New York Law Review

Tag: Sovereign Immunity

  • Crair v. University of Maryland, 97 N.Y.2d 524 (2002): Comity and Application of Foreign Notice of Claim Statutes

    97 N.Y.2d 524 (2002)

    New York courts will generally apply the laws of other states under the principle of comity unless those laws conflict with New York’s public policy.

    Summary

    Lisa Crair sued the University of Maryland and the University of Virginia on behalf of her deceased sister, Stacey Crair, alleging that Stacey contracted Creutzfeldt-Jakob Disease from contaminated Human Growth Hormone (HGH) provided by the universities. The universities moved to dismiss based on Lisa’s failure to comply with Maryland and Virginia’s notice-of-claim statutes, which require claimants to file a notice of claim before filing suit against the state. The New York Court of Appeals held that comity required the application of the Maryland and Virginia statutes, as those statutes did not violate New York public policy, and dismissed the case against the universities.

    Facts

    Stacey Crair received HGH injections from 1966 to 1978 to treat short stature. The HGH was provided by a program at Johns Hopkins University, later operated by the University of Maryland, and then by her treating physician after he moved to the University of Virginia. Some of the HGH was contaminated with a virus that causes Creutzfeldt-Jakob Disease, which Stacey was diagnosed with in 1993. She died from the disease in 1997. Lisa Crair, Stacey’s sister, sued the universities, alleging negligence and strict products liability.

    Procedural History

    Lisa Crair initially filed suit in 1995, but it was dismissed against the University of Virginia for improper service of process. After being appointed Stacey’s guardian ad litem, Lisa filed a second action in 1996, joining the University of Maryland. The university defendants moved to dismiss for lack of subject matter jurisdiction, arguing that Lisa failed to file notices of claim as required by Virginia and Maryland law. Supreme Court granted the motions, dismissing the complaint. The Appellate Division affirmed. The New York Court of Appeals granted leave to appeal and affirmed the Appellate Division’s decision.

    Issue(s)

    Whether New York should apply the notice of claim provisions of Virginia and Maryland law to actions against the Universities of Virginia and Maryland, instrumentalities of those states, under principles of comity.

    Holding

    Yes, because applying the notice of claim provisions of Virginia and Maryland law does not conflict with New York’s public policy, and therefore comity requires their application in this case.

    Court’s Reasoning

    The Court of Appeals reasoned that the Full Faith and Credit Clause of the U.S. Constitution does not require New York to apply the laws of another state if those laws are “obnoxious” to New York’s public policy. The Court cited Ehrlich-Bober & Co. v. University of Houston, where it held that New York would apply the laws of other states where application does not conflict with New York’s public policy.

    The Court distinguished this case from Ehrlich-Bober and Morrison v. Budget Rent A Car Sys., which involved restrictive venue provisions. In those cases, the Court declined to apply the other states’ laws because they conflicted with New York’s interest in providing a forum for redress of injuries arising out of transactions within the state. Here, the issue was failure to file a notice of claim, a requirement that does not offend New York public policy. The Court emphasized that New York statutes are “replete with such provisions to restrict suits against public authorities and various kinds of municipal entities.” The Court noted that even if the defendant had actual knowledge of the claim, New York still requires strict compliance with notice of claim provisions, citing Thomann v. City of Rochester.

    The Court also rejected the plaintiff’s argument that she substantially complied with the Virginia statute by commencing the previous suit and corresponding with the Virginia Attorney General’s office. The Court cited Halberstam v. Commonwealth of Virginia, which held that “actual notice does not obviate [the] duty to strictly comply with the [Virginia Tort Claims] Act’s notice provisions.” Because the Virginia Tort Claims Act is a statute in derogation of the common law doctrine of sovereign immunity, it must be strictly construed.

  • Hefele v. State of New York, 95 N.Y.2d 906 (2000): Strict Compliance Required for Suits Against the State

    Hefele v. State of New York, 95 N.Y.2d 906 (2000)

    Suits against the State of New York are permitted only through the State’s waiver of sovereign immunity, requiring strict compliance with statutory conditions for commencing such actions.

