New York Law Review

Tag: State Administrative Procedure Act

  • Alca Industries, Inc. v. Delaney, 92 N.Y.2d 775 (1999): Bid Withdrawal Criteria Are Not Always Rules Subject to SAPA

    Alca Industries, Inc. v. Delaney, 92 N.Y.2d 775 (1999)

    Bid withdrawal criteria included in a specific contract bid advertisement by the Office of General Services (OGS) do not constitute a “rule” of general applicability under the State Administrative Procedure Act (SAPA) and therefore do not require formal promulgation under SAPA.

    Summary

    Alca Industries challenged the Office of General Services’ (OGS) decision to retain its bid security after Alca sought to withdraw its bid due to a mistake. Alca argued that the bid withdrawal criteria used by OGS were “rules” under the State Administrative Procedure Act (SAPA) and were unenforceable because they hadn’t been formally promulgated. The Court of Appeals reversed the lower courts’ rulings, holding that the bid withdrawal criteria, as applied to a specific contract, did not constitute a “rule” under SAPA because they lacked general applicability. The court emphasized the distinction between ad hoc decision-making and establishing a general course of conduct for the future, finding that OGS acted within its discretionary capacity, not in a quasi-legislative, rule-making capacity.

    Facts

    Alca Industries submitted a bid, along with a bid bond for $11,800, for an oil separator project advertised by the Office of General Services (OGS). After the bids were opened, Alca realized it had failed to include an allowance for “washwater treatment equipment,” a required component in the project manual. Alca immediately requested to withdraw its bid and have its bid security returned. OGS denied the request, citing bid withdrawal criteria that required the mistake to have occurred “in the absence of negligence in the preparation of the bid,” which OGS found was not met.

    Procedural History

    Alca petitioned to overturn OGS’s determination in Supreme Court, arguing the bid withdrawal criteria were unenforceable rules under the State Administrative Procedure Act (SAPA). The Supreme Court agreed with Alca. The Appellate Division affirmed the Supreme Court’s decision. The Court of Appeals granted leave to appeal and reversed the Appellate Division’s order, remitting the matter to the Supreme Court for consideration of remaining contentions.

    Issue(s)

    1. Whether the bid withdrawal criteria used by OGS in a specific contract bid advertisement constitute a “rule” of general applicability subject to the promulgation requirements of the State Administrative Procedure Act (SAPA).

    Holding

    1. No, because the bid withdrawal criteria applied only to the specific contract at issue and did not establish a general standard of conduct applicable to all OGS contract bidding.

    Court’s Reasoning

    The Court of Appeals distinguished between ad hoc decision-making and rulemaking, defining rulemaking as establishing “any kind of legislative or quasi-legislative norm or prescription which establishes a pattern or course of conduct for the future.” Citing People v. Cull, 10 NY2d 123, 126. The court noted that SAPA defines a rule as an agency statement “of general applicability.” The court reasoned that OGS was acting in its discretionary capacity when it included the withdrawal criteria in its bid advertisement for the oil separator project, not in its quasi-legislative rule-making capacity. The court emphasized that the bid withdrawal criteria only covered the bidding for this particular contract, and there was no evidence that these criteria were required for all contract bidding. The court distinguished this case from Matter of J.D. Posillico, Inc. v Department of Transp., 160 AD2d 1113, where the Department of Transportation applied fixed standards for all contract bidding. Here, Alca’s rights and remedies were determined by bidding conditions it assented to when it submitted its bid. The court also emphasized that including bid withdrawal standards falls within OGS’s statutory authority to “best promote the public interest” by awarding contracts to the “lowest responsible and reliable bidder.” Finally, the court found that Alca had notice of the conditions contained within the bid invitation, addressing concerns about lack of public rules. The court noted, “Here, Alca could conform its bid to OGS expectations and standards, and it knew precisely what circumstances would result in forfeiture of its bid deposit.”

  • Schwartfigure v. Hartnett, 83 N.Y.2d 296 (1994): Agency Rulemaking Requirements for Benefit Recoupment

    Schwartfigure v. Hartnett, 83 N.Y.2d 296 (1994)

    An administrative agency’s rigid policy of recouping overpaid benefits through a fixed percentage reduction, applied without considering individual circumstances, constitutes a “rule” subject to the rulemaking procedures of the State Administrative Procedure Act (SAPA).

    Summary

    Schwartfigure was overpaid unemployment benefits through no fault of her own. When she later became eligible for new benefits, the agency recouped the overpayment by reducing her new benefits by 50% according to a long-standing policy. She challenged this recoupment method, arguing it violated state law and constituted an unpromulgated rule under SAPA. The court held that while the agency had the right to recoup overpayments, the rigid 50% reduction policy was a rule that required formal promulgation under SAPA, as it was a fixed, general principle applied without considering individual circumstances.

    Facts

    In 1988, Schwartfigure received unemployment benefits. In December 1989, the Unemployment Insurance Appeal Board determined she was overpaid $2,112, but not due to any misrepresentation on her part. She did not appeal this determination. In January 1991, she again qualified for benefits. Starting February 1991, the agency paid her only 50% of the eligible benefits, offsetting the remaining 50% to recoup the prior overpayment. Her offer to repay in smaller installments was rejected.

    Procedural History

    Schwartfigure filed a hybrid declaratory judgment and Article 78 proceeding, arguing the recoupment violated Labor Law § 597(4) and the recoupment policy was an unpromulgated rule under SAPA. The Supreme Court dismissed the petition. The Appellate Division affirmed, holding a 1983 amendment restored the agency’s common-law right of setoff. The New York Court of Appeals granted leave to appeal.

    Issue(s)

    1. Whether the agency’s method of recouping overpaid unemployment benefits through a 50% reduction of subsequent benefits contravenes Labor Law § 597(4)?

    2. Whether the agency’s 50% set-off policy for non-willful overpayments constitutes a “rule” within the meaning of the State Administrative Procedure Act, requiring formal promulgation?

    Holding

    1. No, because the 1983 amendment to Labor Law § 597(4) restored the agency’s common-law right of setoff to recoup funds erroneously paid.

    2. Yes, because the agency’s rigid, numerical 50% set-off policy, invariably applied without regard to individual circumstances, falls within the definition of a “rule” under SAPA.

    Court’s Reasoning

    The court acknowledged the agency’s restored common-law right of setoff to recoup overpaid benefits. However, it distinguished between the right to recoup and the manner in which that right is exercised. The court emphasized that any procedure chosen by the agency to implement its right of setoff is subject to the rulemaking requirements of SAPA unless a statutory exception applies.

    The court, citing Matter of Roman Catholic Diocese v New York State Dept. of Health, 66 NY2d 948, 951, defined a rule as “a fixed, general principle to be applied by an administrative agency without regard to other facts and circumstances relevant to the regulatory scheme of the statute it administers”. The agency’s 50% set-off policy was deemed a rigid, numerical policy invariably applied across-the-board without regard to individualized circumstances or mitigating factors.

    The court rejected the argument that the policy concerned only internal management. The court reasoned that the recoupment directly and significantly affected the segment of the public over which the agency exercises direct authority. Because the 50% setoff was accomplished pursuant to an administrative rule not properly promulgated under SAPA, Schwartfigure was entitled to a determination of benefits considering her individual circumstances at the time the benefits were payable.