Stettine v. County of Suffolk

OPINION OF THE COURT

The facts of this case are essentially undisputed. The question that divides the court is whether under those facts and the applicable provisions of General Municipal Law article 18 (General Municipal Law § 800 et seq.), the collective bargaining agreement between the County of Suffolk and the Suffolk County Chapter of the Civil Service Employees Association (CSEA Suffolk) violates General Municipal Law § 801 since it was negotiated by defendant Farnetti at a time when Local Law No. 4 of 1982 provided that all exempt County employees, including Farnetti, would be granted the same salary adjustments as members of bargaining units 2 and 6 of CSEA Suffolk, thereby creating in Farnetti a "prohibited interest” in the contract that would render it void under General Municipal Law § 804. Special Term declared the contract void because of Farnetti’s "prohibited interest”, but the. Appellate Division reversed and declared the contract valid, finding that CSEA Suffolk is a voluntary nonprofit association within the meaning of General Municipal Law § 802 (1) (f) and is therefore excepted from the proscriptions of General Municipal Law § 801. We now affirm.

General Municipal Law § 802 provides that "[t]he provisions of section eight hundred and one of this chapter shall not apply to: 1 * * * f. A contract with a membership corporation or other voluntary non-profit corporation or association”. The gravamen of appellants’ argument, which the dissent finds determinative, is that while CSEA Suffolk may be a voluntary nonprofit association, it is not the type of voluntary association intended to be excepted under General Municipal Law § 802 (1) (f). They contend that the exception should extend

There can be no doubt that CSEA Suffolk is a voluntary nonprofit association. The record establishes that it enjoys nonprofit status by reason of its relationship with Civil Service Employees Association, Inc. (CSEA, Inc.), a State-wide organization and nonprofit corporation as defined in Not-For-Profit Corporation Law § 102 (a) (5) and § 201. Both CSEA, Inc., and CSEA Suffolk enjoy tax-exempt status under Internal Revenue Code (26 USC) § 501 (c) (5), which status is one of the hallmarks of a nonprofit organization (see, Internal Revenue Code § 501 [c]). CSEA Suffolk’s voluntary character is clear based on Civil Service Law § 202 which gives public employees the "right to form, join and participate in, or to refrain from forming, joining, or participating in, any employee organization of their own choosing.” Although member-oriented employee organizations such as CSEA, Inc., and CSEA Suffolk exist primarily to benefit their membership by enhancing their individual members’ economic position with respect to their jobs, this neither militates against their tax-exempt status (see, Albert and Hansell, Tax Status of Modern Labor Unions, 111 U Pa L Rev 137 [1962]; Bittker and Rahdert, Exemption of Non Profit Organizations from Federal Income Taxation, 85 Yale L Rev 299 [1976]) nor provides a sufficient reason to exclude them from the exception of General Municipal Law § 802 (1) (f).

The legislative history of General Municipal Law § 802 (1) (f) does not compel a contrary conclusion as argued by the dissent. The fact that the Comptroller’s 1957 report on conflicts of interest on the part of municipal officers and employees included in its proposed legislation language taken from General Municipal Law former § 88 that exempted from its conflict of interest proscriptions contracts with voluntary nonprofit corporations or associations "primarily engaged in health or social welfare programs or the community planning for such programs” (see, New York State Dept of Audit and Control, Municipal Officials and Conflicts of Interest: An Analysis of the State Law and a Proposed Statute, 1957, at 78), is unpersuasive in determining the intent of the Legislature in

In Matter of De Perno v Dulan ( 9 NY2d 433 ), this court had occasion to comment on the legislative intent respecting whether collective bargaining agreements were intended to be included within the sweep of General City Law § 3, a statute from which article 18 also derives, which prohibited city officers from having an interest in a city contract. We said in De Perno that "it is inconceivable that the Legislature in

Given the legislative history of this statute and the fact that nothing contained therein indicates a legislative intent .to include only voluntary nonprofit associations that are "primarily engaged in health or social welfare programs or the community planning for such programs” within the exception of General Municipal Law § 802 (1) (f) and the fact that the omission of that language from the Comptroller’s final proposal and the legislation enacted thereon indicates quite the contrary, we decline to read the statute in the restrictive manner urged by appellants and the dissent.