    Summary

    The claimant’s decedent died from injuries sustained in a car accident after exiting a gas station and colliding with oncoming traffic. The claimant initiated a negligence action against the State for wrongful death and personal injuries but failed to comply with Court of Claims Act § 10(2) and (3), which detail the requirements for such claims. The Court of Claims dismissed the action, and the Appellate Division affirmed. The Court of Appeals upheld the dismissal, emphasizing that suits against the State require strict adherence to statutory requirements due to sovereign immunity.

    Facts

    The decedent sustained fatal injuries after exiting a gas station off State Highway 17 and driving into oncoming traffic, resulting in a head-on collision. The claimant, as the decedent’s representative, brought a negligence action against the State, alleging wrongful death, personal injuries, and loss of consortium. The claimant commenced the action before being formally appointed as the administrator of the decedent’s estate and receiving letters of administration.

    Procedural History

    The Court of Claims dismissed the action because the claimant failed to comply with the requirements of Court of Claims Act § 10(2) and (3). The Appellate Division affirmed the Court of Claims’ decision. The Court of Claims also denied the claimant’s request for permission to file a late claim under Court of Claims Act § 10(6), finding the claim lacked merit. The Appellate Division also affirmed this denial, but that ruling was not appealed to the Court of Appeals.

    Issue(s)

    Whether the claimant’s failure to comply with the requirements of Court of Claims Act § 10(2) and (3) regarding the timing and proper commencement of a claim against the State warrants dismissal of the action.

    Holding

    Yes, because suits against the State are allowed only by the State’s waiver of sovereign immunity and in derogation of the common law; therefore, statutory requirements conditioning suit must be strictly construed.

    Court’s Reasoning

    The Court of Appeals affirmed the lower courts’ decisions, relying on the principle established in Dreger v. New York State Thruway Auth., 81 N.Y.2d 721 (1992), that suits against the State require strict compliance with statutory requirements. The Court emphasized that Court of Claims Act § 10(2) and (3) mandate that an executor or administrator be formally appointed before commencing an action against the State. Specifically, § 10(2) requires wrongful death claims to be brought within ninety days after the appointment of the executor or administrator. The Court noted that, in a “survival” action on behalf of an intestate decedent, only a duly appointed personal representative with letters of administration can properly commence the claim. Because the claimant initiated the action before receiving letters of administration, she failed to meet the statutory requirements. As the Court stated, “[b]ecause suits against the State are allowed only by the State’s waiver of sovereign immunity and in derogation of the common law, statutory requirements conditioning suit must be strictly construed”. The court found the claimant’s arguments regarding the application of CPLR 205(a) to be without merit, although the specific grounds for this conclusion were not detailed in the memorandum opinion.

  • Arteaga v. State of New York, 72 N.Y.2d 212 (1988): State Immunity for Correctional Officer Disciplinary Actions

    72 N.Y.2d 212 (1988)

    The State has absolute immunity from liability for actions of Department of Correctional Services employees in commencing and conducting formal disciplinary proceedings when acting under and in compliance with governing statutes and regulations, as this constitutes discretionary conduct of a quasi-judicial nature.

    Summary

    Inmates Arteaga and Treacy sued the State of New York for unlawful confinement and loss of privileges after disciplinary charges against them were dismissed. The Court of Appeals addressed whether the State is immune from liability for correctional employees’ actions in disciplinary proceedings. The court held that the State has absolute immunity when employees act within the scope of governing statutes and regulations because such actions are discretionary and quasi-judicial. This immunity is based on the public interest in allowing officials to exercise discretion without fear of lawsuits.

    Facts

    Arteaga was confined and charged with conspiracy to escape and possessing a weapon. He was found guilty at a Superintendent’s hearing, but the Department of Correctional Services reversed the decision on appeal due to lack of evidence. Treacy was charged with possessing escape paraphernalia and contraband, found guilty, and sanctioned. The Commissioner later reversed the disposition and expunged the charge after Treacy commenced an Article 78 proceeding.

