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Caruso v. New York City Police Department Pension Fund

72 N.Y.2d 568 Court N.Y. Decision date 1988-11-22 English

Delivered by Hancock, Jr., J.

Contents

Majority

p. 568
Phil Caruso, as President of the Patrolmen’s Benevolent Association of the City of New York, et al., Appellants, v New York City Police Department Pension Funds, Article 1 and Article 2, et al., Respondents.
Argued October 18, 1988;
decided November 22, 1988
p. 569
POINTS OF COUNSEL
W. Bernard Richland and Julie A. Prag for appellants.
I. The police officer trustees, who share equally with the City administration trustees in the administration of the Police Pension Fund, participated in the "Heart Bill” litigation in their capacity as trustees of the Police Pension Fund, they did so in the exercise of their fiduciary duty and they are entitled to reimbursement of their attorney’s fees from the Pension Fund. (Schoenherr v Van Meter, 215 NY 548 ; Woodruff v New York, Lake Erie & W. R. R. Co., 129 NY 27 ; Corn Exch. Bank Trust Co. v Bankers Trust Co., 268 NY 224 ; Weidlich v Comley, 267 F2d 133 ; Morrissey v Segal, 526 F2d 121 ; New York State Teamsters Conference Pension & Retirement Fund v Hoh, 561 F Supp 687 ; Central States Pension Fund v Central Transp., 472 US 559 ; Matter of City of New York v Schoeck, 294 NY 559 ; Withers v Teachers’ Retirement Sys., 447 F Supp 1248 , 595 F2d 1210 ; Matter of Dana [Manufacturers Hanover Trust Co.], 45 AD2d 676 .) II. Abundant case law affirming common practice establishes plaintiffs-appellants’ right as government officials to have retained independent counsel at public expense for the purpose of correcting the Corporation
p. 570
Counsel’s misguided interpretation of the "Heart Bill”. (Matter of Randy G., 127 Misc 2d 1079 ; Cahn v Town of Huntington, 29 NY2d 451 ; Matter of Commco, Inc. v Amelkin, 62 NY2d 260 ; Buck v City of New York, 214 App Div 629 ; Hanna v Rewkowski, 81 Misc 2d 498 ; Zablow v Incorporated Vil. of Freeport, 41 Misc 2d 803 ; Matter of Murer v Butterfield, 122 Misc 2d 969 ; Matter of Slominski v Rutkowski, 91 AD2d 202 , 62 NY2d 781 .) III. It is the common practice in city government that when city departments or members of a city body need a judicial resolution of their disputes on controlling law, the Corporation Counsel takes one side and the view of the other side is advanced by private counsel at city expense. (Michael v Bellamy, 80 AD2d 147 , 57 NY2d 603 ; Golden v Koch, 49 NY2d 690 ; Matter of Board of Educ. v City of New York, 41 NY2d 535 ; Matter of Board of Educ. v Goldin, 94 Misc 2d 574 , 72 AD2d 603 , 49 NY2d 705 ; Chance v Board of Examiners & Board of Educ., 534 F2d 993 , cert denied sub nom. Council of Supervisors & Adm’rs v Chance, 431 US 965 ; Matter of New York City Hous. & Redevelopment Bd. v Foley, 23 AD2d 84 , 16 NY2d 1071 ; Andrews v Koch, 528 F Supp 246 , 688 F2d 815 , affd sub nom. Giacobbe v Andrews, 459 US 801 .)
Peter L. Zimroth, Corporation Counsel (Doron Gopstein, Leonard Koerner and Edward F. X. Hart of counsel), for respondents.
I. Individual trustees of New York City Public Employee Pension Funds may not be reimbursed for attorneys’ fees incurred by them for suits instituted by them without pension board approval and against the advice of the Corporation Counsel. New York City Charter § 394 invests the Corporation Counsel with "charge and conduct” of all the law business of the City and section 395 prohibits the retention of outside counsel, with statutory and judicially created exceptions not applicable here. Since the individual union trustees, in contravention of the advice of the Corporation Counsel and without seeking Board approval, instituted this action, they were acting on their own, regardless of their capacity as union trustees or union officials. Therefore, the Funds’ motion to dismiss the instant action for attorneys’ fees was properly granted. (Doyle v Allstate Ins. Co., 1 NY2d 439 ; Cahn v Town of Huntington, 29 NY2d 451 ; Matter of Commco, Inc. v Amelkin, 62 NY2d 260 ; Matter of Mooney v Cohen, 272 NY 33 ; Matter of Kay v Board of Higher Educ., 260 App Div 9 , 912; Lyddy v Long Is. City, 104 NY 218 ; Judson v City of Niagara Falls, 140 App Div 62 , 204 NY 630 ; Matter of City of New
