Schwartfigure v. Hartnett — 83 N.Y.2d 296

Majority

p. 296

[632 NE2d 434, 610 NYS2d 125]

In the Matter of Patricia Schwartfigure, Appellant, v Thomas F. Hartnett, as Commissioner of the New York State Department of Labor, Respondent.

Argued February 16, 1994;

decided March 22, 1994

p. 297

POINTS OF COUNSEL

Richard Gardner, Canton, for appellant.

I. Appellant was directly affected by the Department’s recoupment policy and therefore should be able to challenge the Department’s lack of compliance with the State Administrative Procedure Act. (Matter of Dairylea Coop, v Walkley, 38 NY2d 6 ; Matter of City of New York v City Civ. Serv. Commn., 60 NY2d 436 ; Matter of Sun-Brite Car Wash v Board of Zoning & Appeals, 69 NY2d 406 ; Society of Plastics Indus. v County of Suffolk, 77 NY2d 761 ; Boryszewski v Brydges, 37 NY2d 361 ; Matter of Sheehan v Ambach, 136 AD2d 25 ; Matter of Industrial Liaison Comm. v Williams, 72 NY2d 137 ; Matter of Metropolitan Assn. of Empl. Agents v Gourdine, 108 AD2d 633 ; Siegal v New York State

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Div. of Hous. & Community Renewal, 143 AD2d 430 .) II. The recoupment program of the Department is a "rule” for purposes of the State Administrative Procedure Act. (Matter of Roman Catholic Diocese v New York State Dept. of Health, 109 AD2d 140 , 66 NY2d 948 ; Matter of Krauskopf v Perales, 139 AD2d 147 , 74 NY2d 730 ; Matter of Connell v Regan, 114 AD2d 273 ; People v Cull, 10 NY2d 123 ; Matter of Jones v Smith, 64 NY2d 1003 ; Losey v Roberts, 677 F Supp 101 .) III. The Department lacks the substantive authority to establish this recoupment policy. (Morissette v United States, 342 US 246 ; NLRB v Amax Coal Co., 453 US 322 ; Matter of Van Teslaar v Levine, 35 NY2d 311 ; Braschi v Stahl Assocs. Co., 74 NY2d 201 ; Matter of Leirer v Caputo, 181 AD2d 119 , 81 NY2d 455 ; Matter of Couch v Perales, 78 NY2d 595 ; Matter of Shufelt v Beaudoin, 116 AD2d 422 ; Matter of Carlton v Regan, 98 AD2d 544 , 63 NY2d 1011 .)

G. Oliver Koppell, Attorney-General, Brooklyn (Maryellen Weinberg, Jerry Boone, Peter H. Schiff and Jane Lauer Barker of counsel), for respondent.

I. Respondent acted within his authority in adopting the set-off policy. The 1983 amendment of Labor Law § 597 (4) removed the limitation on the Department’s recovery of nonwillful overpayments and expanded the Department’s rights of recovery, by giving it a right of civil action, in addition to restoring its right of setoff. (Matter of Memorial Hosp. v Axelrod, 68 NY2d 958 ; Finger Lakes Racing Assn. v New York State Racing & Wagering Bd., 45 NY2d 471 ; People v Duggan, 30 AD2d 736 ; Matter of Warren, 53 NY2d 118 ; Matter of Canfield, 126 Misc 2d 900 ; Matter of 3 Lafayette Ave. Corp. v Comptroller of State of N. Y., 186 AD2d 301 , 81 NY2d 705 ; Matter of Leirer v Caputo, 81 NY2d 455 ; Matter of Cortlandt Nursing Home v Axelrod, 66 NY2d 169 , 476 US 1115 ; Matter of Daleview Nursing Home v Axelrod, 62 NY2d 30 ; Matter of Mayflower Nursing Home v Office of Health Sys. Mgt., 88 AD2d 192 , 59 NY2d 935 .) II. The Court below properly held that the policy not to collect more than 50% of current benefits was not subject to the rule-making requirements of the State Administrative Procedure Act. (Matter of Elmira Bus. Inst. v New York State Dept. of Educ., 116 AD2d 133 , 70 NY2d 758 ; People v Cull, 10 NY2d 123 ; Dubendorf v New York State Educ. Dept., 97 Misc 2d 382 , 71 AD2d 837 ; Matter of Connell v Regan, 114 AD2d 273 ; Matter of Guile v State Univ., 49 AD2d 1022 ; Corliss v Solomon, 75 AD2d 837 ; Matter of Police Conference v Municipal Police Training Coun

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cil, 73 AD2d 712 , 51 NY2d 810 ; Matter of Marchi v Acito, 77 AD2d 118 ; Matter of Kugler v Board of Trustees, 45 Misc 2d 239 ; Matter of Pell v Board of Educ., 34 NY2d 222 .)