    Procedural History

    Both Arteaga and Treacy filed separate damage actions in the Court of Claims, alleging malicious prosecution, false imprisonment, and violation of statutory rights. Treacy also claimed negligent investigation. The Court of Claims dismissed Arteaga’s claim based on sovereign immunity. It also dismissed Treacy’s claim without addressing immunity. The Appellate Division affirmed the dismissals, citing the broad discretion given to the Department of Correctional Services. The Court of Appeals granted leave to appeal.

    Issue(s)

    Whether the State is immune from liability for the actions of employees of the Department of Correctional Services in commencing and conducting formal disciplinary proceedings against inmates.

    Holding

    Yes, because when correctional employees act under the authority of and in full compliance with the governing statutes and regulations, their actions constitute discretionary conduct of a quasi-judicial nature for which the State has absolute immunity.

    Court’s Reasoning

    The Court of Appeals reasoned that while the State waived sovereign immunity for the everyday actions of its employees, it retained immunity for governmental actions requiring expert judgment or discretion. Absolute immunity applies when the action involves the conscious exercise of discretion of a judicial or quasi-judicial nature. The court emphasized that the determination of whether an action receives qualified or absolute immunity requires an analysis of the functions and duties of the particular governmental official or employee whose conduct is in issue.

    The court analogized the actions of correctional employees to those of parole boards and probation officers, where discretionary decisions are made in furtherance of general policies and purposes. It noted that the Legislature has granted the Commissioner of Correctional Services broad discretion in formulating and implementing policies related to security and discipline, and that the Commissioner has delegated this authority to employees and officers in the facilities.

    Because of the need to maintain security and discipline, the court reasoned that the discretion delegated to correctional employees is necessarily comprehensive and requires judgment under varying conditions. The court concluded that correctional employees should not be inhibited by the possibility of litigation from making difficult decisions. As the court stated: “In carrying out their duties relating to security and discipline in the difficult and sometimes highly stressful prison environment, correction employees, like other officials with quasi-judicial responsibilities, should not be inhibited because their conduct could be the basis of a damage claim”.

  • Sharapata v. Town of Islip, 56 N.Y.2d 334 (1982): Punitive Damages and Waiver of Sovereign Immunity

    56 N.Y.2d 334 (1982)

    The waiver of sovereign immunity in Section 8 of the New York Court of Claims Act does not permit the assessment of punitive damages against the State or its political subdivisions.

    Summary

    This case addresses whether New York’s waiver of sovereign immunity allows for punitive damages claims against the state or its political subdivisions. The plaintiff, Richard Sharapata, was injured on a defective slide in a town park and sought to amend his complaint to include punitive damages based on the town’s alleged reckless indifference to a known danger. The New York Court of Appeals held that the waiver of immunity in Section 8 of the Court of Claims Act does not extend to punitive damages, emphasizing the need for strict construction of waivers of sovereign immunity and the policy considerations against punishing taxpayers for governmental misconduct. The Court affirmed the Appellate Division’s decision denying the amendment.

    Facts

    Richard Sharapata was injured while playing on allegedly defective slide equipment in a public park maintained by the Town of Islip. Initially, Sharapata’s complaint sought only compensatory damages. During the case, the plaintiffs gained access to communications between the town’s safety officer and its liability insurance carrier, suggesting the town knew of the dangerous condition of the slide due to prior accidents and recommendations for its removal.

    Procedural History

    The Special Term granted the plaintiffs’ motion to amend the complaint to include a claim for punitive damages. The Appellate Division, Second Department, reversed, holding that Section 8 of the Court of Claims Act does not permit punitive damages against the state or its political subdivisions. The Appellate Division granted the plaintiffs leave to appeal to the New York Court of Appeals, certifying the question of whether its order was properly made.

