81 N.Y.2d 336 (1993)

Voters have standing to sue when alleging the state unconstitutionally incurred debt without voter approval, as required by the New York Constitution, Article VII, Section 11, but such claims are subject to the equitable doctrine of laches.

Summary

A group of citizens challenged New York State financing schemes, arguing they violated the state constitution by incurring debt without voter approval. The Court of Appeals held that these citizens, as voters, had standing to sue on the constitutional claim that they were denied their right to vote on state debt, as required by Article VII, Section 11 of the New York Constitution. However, the court ultimately affirmed the lower court’s decision to dismiss the case (Schulz Appeal No. 1) based on the doctrine of laches, finding the delay in bringing the suit prejudiced the state. The court dismissed the appeal in a related case (Schulz Appeal No. 2) because voter standing wasn’t properly alleged in the pleadings.

Facts

The case involved challenges to Chapter 190 and Chapter 220 of the Laws of 1990, which authorized the state to incur debt through bond sales and leaseback arrangements without voter approval. Chapter 190 included the sale and leaseback of the Attica Correctional Facility and Interstate Highway 287. Chapter 220 established the New York Local Government Assistance Corporation (LGAC) to issue bonds. The plaintiffs, as registered voters, argued that these actions violated Article VII, Section 11 of the New York Constitution, which requires voter approval for state debt. They claimed the state circumvented this requirement. The lawsuit challenging Chapter 190 was filed approximately 11 months after the law was enacted and after bonds were issued.

Procedural History

In Schulz Appeal No. 1, the Supreme Court initially dismissed some claims based on State Finance Law § 123-b but allowed others to proceed. The Appellate Division reversed, dismissing the entire proceeding for lack of standing. The plaintiffs appealed to the Court of Appeals. In Schulz Appeal No. 2, both the Supreme Court and the Appellate Division dismissed the proceeding for lack of standing. The plaintiffs also appealed this decision to the Court of Appeals.

Issue(s)

1. Whether voters have standing to challenge state financing schemes that allegedly violate the constitutional requirement for voter approval of state debt (Article VII, § 11).
2. Whether the doctrine of laches bars the plaintiffs’ claim, given the delay between the enactment of the challenged laws and the commencement of the lawsuit.

Holding

1. Yes, because the express voter referendum requirement in Article VII, § 11 is inextricably linked to the constitutional grant of debt-incurring authority, and voter standing is necessary to prevent the Legislature and Executive branches from circumventing the constitutional mandate.
2. Yes, because the delay in commencing the lawsuit prejudiced the State and other parties who relied on the presumed constitutionality of the financing schemes.

Court’s Reasoning

The Court reasoned that the constitutional requirement of a public referendum on state debt reflects a deep-seated skepticism about public indebtedness and a desire to ensure that the People retain ultimate control over state borrowing. Allowing the Legislature and Executive branches to evade this requirement would render Article VII, § 11 meaningless. The Court distinguished its prior precedents that limited taxpayer standing, stating that those precedents should not be interpreted as a total ban on standing in cases involving voter referendum rights. The court emphasized, “To the extent that Wein v Comptroller of State of N.Y. and New York State Coalition for Criminal Justice v Coughlin and State Finance Law § 123-b have been read as a total ban on standing in such cases, they should not be followed, at least with respect to voter standing to sue on financing schemes subject to voter referendum approval.” However, the Court emphasized the importance of timely challenges to public financing schemes, citing the potential for destabilizing effects and prejudice to the State and other parties. Applying the doctrine of laches, the Court found that the plaintiffs’ delay in bringing the lawsuit, coupled with the State’s reliance on the validity of the financing schemes, warranted dismissal of the claim. The court observed that large sums of money had already been transacted. The dissent argued that the constitutional violation was continuing in nature because of the long-term fiscal impact and the continuing authority under the challenged legislation and that laches should not apply.