.
    2. No, because the statute is complete in itself, and the Legislature was aware of the impending changes to the Medicare Act when it enacted the law.

    Court’s Reasoning

    The Court reasoned that interpreting the statute to become meaningless after the change in federal methodology would lead to an absurd result, as the Legislature intended to prevent excessive charges to Medicare beneficiaries. The Court stated, “the construction to be adopted is the one which will not cause objectionable results, or cause inconvenience * * * or absurdity.” The Court concluded that the term “reasonable charge” was used to refer to Medicare’s recognized, reasonable payment amount as determined by HHS, irrespective of the particular methodology employed to calculate that amount.

    Regarding the incorporation by reference argument, the Court emphasized that the constitutional prohibition aims to prevent the Legislature from incorporating provisions that affect public interests in ways not fully understood. The Court cited People ex rel. Board of Commrs. v Banks, 67 NY 568, 576 for the proposition that the prohibition is meant to prevent the enactment of affirmative legislation, “the nature of which is explained only by reference instead of actually set forth.” The court emphasized that the key consideration is whether the incorporation results in the creation of substantive obligations or requirements.

    The Court found that Public Health Law § 19 did not violate this proscription because it simply capped the amount a physician could charge above the patient’s Medicare coverage. The statute was complete and contained all the information required for intelligent legislative action. The legislative history showed awareness of the changes in the Medicare Act. The Court determined, “the statute simply does not incorporate any new substantive requirements or obligations.”

  • People v. Callerame, 68 N.Y.2d 720 (1986): Upholding Search Warrant Based on Prior Eavesdropping Warrant and Oral Testimony

    People v. Callerame, 68 N.Y.2d 720 (1986)

    A search warrant can be validly based on information from a prior eavesdropping warrant and sworn oral testimony to the issuing magistrate, even if some details are relayed from memory and contain minor inaccuracies.

    Summary

    Callerame was convicted of criminal possession of a controlled substance after a search of his residence yielded cocaine. The search warrant was based on information from a prior eavesdropping warrant targeting Callerame’s drug trafficking activities and oral testimony from an experienced investigator summarizing intercepted calls and surveillance. The New York Court of Appeals affirmed the conviction, holding that probable cause existed for both the eavesdropping and search warrants. The Court emphasized that warrants should be reviewed in a commonsense manner and that incorporation by reference of prior warrant applications is permissible when the magistrate has the information readily available and can assess it accurately. Even a minor factual inaccuracy in the oral testimony did not invalidate the warrant.

    Facts

    State Police investigated a drug ring involving cocaine distribution in the Finger Lakes region. They obtained a wiretap on Hector Carbuccia, a cocaine distributor. Intercepted conversations between Carbuccia and Callerame suggested drug activity. Police obtained an eavesdropping warrant for Callerame’s phone based on an affidavit from Investigator Freeman, pen register data showing frequent short calls, and information from informants. Intercepted calls revealed that Callerame traveled to Florida to purchase cocaine and coordinated its transport back to New York with an associate, Sterling. Callerame was observed meeting with Sterling and Callerame on the morning the warrant was obtained.

    Procedural History

    Based on intercepted communications and surveillance, Investigator Freeman obtained a search warrant for Callerame’s residence from Judge Henry via oral application. The application incorporated by reference the earlier eavesdropping warrant application. After Callerame and his associates left the residence, Freeman obtained a second search warrant for Callerame’s residence, again incorporating prior information. The search revealed cocaine and drug paraphernalia. Callerame moved to suppress the evidence, but the motion was denied. He then pleaded guilty and appealed the denial of his suppression motion to the Appellate Division, and then to the New York Court of Appeals.

    Issue(s)

    1. Whether the eavesdropping warrant was supported by probable cause.

    2. Whether there was a sufficient basis upon which to authorize a search of Callerame’s residence.

    3. Whether the search warrant was invalidated by inaccurate statements made by the investigator to the issuing magistrate.

    Holding

    1. Yes, because the intercepted phone calls, pen register data, and informant information provided a sufficient basis for a finding of probable cause.

    2. Yes, because the issuing magistrate could incorporate information from the prior eavesdropping warrant application and the oral testimony of the investigator to establish probable cause that evidence of a crime would be found at Callerame’s residence.