    Issue(s)

    Whether the waiver of sovereign immunity effected by Section 8 of the Court of Claims Act permits punitive damages to be assessed against the State or its political subdivisions.

    Holding

    No, because the waiver of sovereign immunity must be strictly construed, and neither the language nor the legislative history of Section 8 indicates an intent to allow punitive damages claims against the state or its political subdivisions.

    Court’s Reasoning

    The Court reasoned that punitive damages, intended to punish and deter, differ fundamentally from compensatory damages, which aim to make the victim whole. The court emphasized that statutes waiving sovereign immunity must be strictly construed, and waivers by inference are disfavored. Section 8 of the Court of Claims Act is silent on punitive damages. The Court cited Costich v. City of Rochester, emphasizing that municipal corporations are not organized for profit but for the general good, making punitive damages less appropriate. The court also noted that the legislative history of Section 8 indicates its purpose was to provide a fair and orderly way for individuals to bring claims against the state, not to expose the state to punitive damages. The Court pointed out that the state constitution cautions against unwarranted invasion of the public purse, and legislative enactments exclude indemnification for exemplary damages. The court referenced Justice Blackmun’s declaration in City of Newport v. Fact Concerts, Inc., stating that “Damages awarded for punitive purposes * * * are not sensibly assessed against the governmental entity itself”. The Court also found the twin justifications for punitive damages—punishment and deterrence—are not advanced when applied to a governmental unit, as taxpayers bear the burden of punishment and are expected to benefit from the public example.

  • Matter of Estate of Warren, 47 N.Y.2d 740 (1979): State’s Prerogative Right to Priority in Debt Collection

    Matter of Estate of Warren, 47 N.Y.2d 740 (1979)

    The State, in its sovereign capacity, possesses a common-law prerogative right to priority in the collection of debts owed to it, which takes precedence over statutory preferences granted to municipalities unless explicitly abrogated by the legislature.

    Summary

    The New York State Department of Mental Hygiene and the New York City Health and Hospitals Corporation both filed claims against the estate of an adjudicated incompetent, Esther Warren, for expenses related to her care. The State argued that its common-law prerogative as sovereign entitled it to priority. The City argued for priority based on a statutory preference under the Social Services Law. The Court of Appeals held that the State’s common-law prerogative right to priority, inherited from the Crown, remained valid because no statute explicitly or implicitly abrogated it. Therefore, the State’s claim took precedence over the City’s.

    Facts

    Esther Warren, an adjudicated incompetent, passed away at Rockland Psychiatric Center in 1977. The New York State Department of Mental Hygiene filed a claim for $6,991.76 for her care at the center from October 26, 1976, to June 23, 1977. The New York City Health and Hospitals Corporation filed a claim for $7,844.36 for institutional care provided at Bellevue Hospital from February 21, 1971, to July 2, 1971. The estate had a balance of $8,422.63. Both the State and the City claimed to be preferred creditors.

    Procedural History

    Special Term allowed $2,943.89 for administrative and funeral expenses and ordered the remaining balance of $5,478.74 to be distributed pro rata between the State and the City. The Appellate Division affirmed without opinion. Both the State and the City were granted leave to appeal to the Court of Appeals.

    Issue(s)

    Whether the New York State Department of Mental Hygiene’s claim for reimbursement of expenses for the care of an incompetent has priority over the New York City Health and Hospitals Corporation’s claim for similar expenses.

    Holding

    Yes, because the State, in its sovereign capacity, possesses a common-law prerogative right to priority in the collection of debts owed to it, and this right has not been explicitly or implicitly abrogated by any relevant statute.