OPINION OF THE COURT

In 1988, petitioner was originally found qualified for and began to receive unemployment insurance benefits. The initial determination was overruled by the Unemployment Insurance Appeal Board in December 1989, however, and a notice of determination was sent to petitioner informing her that she was required to repay a total of $2,112 in benefits which had been erroneously overpaid to her. This overpayment was not found to be due to any willful misrepresentation or other violation on the part of petitioner. Petitioner chose not to appeal the Board’s determination.

In January 1991, petitioner again applied for and was found qualified to receive unemployment benefits. However, when she began receiving benefits in February 1991, respondent, in accordance with long-standing policy, paid petitioner only 50% of the benefits for which she was eligible, setting off the remaining 50% to recover the previous overpayment. An offer by petitioner to repay the prior overpayment in lesser installments was rejected by respondent.

Petitioner commenced this hybrid declaratory judgment and CPLR article 78 proceeding seeking, inter alla, a declaration that respondent’s method of recoupment violated Labor Law § 597 (4), and that the recoupment policy constituted a "rule” within the meaning of the State Administrative Procedure Act such that respondent was required to propose and promulgate the policy pursuant to the requirements of that Act. Supreme Court dismissed the petition and petitioner appealed. The Appellate Division affirmed ( 193 AD2d 907 ), holding that a 1983 amendment to Labor Law § 597 (4) restored respondent’s common-law right of setoff and that petitioner had no basis to challenge the method by which respondent exercised that right. This Court granted petitioner leave to appeal, and we now reverse.

As to petitioner’s first argument on this appeal, that respondent’s method of recoupment contravenes Labor Law § 597 (4), we agree with the Appellate Division that the 1983 amendment to that statute restored respondent’s common-law right of setoff to recoup funds erroneously paid to claimants. We

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have previously held that, under proper circumstances, an administrative agency possesses a common-law right of recoupment to recover erroneous payment of public funds (see, Matter of Leirer v Caputo, 81 NY2d 455 ; Matter of Daleview Nursing Home v Axelrod, 62 NY2d 30 ; see also, Matter of Mayflower Nursing Home v Office of Health Sys. Mgt, 88 AD2d 192 , affd 59 NY2d 935 ), consistent with the strong public policy of this State to recover public funds improperly received (see, Matter of Cortlandt Nursing Home v Axelrod, 66 NY2d 169 , 182, cert denied 476 US 1115 ). Prior to 1983, Labor Law § 597 (former [4]) totally abrogated respondent’s right to recoup benefits overpaid through no fault of the recipient, specifying that a new determination resulting in a loss of eligibility for benefits:

"shall not affect the rights to any benefits already paid under the authority of the prior determination or decision provided they were accepted by the claimant in good faith and the claimant did not make any false statement or representation and did not wilfully conceal any pertinent fact in connection with his claim for benefits.”

In 1983, the Legislature repealed this provision (L 1983, ch 415, § 9), substituting present Labor Law § 597 (4) which provides:

"[wjhenever a new determination * * * results in a decrease or denial of benefits previously allowed, the commissioner shall have a right of action for recovery of moneys paid pursuant to the prior determination or decision.”

Petitioner urges that the legislative grant of a "right of action” in the revised section 597 (4) merely authorizes recovery of overpayments through a civil suit, and thus provides no warrant for respondent’s method of recoupment by setoff. However, although respondent’s statutory remedy to recoup overpaid funds may thus be limited to a civil suit as petitioner contends, we conclude that the Legislature’s repeal of the previous ban on recoupment, in conjunction with its statutory recognition of a valid claim against any overpayment, effectively restored respondent’s common-law right of setoff to recoup those erroneously paid funds. Here, where the fact and amount of overpayment to petitioner were determined and made definite by a fair adjudicative procedure (cf., Matter of Leirer v Caputo, supra, at 459-460), this right of recoupment

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may properly extend to the recapture of funds through setoff by respondent in this case.