    3. No, because the inaccurate statement was not made knowingly or with reckless disregard for the truth, and even without the statement, the warrant application contained sufficient evidence to support probable cause.

    Court’s Reasoning

    The Court of Appeals reasoned that the probable cause standard for eavesdropping warrants is the same as for search warrants. The Court deferred to the issuing magistrate’s determination of probable cause, stating that “cryptic and ambiguous conversations may serve as a predicate for probable cause when reasonably interpreted by an experienced investigator.” The Court found that the eavesdropping warrant was supported by the intercepted calls, pen register data, and informant information. The court held that incorporating materials previously submitted to a judge in a subsequent warrant application is permissible if the earlier information was given under oath, is available to the magistrate or sufficiently fresh in their memory, and is available in a reviewable form. The court found that the mistaken statement by the investigator was not made deliberately to mislead the court, and even if it were, the remaining evidence was sufficient to support probable cause. The Court emphasized the need to assess warrant applications in a practical, commonsense manner, rather than with hyper-technical scrutiny, quoting United States v. Ventresca, 380 U.S. 102, 108, to state that affidavits and exhibits supporting warrant applications must be reviewed in a “commonsense and realistic fashion”. The Court found no indication the judges failed to give the suppression motions fair and impartial consideration.

  • Castagna & Son, Inc. v. Church Charity Foundation, 473 N.E.2d 842 (N.Y. 1984): Enforceability of Arbitration Clauses for Subcontractors

    Castagna & Son, Inc. v. Church Charity Foundation, 473 N.E.2d 842 (N.Y. 1984)

    A party will not be compelled to arbitrate a dispute unless there is a clear and unequivocal agreement to arbitrate, and ambiguous references to arbitration clauses in related contracts are insufficient to bind a party, particularly when that party previously rejected a request to include an arbitration clause in their direct contract.

    Summary

    Castagna & Son, Inc., a general contractor, sought to compel arbitration with its subcontractor based on an arbitration clause in the main construction contract between Castagna and Church Charity Foundation. The subcontractor had specifically requested an arbitration clause in its subcontract, but Castagna refused. The New York Court of Appeals held that the subcontractor was not bound by the arbitration clause in the main contract because the subcontract did not explicitly provide for arbitration and the general references to the main contract’s terms were insufficient to override the subcontractor’s rejected request for a specific arbitration provision. The court emphasized the need for a clear expression of intent to arbitrate.

    Facts

    Castagna & Son, Inc. (Castagna), was the general contractor for a construction project with Church Charity Foundation. Castagna entered into a subcontract with a subcontractor (respondent). The subcontract did not contain an arbitration clause. The subcontractor requested that an arbitration clause be included in the subcontract, but Castagna refused this request. The subcontract incorporated some terms of the main construction contract, which did contain an arbitration clause for disputes “arising out of or relating to this Agreement.” The A.I.A. Supplementary General Conditions stated that all provisions of the A.I.A. General Conditions “shall be applicable to all contractors and subcontractors”, and the General Conditions included an arbitration provision. A dispute arose, and Castagna sought to compel arbitration with the subcontractor.

    Procedural History

    The lower court denied Castagna’s motion to compel arbitration. The Appellate Division affirmed. Castagna appealed to the New York Court of Appeals.

    Issue(s)

    Whether the subcontractor was bound by the arbitration clause in the main construction contract, despite the absence of an arbitration clause in the subcontract and the subcontractor’s prior rejected request for such a clause.

    Holding

    No, because the subcontract did not explicitly provide for arbitration, and the general references to the main contract’s terms were insufficient to bind the subcontractor, particularly given the prior rejection of an arbitration provision in the subcontract.

    Court’s Reasoning

    The court emphasized that a party will not be compelled to arbitrate unless there is a clear and unequivocal agreement to do so. The court noted several key factors:

    1. The subcontract itself contained no arbitration provision.
    2. The subcontractor had sought an amendment to include an arbitration clause, which Castagna rejected.
    3. The arbitration clause in the main construction contract applied only to disputes “arising out of or relating to this Agreement” (i.e., the main contract, not the subcontract).
    4. While the subcontract incorporated some terms of the main contract, these related primarily to the scope of work, not to dispute resolution mechanisms.
    5. The court deemed the reference to A.I.A. Supplementary General Conditions, which in turn referenced the A.I.A. General Conditions containing an arbitration clause, as “too attenuated and arcane” to bind the subcontractor, especially given Castagna’s rejection of the subcontractor’s request for a specific arbitration clause.