    Court’s Reasoning

    The court reasoned that at common law, the Crown had a prerogative right to priority in debt collection. This right was adopted by New York State in its 1777 Constitution and continues under the present Constitution. The purpose of this right is to protect state revenue and ensure funds for government expenses. The court stated that “a statute does not apply to the State, where its sovereign rights, prerogatives, or interests are involved, unless it is specifically mentioned therein or included by necessary implication.” The City’s claim relied on Section 104 of the Social Services Law, which designates public welfare officials as preferred creditors. However, the court found no language indicating the Legislature intended this preference to override the State’s common-law prerogative. The court further addressed the City’s argument regarding the Mental Hygiene Law. While a prior version explicitly granted the State preferred creditor status, this was removed in a later recodification. The court determined that this removal, without explicit legislative intent to abolish the common-law right, did not negate the State’s priority. As the court stated, “in recovering amounts expended for public assistance, [t]he State…continues to enjoy its prerogative right of preference which is superior to any statutory right conferred upon the City under the Social Services Law.”

  • Franza v. State, 43 N.Y.2d 102 (1977): State’s Waiver of Immunity in Real Property Actions

    Franza v. State, 43 N.Y.2d 102 (1977)

    The State waives its immunity from suit and may be joined as a defendant in actions brought under Article 15 of the Real Property Actions and Proceedings Law (RPAPL) to determine claims to real property, including actions seeking to establish easements and related damages.

    Summary

    Plaintiffs, distributees of a deceased joint owner, sued the State in Supreme Court (later transferred to Surrogate’s Court) seeking partition of property and determination of easement rights after a state appropriation allegedly landlocked a portion of the original property. They claimed the State failed to provide promised access. The Court of Appeals held that the State, through RPAPL § 1541 and § 904, waived its sovereign immunity regarding actions to determine adverse claims to real property and partition actions, allowing the suit to proceed in a forum other than the Court of Claims. However, causes of action seeking rescission or reformation of the compensation agreement required a specific waiver of immunity not demonstrated here.

    Facts

    The plaintiffs, as distributees, brought an action in Surrogate’s Court regarding real property. A portion of the property was appropriated by the State in 1967. The plaintiffs contended that the appropriation created an easement of access over the taken parcel for the benefit of the remaining landlocked segment of the original property. The landowners allegedly entered into a compensation agreement with the State, with the understanding that the State would provide access to public highways for the landlocked segment. The State allegedly failed to provide the promised easement.

    Procedural History

    Plaintiffs filed suit in Supreme Court seeking partition, later amended to include claims against the State. The case was transferred to Surrogate’s Court. The State moved to dismiss for lack of jurisdiction, arguing exclusive jurisdiction in the Court of Claims. The Surrogate denied the motion. The Appellate Division modified the Surrogate’s order by dismissing the third, fourth, and fifth causes of action. The Court of Appeals affirmed the Appellate Division’s order.

    Issue(s)

    1. Whether the State has waived its immunity from suit and may be joined as a defendant in an action brought under Article 15 of the Real Property Actions and Proceedings Law to determine adverse claims to real property, including the establishment of an easement and related damages, in a forum other than the Court of Claims.
    2. Whether the State has waived its immunity from suit in an action for partition of real property where the State owns a portion of the property subject to the partition action.
    3. Whether claims for rescission or reformation of a compensation agreement with the State, or for specific performance requiring the State to provide an easement, can be brought outside the Court of Claims absent a specific waiver of immunity.

    Holding

    1. Yes, because RPAPL § 1541 expressly authorizes the joinder of the State as a defendant in actions to determine adverse claims to real property, constituting a waiver of immunity.
    2. Yes, because RPAPL § 904 designates the State as a permissible defendant in an action for partition, thereby waiving immunity for such actions.
    3. No, because actions seeking rescission or reformation of agreements with the State, or specific performance compelling State action, require a specific waiver of immunity not demonstrated here, and thus must be brought in the Court of Claims.

