New York Law Review

Tag: receivership

  • Carrier v. Salvation Army, 88 N.Y.2d 298 (1996): No Private Right of Action for Receivership Under Social Services Law § 460-d

    Carrier v. Salvation Army, 88 N.Y.2d 298 (1996)

    Residents of an adult care facility do not have a private right of action under Social Services Law § 460-d to seek the appointment of a temporary receiver; this power is reserved to the Department of Social Services and the Attorney General.

    Summary

    Residents of Booth House II, an adult care facility, sued the operator, Salvation Army, seeking the appointment of a temporary receiver under Social Services Law § 460-d(5). Salvation Army had submitted a plan to voluntarily surrender its operating certificate, which the Department of Social Services approved. The residents alleged non-compliance with relocation and safety obligations. The Court of Appeals held that the statute does not grant residents a private right to seek a receivership, as the legislative intent was to vest enforcement power solely with the Department of Social Services and the Attorney General. Allowing a private right of action would be inconsistent with the comprehensive statutory enforcement scheme.

    Facts

    The Salvation Army operated Booth House II, an adult care facility. The Salvation Army submitted a plan to the Department of Social Services to voluntarily surrender its operating certificate and close the facility. The Department of Social Services approved the Salvation Army’s closure plan. Residents of Booth House II brought an action against the Salvation Army, alleging the Salvation Army was failing to comply with obligations to relocate residents to appropriate settings and maintain safety and health standards during the closure process.

    Procedural History

    The residents filed a complaint and an order to show cause, seeking the appointment of a temporary receiver and injunctive relief. The Salvation Army cross-moved to dismiss the complaint for failure to state a cause of action. The Supreme Court granted the Salvation Army’s motion, holding that Social Services Law § 460-d does not authorize facility residents to seek a temporary receivership. The Appellate Division affirmed, finding that an implied right of action would be inconsistent with the legislative and statutory enforcement scheme. The New York Court of Appeals granted leave to appeal.

    Issue(s)

    Whether Social Services Law § 460-d grants residents of an adult care facility a private right of action to seek the appointment of a temporary receiver.

    Holding

    No, because the legislative intent behind Social Services Law § 460-d does not fairly imply a private right of action for residents to seek the appointment of a temporary receiver; the statute vests enforcement power solely in the Department of Social Services and the Attorney General.

    Court’s Reasoning

    The Court of Appeals applied the three-factor test from Sheehy v. Big Flats Community Day to determine whether a private right of action should be implied: (1) whether the plaintiff is one of the class for whose particular benefit the statute was enacted; (2) whether recognition of a private right of action would promote the legislative purpose; and (3) whether creation of such a right would be consistent with the legislative scheme. The Court found that the third factor, consistency with the legislative scheme, was determinative. The Court emphasized that Article 7 of the Social Services Law gives the Department of Social Services comprehensive responsibility for supervising residential care facilities. Social Services Law § 460-d grants the Commissioner of Social Services broad enforcement powers, including the power to investigate facilities, issue orders to rectify violations, revoke operating certificates, and assess civil penalties. Subdivision (5) of § 460-d allows the Department access to court-ordered equitable remedies, including receivership appointments. The Court stated, “[T]he Legislature has both the right and the authority to select the methods to be used in effectuating its goals… thus… a private right of action should not be judicially sanctioned if it is incompatible with the enforcement mechanism chosen by the Legislature.” Recent amendments to the statute, which expressly authorized residents to bring private actions for breach of warranty of habitability and violations of admission agreements, further indicated that a private right of action for receivership was not intended. The Court reasoned that the creation of a specific civil remedy for residents implied the absence of a broader, unenumerated remedy like seeking a receivership. The court distinguished Henry v. Isaac, noting it did not address the specific remedy sought here and was undercut by later amendments creating specific private rights of action.

  • Insurance Co. of N. Am. v. City of New York, 67 N.Y.2d 983 (1986): Receiver’s Insurance Policy Insures Owner’s Interest for Tax Lien Purposes

    Insurance Co. of N. Am. v. City of New York, 67 N.Y.2d 983 (1986)

    A fire insurance policy procured by a court-appointed receiver on a property subject to foreclosure insures the interest of the owner, thus allowing the city to claim the insurance proceeds to satisfy outstanding real estate tax liens before distributing any funds to the receiver.

    Summary

    This case concerns the distribution of fire insurance proceeds when a receiver, appointed for a foreclosed property, obtained the insurance, and the property had outstanding tax liens. The New York Court of Appeals held that the insurance policy obtained by the receiver should be treated as insuring the owner’s interest for the purpose of satisfying the City’s tax lien under Administrative Code of the City of New York § 11-2801(3). The Court reasoned that the receiver stands in the stead of the owner and that prioritizing the tax lien aligns with the statute’s intent to ensure direct payment of proceeds to satisfy municipal tax liens, preventing potential loss or diminishment of funds.