(dissenting). The order of the Appellate Division should be reversed and the judgment of Special Term granting plaintiff summary judgment and declaring the agreement between defendant County and defendant Suffolk County Chapter of CSEA Local 852 void should be reinstated. The agreement is void because it was negotiated by defendant Farnetti, who ostensibly represented the County and its taxpayers, and at the same time had a prohibited interest in the outcome of the negotiations because increases in his own salary were linked to any increase in salary which he agreed the County would pay to employees represented by Suffolk CSEA (see, General Municipal Law § 800 et seqj. In fact, as a result of the eventual agreement, Farnetti’s salary was to increase 63% during its term. The majority recognize this conspicuous violation of the conflict of interest statute but hold that the agreement is enforceable because labor organizations are exempted from its provisions by section 802 (1) (f).

In 1982, Suffolk County entered into negotiations with bargaining units 2 and 6 of Suffolk CSEA to settle the terms and conditions of employment for represented County employees for the period from January 1, 1982 to December 31, 1985. Chief negotiator for the County was defendant Farnetti, the County Director of Personnel and Labor Relations. By the provisions of Local Law No. 4 of 1982, adopted February 22, 1982, the County Legislature provided that all exempt County employees should be granted the same salary adjustments as those concluded by the agreement for the members of bargaining units 2 and 6. Defendant Farnetti was such an exempt employee. Thus, when he started negotiations in March 1982 and until he agreed to recommend the proposed agreement to the County Executive and the County Legislature in August 1982, Farnetti knew that he and other exempt officials of the County would receive exactly the same salary adjustments as those he agreed to give members of the bargaining units. The agreement was subsequently approved by the County and CSEA in February 1983. A week later, the County Legislature passed Local Law No. 4 of 1983, effective March 21, 1983, amending Local Law No. 4 of 1982 and limiting the salary adjustments for exempt employees to the two-year period January 1, 1982 through December 31, 1983. Their salaries for the remainder of the time were to be separately negotiated.

General Municipal Law § 801 provides that "no municipal officer or employee shall have an interest in any contract with the municipality of which he is an officer or employee,” when

The statute embodies a moral concept as old as the history of mankind, the idea that "No man may serve two masters.” Originally such conflicts were governed by common-law rules derived from the law of trusts and agency and which recognized a fiduciary relationship between a municipality and its servants, rules intended to prevent self-dealing by public employees at the people’s expense (see, Smith v City of Albany, 61 NY 444 ; and see generally, New York State Dept of Audit and Control, Municipal Officials and Conflicts of Interest: An Analysis of the State of the Law and a Proposed Statute, 1957, at 44; Levitt, Conflicts of Interest, 1963 Opns St Comp, p 475; Lillich, Municipal Conflicts of Interest: Rights and Remedies Under an Invalid Contract, 27 Fordham L Rev 31 [1958]; Comment, Conflicts of Interest and the Municipal Employee, 20 Buffalo L Rev 487 [1971]). Municipal contracts implicating that relationship are scrutinized closely and for the benefit of the public (Landau v Percacciolo, 66 AD2d 80 , 87 [Hopkins, J.], affd 50 NY2d 430 ; 4 Williston, Contracts § 615A, at 630-631 [3d ed]).

In time the New York rules developed into a hodge podge of highly complex and inconsistent statutory enactments, court decisions and administrative opinions that frequently censured technical, as well as actual, conflicts, and came close to barring all public employees from having any dealings with their governmental units (see generally, New York State Dept of Audit and Control, 1957, op. cit., at 2; Lillich, op. cit., at 31; see also, Levitt, op. cit., at 475-476). General Municipal Law Article 18 was enacted in 1964 to correct the situation.

The new statute was formulated by Comptroller Arthur Levitt and his staff after a lengthy investigation and study (see, Levitt, op. cit., at 476; see also, New York State Dept of Audit and Control, 1957, op. cit., at 66-68). It restated the conflict of interest doctrine, attempting to reach only contract

Although it is disputed, there can be little doubt that Farnetti violated not only the letter of the new statute but the spirit of the general ethical rules on which it is based. He "negotiate[dj” and "approve[d]” this contract and he had a palpable interest in its provisions because under the terms of Local Law No. 4 of 1982 the greater the salary concessions he . made to Suffolk CSEA the higher his salary would be. This is precisely the type of conflict the statute was intended to reach, unredeemed by bootstrap arguments that the section entitled Farnetti to receive his "lawful salary.” Section 802 (1) (f) should not be interpreted to except or excuse it.