p. 571
York v Retirement Bd. of Teachers Retirement Sys., 116 Misc 2d 496 ; People ex rel. Sherrill v Guggenheimer, 47 App Div 9 ; Matter of Abrams v Ronan, 36 NY2d 714 ; Sutherland, Alien Prop. Custodian v International Ins. Co., 43 F2d 969 , 282 US 890 ; Westchester Ch., Civ. Serv. Employees Assn. v Levitt, 37 NY2d 519 .) II. The unique structure of the Police Pension Fund and statutory restrictions on the powers of its trustees limit the applicability of analogies to private trusts. While the Board and its component members are bound to act in a fiduciary manner, the means for fulfilling their fiduciary duties are prescribed in and proscribed by the "terms of the trust”. Disputes concerning interpretation of pension statutes and their application to specific facts have traditionally been resolved in the courts in challenges brought by individual applicants or unions. (Matter of McCambridge v McGuire, 62 NY2d 563 ; Matter of Lichtenstein v Board of Trustees, 57 NY2d 1010 ; Matter of Tobin v Steisel, 64 NY2d 254 ; Matter of Canfora v Board of Trustees, 90 AD2d 751 , 60 NY2d 347 ; Goldman v McGuire, 101 AD2d 768 , 64 NY2d 1041 ; Matter of Mahoney v McGuire, 107 AD2d 363 , 66 NY2d 622 ; Matter of Mondello v Beekman, 78 AD2d 824 , 56 NY2d 513 ; Matter of Lowcher v New York City Teachers’ Retirement Sys., 54 NY2d 373 ; Matter of Rapp v New York City Employees’ Retirement Sys., 42 NY2d 1 .)
William Josephson, Sheldon Raab and Beverly Ross Campbell for Stanley Hill, amicus curiae.
I. Plaintiffs-appellants, as trustees of an express trust, have standing and the right to retain and compensate counsel. (Velez v Feinstein, 87 AD2d 309 ; Central States Pension Fund v Central Transp., 472 US 559 ; NLRB v Amax Coal Co., 453 US 322 ; Savings Bank v New York Trust Co., 27 NY2d 963 ; Withers v Teachers’ Retirement Sys., 447 F Supp 1248 , 595 F2d 1210 ; Matter of City of New York v Retirement Bd. of Teachers Retirement Sys., 116 Misc 2d 496 ; Blankenship v Boyle, 329 F Supp 1089 ; Sgaglione v Levitt, 37 NY2d 507 ; New York City Employees’ Retirement Sys. v Eliot, 267 NY 193 ; Parker v Rogerson, 49 AD2d 689 ; Matter of Garland, 159 Misc 333 .) II. Plaintiffs-appellants were entitled to retain and compensate independent counsel notwithstanding New York City Charter §§ 394 and 395 because the Code of Professional Responsibility precluded the New York City Corporation Counsel from representing the Police Pension Fund trustees in this dispute. (Rosen v Hotel & Rest. Employees & Bartenders Intl. Pension Fund, 637 F2d 592 , 454
p. 572
US 898 ; Judson v City of Niagara Falls, 140 App Div 62 , 204 NY 630 ; Death v Salem, 111 AD2d 778 ; Dunton v County of Suffolk, 729 F2d 903 , 748 F2d 69 ; The Steamer Gray Jacket, 5 Wall [72 US] 370; Sutherland, Alien Prop. Custodian v International Ins. Co., 43 F2d 969 , 282 US 890 ; United States v Muntzing, 69 F Supp 503 ; United States v ICC, 337 US 426 .) III. The spectres of uncontrolled litigation and expense to the City raised by defendants-respondents are not founded in law or fact. (Matter of Patchin, 106 AD2d 730 ; Matter of Dana [Manufacturers Hanover Trust Co.], 45 AD2d 676 ; Matter of Rainone, 33 AD2d 1048 ; Matter of Wilhelm, 88 AD2d 6 ; duPont v Southern Natl. Bank, 575 F Supp 849 , 771 F2d 874 , 475 US 1085 ; Golden v Koch, 49 NY2d 690 ; Barry v City of New York, 175 Misc 712 , 261 App Div 957 ; Cahn v Town of Huntington, 29 NY2d 451 .) IV. The alternatives to granting plaintiffs-appellants’ appeal are unrealistic or contrary to public policy. (Greene v Greene, 47 NY2d 447 ; Matter of Randy G., 127 Misc 2d 1079 ; Lynch v Metropolitan El. Ry. Co., 129 NY 274 ; Schuehle v Reiman, 86 NY 270 ; West Point Iron Co. v Reymert, 45 NY 703 .)
Ronald H. Schechtman and Richard M. Betheil for Vincent Bollon and others, amici curiae.
I. Cahn v Town of Huntington ( 29 NY2d 451 ), as applied and limited to the circumstances herein, requires reimbursement of the trustees’ legal expenses. II. The effect of the decision of the court below is to prevent the union trustees from effectively performing their duties as trustees. (Michael v Bellamy, 80 AD2d 147 , 57 NY2d 603 .)