    Facts

    Defendant Cohen was appointed as a receiver for Bronx premises subject to a foreclosure proceeding in 1980. Cohen obtained a fire insurance policy from the plaintiff, Insurance Co. of North America. In 1984, a fire occurred, resulting in a $20,400 loss. The City of New York had a real estate tax lien on the property amounting to $58,395.02. The insurance company paid the insurance proceeds to the City, relying on Administrative Code of the City of New York § 11-2801(3).

    Procedural History

    The Insurance Company initiated an interpleader action. The Supreme Court ruled that the policy did not insure the owner’s interest and that the receiver was personally entitled to the proceeds. The Supreme Court directed the City to return the funds to the insurer for payment to the receiver. The Appellate Division affirmed this decision. The City of New York appealed to the New York Court of Appeals.

    Issue(s)

    Whether a fire insurance policy obtained by a court-appointed receiver on a property subject to foreclosure, is considered a policy that “insures the interest of an owner” under Administrative Code of the City of New York § 11-2801(3), allowing the city to claim the insurance proceeds to satisfy outstanding real estate tax liens.

    Holding

    Yes, because the receiver, standing in the stead of the financially defaulting owner, also stands in the same relationship to the tax lienor municipality as the owner does, at least for the purposes of the statute. Therefore, the insurance policy secured by the receiver is treated as one which insures the interest of an owner for satisfying the prioritized municipal tax lien.

    Court’s Reasoning

    The Court of Appeals reasoned that a receiver has fiduciary responsibilities and stands in the place of the defaulting owner. Treating the receiver’s insurance policy as one insuring the owner’s interest aligns with the intent of Administrative Code § 11-2801(3). This interpretation ensures direct and accelerated payment of insurance proceeds to satisfy prioritized municipal tax liens, preventing potential loss or diminishment of funds as the proceeds would not have to pass through the receiver’s hands first. The court noted that the statute was designed to accomplish direct payment of proceeds, along with arson fraud prevention. The court referenced the Bill Jacket for General Municipal Law §22(3) to support their reasoning.

    The Court also pointed out that Administrative Code § 11-2801(6) allows the receiver to request and recoup the fire insurance proceeds from the City if used to restore the property, indicating that the receiver’s interests are not inherently undermined by this construction. The Court stated, “The ordinary reading and construction of the pertinent Administrative Code provision plainly warrants our treating this policy, secured by the receiver, as one which insures the interest of an owner at least for purposes of satisfaction of this prioritized municipal tax lien.”

  • Copeland v. Salomon, 56 N.Y.2d 222 (1982): Leave to Sue Receiver and Receiver’s Liability

    Copeland v. Salomon, 56 N.Y.2d 222 (1982)

    The failure to obtain prior court permission to sue a receiver is not a jurisdictional defect and can be cured retroactively; a receiver is liable in their official capacity for injuries sustained due to conditions on the premises where an owner would be liable.

    Summary

    This case addresses whether failing to obtain court permission before suing a receiver for a personal injury is a jurisdictional defect and whether a receiver can be held liable for injuries sustained on the property. The Court of Appeals held that failing to obtain prior leave is not a jurisdictional defect and can be cured. The court also clarified that a receiver is liable in their official capacity for injuries caused by the condition of the property, to the same extent a property owner would be. This liability extends to both active and passive negligence. The court emphasized the receiver’s duty to account for potential liabilities and provide notice to potential claimants, ensuring their opportunity to enforce their claims.

    Facts

    James Copeland, a tenant, was injured on November 29, 1975, while using a common stairway in a building under receivership by Salomon. Salomon had been appointed receiver in a mortgage foreclosure action on June 19, 1975. Copeland and his wife filed suit against Salomon on May 3, 1976, alleging negligence in his official capacity as receiver. Salomon had sought to resign as receiver on January 30, 1976, and was permitted to resign on February 17, 1976, subject to filing and confirming his accounts and applying for discharge. His accounts were approved on October 6, 1976. Salomon initially filed a pro forma answer, but later moved to dismiss for lack of jurisdiction.

    Procedural History

    The trial court initially stayed the action but denied Salomon’s motion to dismiss, allowing the plaintiffs to seek relief in the receivership proceeding. The plaintiffs then moved in the receivership proceeding for leave to sue Salomon and to vacate the order discharging him, which was granted. The Appellate Division reversed, holding that failing to obtain leave prior to suit was a jurisdictional defect. The Court of Appeals reversed the Appellate Division, reinstating the trial court’s orders.

    Issue(s)

    1. Whether failure to obtain leave of the foreclosure court prior to instituting a personal injury action against a receiver is a jurisdictional defect.

    2. Whether Salomon was sued and liable in his official capacity as receiver.

    3. Whether the Special Term had the authority to vacate Salomon’s discharge as to the plaintiffs’ claim and grant them leave to sue.