    The court cited Matter of American Rail & Steel Co. [India Supply Mission], 308 NY 577 and Matter of Riverdale Fabrics Corp. [Tillinghast-Stiles Co.], 306 NY 288, underscoring the requirement for a clear expression of intention to arbitrate.

    The court stated that “that provision for arbitration as to subcontractors must be deemed too attenuated and arcane to bind petitioners in the face of their rejection of respondents’ request for inclusion of an arbitration provision in the subcontract.”

    This decision highlights the importance of explicit and unambiguous arbitration agreements. Parties cannot be compelled to arbitrate based on vague or indirect references in related contracts, especially when they have actively resisted the inclusion of an arbitration provision in their own agreement. This case serves as a reminder to legal professionals to ensure that arbitration clauses are clearly and conspicuously included in contracts where arbitration is intended.

  • New York State Coalition of Public Employers v. New York State Department of Labor, 60 N.Y.2d 789 (1983): Prohibition of Wholesale Incorporation by Reference in State Regulations

    New York State Coalition of Public Employers v. New York State Department of Labor, 60 N.Y.2d 789 (1983)

    A state agency cannot adopt wholesale incorporation by reference of federal regulations to satisfy the state constitutional requirement that all state rules and regulations must be filed with the Department of State to be effective.

    Summary

    This case addresses whether the New York State Department of Labor could adopt federal OSHA standards simply by referencing them, without actually filing the text of the regulations with the New York Department of State. The New York Court of Appeals held that such wholesale incorporation by reference violated the New York Constitution. The constitutional provision requires all state rules and regulations to be filed with the Department of State before becoming effective, ensuring a definite place where the exact content of rules can be found. This decision emphasizes the importance of proper administrative procedure and transparency in state rulemaking.

    Facts

    The Industrial (later Labor) Commissioner was directed by Section 27-a of the Labor Law to adopt all safety and health standards promulgated under OSHA that were in effect on December 27, 1980. The Commissioner proposed a rule that “incorporated by reference” all standards in 29 CFR parts 1910 and 1926 (12 NYCRR 800.3). The respondents, a coalition of public employers, challenged this incorporation by reference as a violation of the New York Constitution.

    Procedural History

    The respondents initiated an Article 78 proceeding challenging the proposed rule. Special Term and the Appellate Division both held that the wholesale incorporation by reference of OSHA regulations was forbidden by Section 8 of Article IV of the New York Constitution. The New York State Department of Labor appealed to the New York Court of Appeals.

    Issue(s)

    Whether the New York State Department of Labor’s “incorporation by reference” of federal OSHA standards, without filing the text of those standards with the New York Department of State, violates Section 8 of Article IV of the New York Constitution.

    Holding

    No, because Section 8 of Article IV of the New York Constitution requires all state rules and regulations to be filed with the Department of State to be effective, and the OSHA regulations were not filed.

    Court’s Reasoning

    The Court of Appeals affirmed the lower courts’ decisions, holding that the incorporation by reference violated the New York Constitution. The court emphasized that the purpose of Section 8 of Article IV was to ensure a common place where the exact content of rules and regulations could be found. The court cited People v. Cull, 10 N.Y.2d 123, 128, noting this section intended “to insure the existence of a common and definite place where the exact content of rules and regulations, including any changes, might be found.” The court stated the rule violated the plain language of the constitution, which mandates that all rules and regulations be “filed in the office of the department of state” before they become effective, and the OSHA regulations were not so filed. The court declined to rule on the vagueness arguments related to the specific OSHA standards, deeming those arguments premature until the state complied with the filing and publishing requirements.