OPINION OF THE COURT

In this action to recover legal expenses, the question presented is whether individual trustees of the New York City Police Department Pension Funds (the Fund) may, at cost to the Fund, employ outside counsel to institute a lawsuit against other such trustees to resolve a disagreement over the proper construction of a statute governing eligibility for accident disability pension benefits. For the reasons that follow, we agree with the Appellate Division that, under the circumstances of this case, the individual trustees had no such authority and are, therefore, not entitled to reimbursement for the expenses they incurred.

The Board of Trustees of the Fund has 12 members. Eight

p. 573
are police union officials with weighted votes totaling six; four are City of New York officials having the same collective voting strength (Administrative Code of City of New York § 13-216 [a]). The Board reviews applications for disability pension benefits, a majority vote of seven being required for a resolution of approval (§ 13-216 [b]). When an application claiming accident disability is reviewed, a 6-6 tie vote of the Board results in a denial and the applicant is granted only ordinary disability benefits (§ 13-216 [b]; see, Matter of Canfora v Board of Trustees, 60 NY2d 347 , 352). The lawsuits underlying this appeal arose from a deadlock within the Board over claims of accident disability from heart disease. On one side were the union officials; on the other were those of the City.

The disagreement between the two sides centered on the proper interpretation of General Municipal Law § 207-k, commonly known as the "Heart Bill”. The statute makes special provision for policemen who, having no history of heart disease prior to employment with the City, subsequently develop "any condition of impairment of health caused by diseases of the heart, resulting in total or partial disability or death”. Under the terms of the "Heart Bill”, such policemen shall be presumed to have incurred their heart disease "in the performance and discharge of duty, unless the contrary be proved by competent evidence”. In 1979, the Corporation Counsel issued an opinion that the rebuttable presumption thus created by the statute applied only to the question whether a cardiac disability was job-related, not to whether the disability was the result of an "accident” — i.e., the result of a particular, sudden, and unexpected event (see, Matter of Knight v McGuire, 62 NY2d 563 ; Matter of Lichtenstein v Board of Trustees, 57 NY2d 1010 ). According to his opinion, the burden of proof on that latter question remained with the applicant.[1]

Not surprisingly, the City officials on the Board adopted that interpretation of the "Heart Bill” while the union officials strongly disagreed. The latter took the position that an applicant disabled by heart disease is entitled to accident benefits without having affirmatively to establish a sudden and unexpected event. The disagreement between the two

1 The opinions of Corporation Counsel have varied on this point. In August 1973, the "Heart Bill” presumption was interpreted, as in 1979, as applying only to whether the disability was line of duty and not to whether it was an accident. In November of that same year, however, Corporation Counsel reversed itself and interpreted the presumption as applying to both questions.

p. 574
sides resulted in repeated tie votes on cardiac disability claims and the consequent denial of accident disability benefits. Within a short time, the eight union officials retained private counsel to represent them in various proceedings in which they challenged the City officials’ interpretation of the "Heart Bill” and negative voting on accident disability applications. Ultimately, when the action for declaratory judgment reached this court, we sustained the union officials’ interpretation of the statute (see, Matter of De Milia v McGuire, 52 NY2d 463 ).