Although respondent had a right of setoff to recover over-payments of benefits to petitioner, we disagree with the view of the majority at the Appellate Division that petitioner has no standing to challenge the manner in which respondent exercises that right. Respondent argued successfully before the Appellate Division that, since respondent could have withheld 100% of the second award of benefits until the overpayment was recouped, petitioner was not aggrieved by respondent’s policy to retain only 50% of those benefits. We agree with the partially dissenting opinion of Justice Yesawich, Jr., at the Appellate Division that the existence of the right of setoff must be seen as distinct from the particular manner in which the administrative agency here chose to implement that right. In the absence of any applicable statutory exception, the procedure chosen by the agency to implement its right of setoff is circumscribed by the rule-making requirements of the State Administrative Procedure Act. It follows that if under the State Administrative Procedure Act respondent’s 50% recoupment policy required the promulgation of a rule, petitioner, to whom the policy is being directly applied, has standing to challenge respondent’s noncompliance with the State Administrative Procedure Act, notwithstanding that a more stringent policy might have been implemented.

Section 102 (2) (a) (i) of the State Administrative Procedure Act defines a "rule” as "the whole or part of each agency statement, regulation or code of general applicability that implements or applies law, or prescribes a fee charged by or paid to any agency or the procedure or practice requirements of any agency”. In Matter of Cordero v Corbisiero ( 80 NY2d 771 ), we adopted for purposes of determining what constitutes a "rule” under the State Administrative Procedure Act the criterion for constitutional filing purposes articulated in Matter of Roman Catholic Diocese v New York State Dept. of Health ( 66 NY2d 948 ) embracing "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” (id., at 951). Respondent’s 50% set-off policy for nonwillful overpayments is a rigid, numerical policy invariably applied across-the-board to all claimants without regard to individualized circumstances or mitigating factors, and as such falls plainly within the definition of a "rule” for State Administrative Procedure Act

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purposes. The policy cannot be characterized as concerning only the internal management of the agency (see, State Administrative Procedure Act § 102 [2] [b] [i]), as the recoupment undertaken thereby directly and significantly affects that segment of the public over which respondent exercises direct authority (cf., Matter of Krauskopf v Perales, 139 AD2d 147 , affd 74 NY2d 730 for reasons stated below). We therefore conclude that the policy, in its present form and manner of application, is subject to the rule-making procedures set forth in the State Administrative Procedure Act (see, § 202).

Respondent’s setoff of 50% of petitioner’s benefits having been accomplished pursuant to an administrative rule not properly promulgated under the State Administrative Procedure Act, petitioner is entitled to a determination and recovery of the amount of benefits which would not have been set off had petitioner’s individual facts and circumstances at the time the benefits were payable been considered by respondent.

Accordingly, the order of the Appellate Division should be reversed, with costs, respondent’s 50% set-off policy declared invalid and the case remitted to Supreme Court with directions to remand to respondent for further proceedings in accordance with this opinion.

Chief Judge Kaye and Judges Simons, Bellacosa, Smith and Ciparick concur; Judge Titone taking no part.

Order reversed, etc.