  • The John W. Cowper Co. v. Hires-Turner Glass Co., 49 N.Y.2d 939 (1980): Enforceability of Arbitration Clauses and Consolidation of Arbitration Proceedings

    The John W. Cowper Co. v. Hires-Turner Glass Co., 49 N.Y.2d 939 (1980)

    An arbitration clause in a subcontract, which incorporates terms of a general contract, does not automatically bind the subcontractor to arbitrate disputes under the general contract’s arbitration provision, but the subcontractor may be bound by the results of such arbitration if given the opportunity to participate; consolidation of separate arbitration proceedings is permissible when common issues of law or fact exist.

    Summary

    The John W. Cowper Co. (Cowper), the general contractor, sought to compel Hires-Turner Glass Co. (Hires-Turner), a subcontractor, to arbitrate a dispute. The contract between Cowper and Hires-Turner contained an arbitration clause and referenced the general conditions of the general contract between Cowper and the owner, Clintstone Properties, Inc. The Court of Appeals held that the reference to the general conditions was an exclusion, not an incorporation of the general contract’s arbitration provision. However, the Court found that the Cowper-Hires-Turner contract did contain an arbitration clause requiring arbitration between them. Since Cowper was entitled to arbitrate its indemnification claim against Hires-Turner and was obligated to arbitrate with Clintstone, the court affirmed the consolidation of the two proceedings.

    Facts

    Cowper, as the general contractor, entered into a contract with Clintstone for a construction project. Cowper then subcontracted with Hires-Turner for certain glass work. The subcontract between Cowper and Hires-Turner contained an arbitration clause covering disputes arising under their agreement. A dispute arose between Cowper and Clintstone, leading to arbitration. Cowper then sought to compel Hires-Turner to arbitrate, arguing that the subcontract incorporated the arbitration provision of the general contract.

    Procedural History

    The lower court initially addressed whether Hires-Turner was bound to arbitrate under the general contract’s arbitration clause. The Appellate Division ordered consolidation of the arbitration between Cowper and Clintstone with the arbitration between Cowper and Hires-Turner. Hires-Turner appealed, arguing it was not bound by the general contract’s arbitration agreement. The Court of Appeals affirmed the Appellate Division’s order.

    Issue(s)

    1. Whether the reference in the subcontract to the “general conditions of the general contract” incorporates the arbitration provision of the general contract, thereby binding the subcontractor to arbitrate disputes under that provision.

    2. Whether the court can consolidate separate arbitration proceedings involving common issues of law or fact.

    Holding

    1. No, because the reference in the subcontract to the “general conditions of the general contract” constitutes an exclusion from, rather than an incorporation of, the arbitration provision of the general contract; however the sub-contractor will be bound by the results of arbitration if given the opportunity to present its position to the arbitrators.

    2. Yes, because consolidation is within the court’s discretion when there are common issues of law or fact in the separate proceedings.

    Court’s Reasoning

    The Court of Appeals reasoned that the subcontract’s reference to the general conditions of the general contract was intended to exclude the general contract’s arbitration provision from the subcontract, not to incorporate it. Citing Matter of Fidelity & Deposit Co. of Md. v Parsons & Whittemore Contrs. Corp., (48 NY2d 127) and Matter of Perkins & Will Partnership (Syska & Hennessy), (41 NY2d 1045), the court clarified that while certain paragraphs in the Cowper-Hires-Turner contract incorporated terms by reference, those paragraphs did not constitute an agreement by Hires-Turner to arbitration under the Cowper-Clintstone contract provision. The court emphasized that Hires-Turner would be bound by the arbitration results between Cowper and Clintstone only if Hires-Turner was given the opportunity to present its position to the arbitrators. The court stated that Cowper’s contract with Hires-Turner contains language requiring arbitration between them concerning “interpretation of this agreement or * * * any matters arising under this agreement.” Further, the court held that consolidating the two arbitration proceedings was within the Appellate Division’s discretion, referencing Matter of Vigo S. S. Corp. [Marship Corp. of Monrovia], (26 NY2d 157) and County of Sullivan v Edward, L. Nezelek, Inc., (42 NY2d 123), noting the appropriateness of consolidation when common issues exist.