    Court’s Reasoning

    The Court reasoned that RPAPL § 1541 explicitly allows the State to be joined in actions to determine adverse claims to real property. This statutory provision acts as a waiver of the State’s sovereign immunity. The relief available under Article 15 includes declarations of validity of claims, cancellation or reformation of instruments, awards of possession, and damages. The court emphasized that whether the plaintiffs actually possessed an easement was the very issue to be resolved, and dismissing the claim prematurely would deny them the opportunity to prove their case. Citing RPAPL § 904, the court stated that the State is a permissible defendant in partition actions, resulting in a waiver of immunity regarding such actions. However, the court found no statutory basis for suing the state outside of the Court of Claims for actions seeking rescission/reformation of the compensation agreement or specific performance, noting, “For actions of such a nature no waiver of the State’s immunity permitting suit outside the Court of Claims has been demonstrated.”

  • Ehrlich-Bober & Co. v. University of Houston, 49 N.Y.2d 574 (1980): Comity and Jurisdiction Over Out-of-State Governmental Entities in Commercial Transactions

    49 N.Y.2d 574 (1980)

    When a commercial transaction is centered in New York, New York courts are not precluded by comity from exercising jurisdiction over an out-of-state governmental entity, despite the entity’s state law limiting suits to specific venues, especially when New York has a strong interest in providing a forum for such transactions.

    Summary

    Ehrlich-Bober & Co., a New York securities dealer, sued the University of Houston, a Texas state agency, in New York for breach of contract related to reverse repurchase agreements. The University argued it was immune from suit in New York due to a Texas law restricting suits against it to specific Texas counties. The New York Court of Appeals held that New York courts could exercise jurisdiction. It reasoned that the transactions were centered in New York, and New York has a strong interest in providing a forum for commercial transactions within the state. Comity did not require deference to the Texas venue restriction.

    Facts

    Ehrlich-Bober, a New York-based securities dealer, engaged in multiple reverse repurchase agreements with the University of Houston. These transactions, totaling approximately $44 million, involved the sale and repurchase of securities. Many transactions were initiated by phone calls to Ehrlich-Bober’s New York office. On several occasions, a University employee visited Ehrlich-Bober’s office in New York. Two specific agreements were at issue, involving Government National Mortgage Association (Ginnie Mae) securities. Ehrlich-Bober delivered the purchase price to Manufacturer’s Hanover in New York, and the securities were delivered to Ehrlich-Bober. The University refused to repurchase the securities as agreed, causing Ehrlich-Bober a loss.

    Procedural History

    Ehrlich-Bober sued the University of Houston in New York. The University moved to dismiss, arguing sovereign immunity, lack of long-arm jurisdiction, and forum non conveniens. Special Term granted the motion to dismiss. The Appellate Division affirmed the dismissal based on sovereign immunity, but found long-arm jurisdiction existed and forum non conveniens did not apply. Ehrlich-Bober appealed to the New York Court of Appeals.

    Issue(s)

    1. Whether New York courts should, as a matter of comity, recognize and enforce a Texas statute that limits suits against the University of Houston to specific counties in Texas.

    Holding

    1. No, because New York’s interest in providing a forum for commercial transactions centered in New York outweighs Texas’s interest in limiting the venue for suits against its agencies, especially when the transaction has only an indirect relation to the governmental function of the University.

    Court’s Reasoning

    The Court of Appeals recognized that while New York could choose to defer to the Texas law as a matter of comity, it was not compelled to do so. The court emphasized that comity is a matter of practice, convenience, and expediency, not a binding rule of law. The court stated, “Whatever the New York rule may once have been…it is abundantly clear that the rule has undergone a substantial evolution over six decades…Today in New York the determination of whether effect is to be given foreign legislation is made by comparing it to our own public policy; and our policy prevails in case of conflict”.

    The court identified New York’s strong public policy in maintaining its status as a major commercial and financial center, which includes providing ready access to its courts for redress of injuries arising from transactions within the state. The court distinguished this case from situations where the foreign law goes to the heart of a governmental function. The Texas statute, as interpreted by Texas courts, was deemed a restrictive venue provision for administrative convenience, not a limitation on liability essential to the governmental function.

    The court emphasized that the transactions were centered in New York: initiated by a call to New York, accepted in New York, with money paid and securities delivered in New York, and repurchases to occur in New York. The court reasoned that requiring New York financial institutions to review the laws of every jurisdiction before doing business with its agencies would be an intolerable burden.