Cases cited

Dairylea Cooperative, Inc. v. Walkley 38 NY2d 6 N.Y. 1975-10-28 p. 297
City of New York v. City Civil Service Commission 60 NY2d 436 N.Y. 1983-12-01 p. 297
Sun-Brite Car Wash, Inc. v. Board of Zoning & Appeals 69 NY2d 406 N.Y. 1987-04-28 p. 297
Society of Plastics Industry, Inc. v. County of Suffolk 77 NY2d 761 N.Y. 1991-05-09 p. 297
Boryszewski v. Brydges 37 NY2d 361 N.Y. 1975-07-02 p. 297
Sheehan v. Ambach 136 AD2d 25 N.Y. App. Div. 1988-03-10 p. 297
Industrial Liaison Committee of Niagara Falls Area Chamber of Commerce v. Williams 72 NY2d 137 N.Y. 1988-07-12 p. 297
Siegal v. New York State Division of Housing & Community Renewal 143 AD2d 430 N.Y. App. Div. 1988-09-26 p. 298
Roman Catholic Diocese v. New York State Department of Health 109 AD2d 140 N.Y. App. Div. 1985-06-20 p. 298
Roman Catholic Diocese v. New York State Department of Health 66 NY2d 948 N.Y. 1985-12-17 p. 298, p. 301
Krauskopf v. Perales 139 AD2d 147 N.Y. App. Div. 1988-07-07 p. 298, p. 302
Krauskopf v. Perales 74 NY2d 730 N.Y. 1989-06-30 p. 298, p. 302
Connell v. Regan 114 AD2d 273 N.Y. App. Div. 1986-02-27 p. 298
People v. Cull 10 NY2d 123 N.Y. 1961-07-07 p. 298
Jones v. Smith 64 NY2d 1003 N.Y. 1985-03-28 p. 298
Morissette v. United States 342 US 246 SCOTUS 1952-01-07 p. 298
National Labor Relations Board v. Amax Coal Co. 453 US 322 SCOTUS 1981-06-29 p. 298
In re the Claim of Van Teslaar 35 NY2d 311 N.Y. 1974-10-08 p. 298
Braschi v. Stahl Associates Co. 74 NY2d 201 N.Y. 1989-07-06 p. 298
Leirer v. Caputo 181 AD2d 119 N.Y. App. Div. 1992-06-22 p. 298
Leirer v. Caputo 81 NY2d 455 N.Y. 1993-06-15 p. 298, p. 300
Couch v. Perales 78 NY2d 595 N.Y. 1991-11-26 p. 298
Shufelt v. Beaudoin 116 AD2d 422 N.Y. App. Div. 1986-05-01 p. 298
Carlon v. Regan 98 AD2d 544 N.Y. App. Div. 1984-01-26 p. 298
Carlon v. Regan 63 NY2d 1011 N.Y. 1984-11-15 p. 298
Memorial Hospital v. Axelrod 68 NY2d 958 N.Y. 1986-11-13 p. 298
Finger Lakes Racing Ass'n v. New York State Racing & Wagering Board 45 NY2d 471 N.Y. 1978-10-26 p. 298
In re Bloomfield 53 NY2d 118 N.Y. 1981-06-11 p. 298
In re the Estate of Canfield 126 Misc 2d 900 N.Y. Sur. Ct. 1984-12-28 p. 298
3 Lafayette Avenue Corp. v. Comptroller 186 AD2d 301 N.Y. App. Div. 1992-09-17 p. 298
Cortlandt Nursing Home v. Axelrod 66 NY2d 169 N.Y. 1985-10-17 at 182 p. 298, p. 300
Daleview Nursing Home v. Axelrod 62 NY2d 30 N.Y. 1984-05-10 p. 298, p. 300
Mayflower Nursing Home v. Office of Health Systems Managements of Department of Health 88 AD2d 192 N.Y. App. Div. 1982-07-29 p. 298, p. 300
Mayflower Nursing Home v. Office of Health Systems Management of the Department of Health 59 NY2d 935 N.Y. 1983-06-28 p. 298, p. 300
Elmira Business Institute, Inc. v. New York State Department of Education 116 AD2d 133 N.Y. App. Div. 1986-04-03 p. 298
Dubendorf v. New York State Education Department 97 Misc 2d 382 N.Y. Sup. Ct. 1978-12-14 p. 298
Guile v. State UniverSity of New York 49 AD2d 1022 N.Y. App. Div. 1975-10-31 p. 298
Police Conference of New York, Inc. v. Municipal Police Training Council 73 AD2d 712 N.Y. App. Div. 1979-12-06 p. 299
Police Conference of New York, Inc. v. Municipal Police Training Council 51 NY2d 810 N.Y. 1980-10-09 p. 299
Marchi v. Acito 77 AD2d 118 N.Y. App. Div. 1980-11-06 p. 299
Kugler v. Board of Trustees of State University 45 Misc 2d 239 N.Y. Sup. Ct. 1964-05-01 p. 299
Pell v. Board of Education 34 NY2d 222 N.Y. 1974-05-15 p. 299
Schwartfigure v. Hartnett 193 AD2d 907 N.Y. App. Div. 1993-05-13 p. 299
Cordero v. Corbisiero 80 NY2d 771 N.Y. 1992-06-04 p. 301