    Holding

    1. No, because the failure to obtain prior leave is not a jurisdictional defect and can be cured by a later order granting leave nunc pro tunc.

    2. Yes, because Salomon was sued in his official capacity, was obligated to account for the plaintiff’s claim as a contingent liability, and was not effectively discharged from that claim.

    3. Yes, because Special Term had the authority to vacate Salomon’s discharge and grant leave to sue, and it would have been an error of law not to do so under the circumstances.

    Court’s Reasoning

    The Court reasoned that the rule requiring leave to sue a receiver is not statutory but stems from the court’s inherent powers to protect the receiver and the estate. However, it’s not a jurisdictional prerequisite, meaning its omission isn’t a fatal error. Citing Pruyn v. McCreary, the Court emphasized that commencing an action without leave is merely a question of contempt of court and does not affect the court’s jurisdiction. The court can stay or set aside the proceeding, but until it interferes, the action is regular. Additionally, General Obligations Law § 9-101 makes a receiver liable in their official capacity for injuries sustained on the premises, to the same extent as the owner. The Court highlighted that damages for injuries caused by the receiver’s negligence are considered administrative expenses payable from receivership funds, holding priority over other creditors. The Court noted Salomon’s responsibility to include the Copelands’ claim as a contingent liability in his accounting and provide them with notice, protecting their right to be heard. The court noted, “The commencement of an action against a receiver without leave does not affect the jurisdiction of the court… Suing without leave is purely a question of contempt of court.” The Court also found that the discharge of Salomon would have been void for lack of notice to the Copelands, reinforcing the principle that meritorious claims should not be extinguished by a receiver’s discharge without proper notification.

  • Central Trust Co. v. N.Y.C. & N.R.R. Co., 110 N.Y. 250 (1888): Priority of State Taxes in Receivership

    Central Trust Co. v. N.Y.C. & N.R.R. Co., 110 N.Y. 250 (1888)

    When a corporation is in receivership, the state retains a paramount right to collect taxes due on the corporation’s franchise from the receiver, especially when the receiver is operating the business and generating revenue.

    Summary

    In this case, the New York Court of Appeals addressed the issue of whether the state’s claim for unpaid corporation taxes had priority over other claims against a railroad company in receivership. The court held that the state’s claim for taxes on the corporation’s franchise took precedence over other claims, including those of mortgagees. This decision emphasizes the state’s inherent power to collect taxes necessary for its functioning, even when a corporation is insolvent and its assets are managed by a court-appointed receiver. The court reasoned that the receiver’s operation of the railroad benefited from the franchise granted by the state and thus was subject to the associated tax obligations.

    Facts

    A receiver was appointed for the New York City and Northern Railroad Company in foreclosure proceedings. The company owed taxes to the state under the corporation tax act of 1880. The Attorney General filed a petition seeking an order directing the receiver to pay these taxes from the funds in his possession, which were generated from the gross earnings of the railroad operation. The receiver argued that the taxes were the sole responsibility of the corporation and should not be prioritized over the claims of mortgagees.

    Procedural History

    The Special Term granted the Attorney General’s petition, ordering the receiver to pay the taxes and, if necessary, issue receiver’s certificates to raise funds. The General Term reversed this decision, holding that the statutory proceedings for tax collection were the exclusive remedy and had not been followed. The Attorney General appealed to the New York Court of Appeals.

    Issue(s)

    Whether the statutory remedies for collecting corporation taxes are the exclusive means of enforcing such claims against a corporation in receivership, or whether the court can directly order the receiver to pay the taxes from available funds.

    Holding

    No, because when a corporation’s property is sequestrated and in the hands of a receiver, the court has the authority to directly order the receiver to pay outstanding taxes, especially when the receiver is operating the business under the corporate franchise and has sufficient funds to cover the tax liability.

    Court’s Reasoning

    The Court of Appeals reasoned that the statutory procedures for tax collection were designed for ongoing, solvent corporations. When a corporation is insolvent and in receivership, these procedures are impractical and ineffective. The court emphasized that the receiver’s operation of the railroad relied on the franchise granted by the state, making the state’s claim for taxes a paramount right. The court stated, “We are of the opinion that the railroad when in the receiver’s hands and operated by him, is operated under and by virtue of the franchise which has been conferred upon the corporation by the state…” The court further explained that the state’s right to collect taxes is an essential power of government, and the court has the discretion to ensure these obligations are met. The court distinguished the Massachusetts case cited by the receiver, noting that in that case, the corporation’s franchise had effectively ceased to exist, whereas, in this case, the franchise was actively being used by the receiver. The court also cited Union Trust Company v. I. M. R. R. Co., noting that the Supreme Court prioritized state tax claims. The court modified the Special Term order to remove the provision for issuing receiver’s certificates, as sufficient funds were available to pay the taxes.