    The dissenting opinion argued that the court was confusing the requirements for obtaining long-arm jurisdiction with considerations of comity. It contended that New York should respect Texas’s decision to limit suits against its state entities, similar to New York’s own restrictions on suits against the State University of New York. The dissent warned that the majority’s decision could allow suits against New York state entities in other states, despite New York’s intent to limit such suits to the New York Court of Claims.

  • French v. Banco Nacional de Cuba, 23 N.Y.2d 46 (1968): Act of State Doctrine and Currency Regulations

    23 N.Y.2d 46 (1968)

    The act of state doctrine prevents U.S. courts from examining the validity of acts by a foreign government within its own territory, especially regarding currency regulations, unless the Hickenlooper Amendment applies, which requires a claim of title or right to specific property taken in violation of international law.

    Summary

    This case concerns the enforceability of Cuban currency stabilization certificates issued before the Castro regime. When Cuba suspended redemption of these certificates in U.S. dollars, an American investor’s assignee sued Banco Nacional de Cuba. The court addressed sovereign immunity, the act of state doctrine, and the Hickenlooper Amendment. The court found the act of state doctrine applicable, barring inquiry into Cuba’s currency regulations, as the Hickenlooper Amendment did not apply since there was no confiscation of specific property. Therefore, the complaint was dismissed.

    Facts

    Alexander Bitter, an American citizen, invested in a Cuban farm in 1957. In 1959, he acquired eight currency stabilization certificates from Banco Nacional de Cuba, guaranteeing payment in U.S. dollars in exchange for Cuban pesos. In July 1959, Cuba issued Decision No. 346, suspending redemption of these certificates to protect its dollar reserves. Bitter tendered his certificates in December 1959, but payment in dollars was refused.

    Procedural History

    Plaintiff, Bitter’s assignee, sued Banco Nacional de Cuba in the New York Supreme Court, obtaining a judgment. The Appellate Division affirmed, rejecting Banco Nacional’s sovereign immunity and act of state defenses. The New York Court of Appeals granted reargument to consider the Hickenlooper Amendment, ultimately reversing the lower court’s decision and dismissing the complaint.

    Issue(s)

    1. Whether Banco Nacional de Cuba is entitled to sovereign immunity.

    2. Whether the act of state doctrine bars the plaintiff’s claim.

    3. Whether the Hickenlooper Amendment applies to bar the act of state doctrine in this case.

    Holding

    1. No, because the State Department concluded the activities were commercial (jure gestionis) in nature and did not warrant immunity.

    2. Yes, because the act of state doctrine generally prevents U.S. courts from questioning the validity of a foreign government’s acts within its own territory.

    3. No, because the Hickenlooper Amendment applies only to cases involving a claim of title or right to specific property that has been confiscated, and this case involves a breach of contract due to currency regulations, not a taking of property.

    Court’s Reasoning

    The court found that the State Department’s position on sovereign immunity was controlling. Regarding the act of state doctrine, the court cited Banco Nacional de Cuba v. Sabbatino, emphasizing that U.S. courts should not sit in judgment of foreign government acts within their own territory. The court determined that Cuba’s Decision No. 346 was an act of state, regardless of whether it complied with internal Cuban law.

    The court held the Hickenlooper Amendment inapplicable because it requires a claim of title or right to specific property that has been confiscated. Here, Bitter had a contract right governed by Cuban law, which was altered by currency regulations. The court emphasized that the amendment was designed to address expropriation of specific assets, not mere breach of contract due to currency controls. Citing the legislative history, the court noted that the amendment was aimed at cases where “expropriated property comes within the territorial jurisdiction of the United States”.

    The court further reasoned that currency regulations are a normal exercise of governmental power, not a “confiscation” or “taking.” It cited the Restatement (Second) of Foreign Relations Law, stating that applying currency exchange requirements to aliens is not wrongful under international law, even if the local currency is less valuable. The court concluded that even if the Hickenlooper Amendment applied, the Cuban action did not violate international law.