Following our decision in De Milia, the union officials sought reimbursement from the Fund for expenses incurred in that litigation, as well as in the several related proceedings. When the Fund refused, the union officials commenced the instant action. Supreme Court denied defendants’ motion to dismiss reasoning that, because the union officials could not be represented by the Corporation Counsel whose opinion they were contesting, they had no choice but to retain private counsel ( 122 Misc 2d 576 ). Subsequently, Supreme Court granted the union officials’ motion for summary judgment and awarded them the full amount of the attorneys’ fees requested. On appeal, the Appellate Division reversed the orders of Supreme Court and dismissed the complaint. In a thorough opinion, that court concluded that the union officials had neither express authority to retain private counsel nor authority inherent in their duties as trustees ( 136 AD2d 266 ). We now affirm.

Disagreement among members of the Board of Trustees does not justify the retention of private counsel by those who take issue with the others’ votes and with the legal advice of the Corporation Counsel upon which those others rely. While each member of the Board of Trustees acts in a fiduciary capacity in the administration of the Fund, the authority of the Board and its individual members is determined by the statutory structure establishing that Fund and defining the Board’s function (see, Administrative Code § 13-216 [a], [b]). The statutory provisions creating the Fund (see, Administrative Code §§ 13-201 — 13-287) are, in effect, the "terms of the trust” which confer and limit the powers of the Board and of each member trustee (see, 3 Scott, Trusts § 186 [3d ed]). Those terms require that the Fund be "administered by [the] board of trustees” and that such administration be "subject to the provisions of law” (Administrative Code § 13-216 [a] [emphasis added]). They also mandate that 'fejvery act of the board of

p. 575
trustees shall be by resolution” (§ 13-216 [b] [emphasis added]),[2] and they prohibit trustees from using Fund moneys "in any manner * * * except to make such current and necessary payments as are authorized by [the BJoard” (§ 13-238 [emphasis added]).[3] Additionally, the New York City Charter, which governs every board and officer of the City, states that the Corporation Counsel shall have exclusive responsibility for "the law business of the city and its agencies” and it unequivocally prohibits City officers and agencies from "employing] any attorney or counsel” except at their own expense in a matter which "may affect him or them individually” (NY City Charter § 394 [a]; § 395).[4] The plain language of these governing statutes provides individual members of the Board of Trustees with no authority to retain their own counsel — and, thereafter, to obtain recompense from the Fund — where neither the Corporation Counsel nor the Board, by majority resolution, has given approval.

To be sure, as the union officials point out, the Corporation Counsel could not represent both them and the City officials in the underlying litigation; nor could he have reasonably represented the union officials alone inasmuch as they were challenging his ruling. Nevertheless, they cannot rely on these circumstances to claim necessity — and, therefore, implied authority — to retain private counsel to fulfill their lawful duties. The statutes which created and govern the Fund and the

2 Section 13-216 (b) of the Administrative Code of the City of New York provides: "Every act of the board of trustees shall be by resolution which shall be adopted only by a vote of at least seven-twelfths of the whole number of votes authorized to be cast by all of the members of such board.”

3 Section 13-238 of the Code provides, in pertinent part: "The trustees and such employees, directly or indirectly, for themselves or as agents or partners of others, shall not borrow any of its funds or deposits or in any manner use the same except to make such current and necessary payments as are authorized by such board”.

4 Section 394 (a) of the Charter provides: "Except as otherwise provided in this chapter or other law, the corporation counsel shall be attorney and counsel for the city and every agency thereof and shall have charge and conduct of all the law business of the city and its agencies and in which the city is interested.” Section 395 of the Charter provides, in pertinent part: "No officer or agency, except as provided in this chapter or otherwise especially provided, shall have or employ any attorney or counsel, except where a judgment or order in an action or proceeding may affect him or them individually or may be followed by a motion to commit for contempt of court, in which case he or they may employ and be represented by attorney or counsel at his own or their own expense.”

p. 576
Board are simply devoid of any provision imposing a duty upon individual trustees to challenge either the votes of other trustees or the legal opinion of the Corporation Counsel, their attorney under the City Charter.[5] A fortiori, there is no provision granting individual trustees authority to hire outside counsel to assist them in doing so. Hence, where, as here, there is a disagreement among the trustees in the ordinary and proper course of the Board’s activities — i.e., over the construction of a statute governing the review of accident disability claims — retention of private counsel by individual trustees is ultra vires under their statutorily defined role on the Board and, therefore, not compensable by the Fund.