The exception contained in section 802 (1) (f) provides that the conflict provisions of article 18 shall not apply to "f. A contract with a membership corporation or other voluntary non-profit corporation or association”. Defendant Suffolk CSEA is neither a membership corporation nor a not-for-profit corporation; it is an unincorporated association governed by the General Associations Law. The issue, then, is whether it should be judged to come within the Legislature’s intended purpose to except other voluntary associations. Surely public employee labor unions have many attributes that remove them from the general understanding of voluntary nonprofit associations because, unlike most nonprofit associations, they are authorized and regulated by statute (Civil Service Law § 200 et seq.), they enjoy legislatively protected rights to exclusive representation of their employee members (Civil Service Law § 204), their membership is not voluntary in the customary sense but consists of all public employees within a bargaining unit, a majority of whom have voted to be represented by the union (Civil Service Law § 204) and membership fees are paid by dues deduction for those who elect to pay

"If you’re an officer or employee of a county, city, town, village, fire district, or school district (outside of the City of New York), the new law applies to you — whether you are a paid or unpaid employee or whether you’re just a member of a municipal board, commission, or agency. It applies to you if you’re an employee of a town or county improvement district, a district corporation, or other district or joint service set up to carry on local improvements or services (but not a public authority). The law also applies to you if you work for a consolidated health district, a county vocational education and extension board, a public library, a board of cooperative education services, or an urban renewal agency.

"But the law does not apply solely because you’re a volunteer fireman (not a chief or assistant chief engineer) or a civil defense volunteer.” (See, New York State Dept of Audit and Control, Aug. 1964, at 2 [emphasis supplied].) In the same pamphlet, the exception contained in section 802 (1) (f) is explained in the following manner: "Contracts with membership corporations or nonprofit organizations. If you have an interest in an Organization — say, a fire company or a voluntary hospital — and it has a contract with your municipality, the contract is permitted.” (Id., at 5.)

The State Comptroller and other State officers have also construed the statute in several published opinions. Inasmuch as the Department of Audit and Control is charged with reviewing municipal contracts and auditing municipal finances, the interpretation the Comptroller places on the statute is entitled not only to the respect accorded opinions of State officers generally, but also to the deference we accord interpretations made by those charged with enforcing a statute (see, Matter of Howard v Wyman, 28 NY2d 434 ). Significantly, the Comptroller has applied section 802 (1) (f) only to voluntary, nonprofit organizations performing a charitable or community service (see, 1983 Opns St Comp No. 83-112 [church]; 1981 Opns St Comp No. 81-115 [nonprofit animal shelter]; 1974 Opns St Comp No. 74-469, p 393; and 1966 Opns St Comp No. 66-440, p 365 [volunteer fire department]; 1973 Opns St Comp No. 73-37 [nonprofit hospital corporation]; 1973 Opns St Comp No. 73-306, p 48 [historical society]; 1966 Opns St Comp No. 66-472, p 393 [firemen’s benevolent association]). The exemption has been similarly construed by the Attorney-

Finally, no reported decision of the New York courts, before the Appellate Division decision in this case, has held the labor

In finding Suffolk CSEA a voluntary association within the meaning of section 802 (1) (f), the Appellate Division relied heavily on the status of its parent, CSEA, Inc., as a not-for-profit corporation. CSEA, Inc., however, is not a party to this litigation; it was not a participant in negotiations (indeed it did not have the power to negotiate this contract) and, as Special Term found, it has no responsibility under the contract. Its status cannot provide an exception for Suffolk CSEA. The majority in this court rely upon the tax-exempt status of both CSEA, Inc. and Suffolk CSEA, but the tax-exempt status of an organization is irrelevant in determining whether it is a voluntary association of the type intended by the Legislature. Manifestly, the Legislature enacted the exception for the benefit of charitable and service organizations, not labor unions.

In sum, the conflict of interest statute does not explicitly except labor organizations from its provisions, and nothing in the prior statutes from which article 18 was derived, the predrafting hearings or reports of Comptroller Levitt, the legislative history or the Governor’s records gives the slightest hint that it was intended or designed to exempt labor organizations from conflict of interest proscriptions. In addition, no court or State official responsible for enforcing the statute has interpreted it as exempting labor organizations from its terms. In the face of that evidence, we should not ignore the self-dealing established by the evidence in this record, and apparently common in other municipalities, and enforce the contract. Presumably, the majority is moved by the possibility of injury to the represented employees if the contract is declared void. Plaintiffs do not seek retroactive recoupment of the wages paid, however, and the contract expires by its terms on December 31, 1985. There are remedies available to protect the employees’ rights for the short time remaining (see generally, Lillich, op. cit). Thus, there is no reason why we should deny plaintiffs’ relief, thereby ignoring the violation of the public trust which occurred in this case and encouraging such practices in the future.'

Chief Judge Wachtler and Judges Kaye and Titone concur with Judge Alexander; Judge Simons dissents and votes to

Order affirmed, with costs.