  • Fidelity and Deposit Co. v. Parsons & Whittemore, 48 N.Y.2d 127 (1979): Surety’s Agreement to be Bound by Arbitration in Subcontract

    48 N.Y.2d 127 (1979)

    A surety company, by incorporating a subcontract with a broad arbitration clause into its performance bond, agrees to be bound by the arbitration of disputes arising under the subcontract between the general contractor and the subcontractor, but does not necessarily agree to arbitrate separate disputes arising directly under the performance bond itself.

    Summary

    Parsons & Whittemore (P&W), a general contractor, subcontracted with Central Rigging, which furnished a performance bond from Fidelity and Deposit Company (Fidelity). The subcontract included a broad arbitration clause. When a dispute arose, P&W demanded arbitration against both Central and Fidelity. Fidelity sought a stay of arbitration, arguing it never agreed to arbitrate. The court held that Fidelity was bound by the arbitration clause in the subcontract (incorporated into the bond) regarding disputes *between* P&W and Central. However, Fidelity did not agree to arbitrate disputes arising *directly* under the performance bond itself. Therefore, the stay of arbitration was denied for the underlying subcontract dispute but upheld for any separate claims arising solely under the bond. The court emphasized the intention of the parties and the practical implications of resolving the principal’s liability (Central) and the surety’s liability (Fidelity) in separate forums.

    Facts

    1. Parsons & Whittemore (P&W) was the general contractor for a building construction project.
    2. P&W subcontracted with Central Rigging and Contracting Corporation (Central).
    3. The subcontract required Central to furnish a performance bond and contained a clause requiring arbitration of disputes arising out of the contract.
    4. Central obtained a performance bond from Fidelity and Deposit Company of Maryland (Fidelity), which incorporated the subcontract by reference.
    5. A dispute arose between P&W and Central regarding Central’s performance.
    6. P&W demanded arbitration against both Central and Fidelity.
    7. Fidelity sought a stay of arbitration, arguing it had not agreed to arbitrate.

    Procedural History

    1. Special Term granted Fidelity’s application to stay arbitration.
    2. The Appellate Division affirmed.
    3. The Court of Appeals granted leave to appeal.

    Issue(s)

    1. Whether, by incorporating a subcontract containing an arbitration clause into its performance bond, the surety company (Fidelity) agreed to arbitrate disputes arising under the subcontract between the general contractor (P&W) and the subcontractor (Central).
    2. Whether the surety company (Fidelity) agreed to arbitrate separate and distinct controversies arising under the terms of the performance bond itself between the general contractor (P&W) and the surety company (Fidelity).

    Holding

    1. Yes, because the surety company accepted the agreement of the general contractor and the subcontractor that disputes between them would be settled by arbitration; an implicit corollary of that acceptance was agreement by the surety company that for purposes of later determining its liability under its performance bond, it would accept and be bound by the resolution reached in the arbitration forum.
    2. No, because there was no agreement on the part of any party that controversies arising as to rights and obligations under the terms of the performance bond would be submitted to arbitration.

    Court’s Reasoning

    The court reasoned that by incorporating the subcontract into the performance bond, Fidelity agreed to be bound by the resolution of disputes between P&W and Central reached through arbitration. The court emphasized that the subcontract contained an express agreement to arbitrate disputes arising under it. However, this incorporation did not extend to requiring Fidelity to arbitrate separate disputes arising *directly* under the performance bond. The court distinguished between disputes relating to Central’s performance of the subcontract (which are subject to arbitration with Fidelity bound by the outcome) and disputes regarding Fidelity’s obligations under the performance bond itself (which are not subject to arbitration unless the bond explicitly provides for it). The court stated, “Although it did not agree to participate in any arbitration, it did accept the agreement of the general contractor and the subcontractor that disputes between them would be settled by arbitration. An implicit corollary of that acceptance was agreement by the surety company that for purposes of later determining its liability under its performance bond, it would accept and be bound by the resolution reached in the arbitration forum.” The court overruled Matter of Lehman v Ostrovsky to the extent it conflicted with this holding. Chief Judge Cooke dissented in part, arguing that the incorporation of the subcontract required Fidelity to be a party to the arbitration concerning Central’s alleged breach, and not just be bound by the outcome. The dissent emphasized the language of the arbitration clause, which states that “[a]ll disputes arising out of this Contract, its interpretation, performance or breach, shall be submitted to arbitration”.