Strong policy reasons support this conclusion. Administration of the police pension funds is highly regulated; the detailed statutory scheme under which the Board of Trustees operates insures a balance between the interests of the City, represented by its officials, and the interests of employees, represented by members of the union. Each side has the same total number of weighted votes and each resolution before the Board must obtain a majority for approval. Thus, because the Board can only act by such resolution, the affirmative vote of at least one trustee from each side is necessary for the Board to do anything. To permit the trustees on one side to prosecute claims against the others, on routine matters of differing opinion and subject to voting, would disturb that balance and subvert the purpose for requiring majority resolutions. Further, it would encourage such litigation by dissenting trustees over decisions rendered by the Board as a whole — whether denying or granting pension benefits — with the consequent depletion of the Fund to pay for those trustees’ private attorneys’ fees (cf., Corning v Village of Laurel Hollow, 48 NY2d 348 , 351-352).

Finally, the cases relied upon by the union officials — Cahn v Town of Huntington ( 29 NY2d 451 ), Matter of Commco, Inc. v Amelkin ( 62 NY2d 260 ) and Matter of Slominski v Rutkowski ( 62 NY2d 781 ) — are inapposite. Whether, under the decisions in those cases, there might be exceptional circumstances where individual trustees, like those here, could ever retain private counsel, we need not decide. No such circumstances are presented here. This is not a case like Cahn, where the

5 This is not to say, of course, that these same trustees were without standing to initiate litigation to challenge Board actions in -their capacities as union representatives.

p. 577
town planning board, acting in its statutorily defined capacity as a board, made an official decision to retain private counsel. Here, the decision to retain counsel was not by resolution of the Board acting in its official capacity, but by individual members acting on their own without any official sanction. Moreover, in Cahn, the planning board was defending itself in a proceeding instituted against it by the town; because the Town Attorney was representing the town, it was essential for the board to obtain the services of a private attorney. As we said in that case, the retention of outside counsel was necessary "to enable the board to effect the purposes of its creation and to allow it to properly function” (Cahn v Town of Huntington, supra, at 455 ). Here, by sharp contrast, the Board was receiving advice from its lawful attorney, the Corporation Counsel, and was fully able to serve its statutory purpose. Though the Board’s decisions on certain cardiac disability applications were ultimately held to be erroneous, it cannot be said that the Board was not "properly functioning]” — i.e., applications for accident disability were being reviewed, votes were being taken, and decisions were being rendered in the manner prescribed by the governing statutes.

Neither is the situation here comparable to that in Commco, where we upheld the retention of private counsel by a zoning board, even though the municipal attorney was, by statute, the exclusive legal representative of all municipal agencies. There, a conflict of interests arose between the board and the municipality itself and, as a result, the municipal attorney was precluded from representing the board in a proceeding brought by a dissatisfied applicant. In order to fulfill its statutory responsibilities, the board, we held, had implied authority under Cahn to retain its own counsel in order to defend itself. In the present case, however, the Corporation Counsel could and did represent the Board of Trustees in the underlying litigation, and the Board’s decisions were challenged, not externally by a dissatisfied applicant as in Commco, but internally by individual Board members who had neither statutory responsibility nor authority to do so.

Lastly, this case is not analogous to Slominski. There, the underlying dispute was between two high level municipal officers over competing claims of official authority. Because the municipal attorney represented the county executive, the comptroller retained private counsel. This court agreed with the Appellate Division that, under the circumstances of that case, the comptroller should be reimbursed for attorneys’ fees.

p. 578
The litigation there did not simply involve an "internal dispute between lower echelon officials” and, moreover, the comptroller had unquestioned authority to bring the proceeding in her official capacity (Matter of Slominski v Rutkowski, 91 AD2d 202 , 212, affd as mod in other respects 62 NY2d 781 , supra). Here, however, the underlying litigation for which the union officials seek to recover legal expenses did merely entail, as they themselves have described it, an internal dispute between individual trustees, over decisions rendered collectively as members of a single governmental entity, the Board of Trustees. Also, in contrast to the comptroller in Slominski, the union officials here were not seeking to resolve a dispute about their own legitimate authority; they did not, therefore, have any such compelling official need to bring the underlying lawsuits.

Accordingly, the order of the Appellate Division should be affirmed, with costs.

Chief Judge Wachtler and Judges Simons, Kaye, Alexander, Titone and Bellacosa concur.

Order affirmed, with costs.

Cases cited

Statutes and regulations cited