    In conclusion, the court stated: “It is plain enough upon the face of the statute — and abundantly clear from its legislative history—that Congress was not attempting to assure a remedy in American courts for every kind of monetary loss resulting from actions, even unjust actions, of foreign governments.”

  • Matter of Dormitory Authority (Sam Minskoff & Sons, Inc.), 33 N.Y.2d 58 (1973): Enforceability of Arbitration Clauses Against State Entities

    Matter of Dormitory Authority (Sam Minskoff & Sons, Inc.), 33 N.Y.2d 58 (1973)

    A state entity, even when performing a governmental function, is generally bound by arbitration clauses in its contracts, as the power to contract implies the power to agree to dispute resolution through arbitration.

    Summary

    The Dormitory Authority of the State of New York (the Authority) appealed a decision to compel arbitration with Sam Minskoff & Sons, Inc. (Minskoff), regarding a construction contract. The Authority argued that as a state entity performing a governmental function (education), it was protected by sovereign immunity from the arbitration clause in the contract. The Court of Appeals held that the Authority was a separate entity from the state and, even if it were not, the state’s power to contract included the power to agree to arbitration. Therefore, the arbitration clause was enforceable.

    Facts

    The Authority awarded a contract to Minskoff for electrical work on a new dormitory at Stony Brook. The contract, drafted by the Authority, contained an arbitration clause for disputes. Minskoff alleged delays caused by the Authority led to a 183-day delay in completion. After attempts at negotiation failed, Minskoff demanded arbitration, but the Authority sought a stay, arguing sovereign immunity.

    Procedural History

    The Supreme Court denied the Authority’s petition for a stay of arbitration. The Appellate Division unanimously affirmed this denial. The Court of Appeals granted permission to appeal.

    Issue(s)

    Whether the Dormitory Authority, in carrying out a governmental function, is shielded by sovereign immunity from an arbitration clause that it included in a contract.

    Holding

    No, because the Dormitory Authority is a separate entity from the State, and even if it were not, the power of the State to enter into contracts includes the power to agree to settle disputes through arbitration.

    Court’s Reasoning

    The court reasoned that the Authority is not identical to the State. It cited previous cases establishing the Authority as a separate body politic, not an arm of the State (Braun v. State of New York, 203 Misc. 563, 564; Windalume Corp. v. Rogers & Haggerty, 36 Misc 2d 1066, 1067; Thompson Constr. Corp. v. Dormitory Auth., 48 Misc 2d 296, 298). The Court reviewed the Authority’s enabling legislation (Public Authorities Law, §§ 1675-1690) and highlighted its powers, including the power to sue and be sued, make its own by-laws, appoint its own personnel, acquire property, enter contracts, fix and collect rentals, and borrow money. The court noted that the State is not liable for the Authority’s bonds or other obligations, which are payable only out of Authority funds. The Court stated: “Considering and weighing all the above powers, functions, and obligations, it is clear that this Authority, enjoying a separate existence, transacting its own business, hiring and compensating its own personnel, is not identical with the State”.

    The Court also held that even if the Authority were identical to the State, the State is not insulated from arbitration clauses in contracts. Citing Campbell v. City of New York, 244 N.Y. 317, 331, the court emphasized that “the power to contract implies the power to assent to the settlement of disputes by means of arbitration”. The court quoted Judge Earl from Danolds v. State of New York, 89 N.Y. 36, 44: “There is not one law for the sovereign and another for the subject, but when the sovereign engages in business and the conduct of business enterprises, and contracts with individuals, whenever the contract in any form comes before the courts, the rights and obligation of the contracting parties must be adjusted upon the same principles as if both contracting parties were private persons. Both stand upon equality before the law, and the sovereign is merged in the dealer, contractor and suitor”. The court found that this principle is particularly relevant today, with the State increasingly involved in what were once private sectors of the economy.