Opinion
No. SCR783/16–1.
09-08-2017
John CANNAVO, Claimant, v. NYC DEPARTMENT OF HOUSING PRESERVATION AND DEVELOPMENT, Defendant. John Cannavo, Claimant, v. NYC Housing Authority, Defendant. John Cannavo, Claimant, v. NYC Employees' Retirement System, Defendant.
John Cannavo, Esq., Staten Island, Claimant. Carlos F. Vealde, NYC Law Department, New York, for defendant.
John Cannavo, Esq., Staten Island, Claimant.
Carlos F. Vealde, NYC Law Department, New York, for defendant.
PHILIP S. STRANIERE, J.
Recitation, as required by CPLR 2219(a), of the papers considered in the review of this Motion to dismiss:
| Papers | Numbered |
|---|---|
| Notice of Motion and Affidavits Annexed | 1 |
| Memorandum of Law | 2 |
| Notice of Cross–Motion | 3 |
| Affirmation in Opposition | 4 |
| Reply Affirmation | 5 |
| Supplemental Affirmation in Opposition | 6 |
| Sur–Reply | 7 |
| Plaintiff's Sur–Sur Reply | 8 |
| Claimant's Supplemental Submission | 9 |
Upon the foregoing cited papers, the Decision/Order on this Motion is as follows:
Claimant, John Cannavo, commenced this day small claims action against the defendants, New York City Employees' Retirement System (N.Y.CERS), New York City Department of Housing Preservation and Development (HPD) and New York City Housing Authority (N.Y.CHA) alleging that the actions of the defendants regarding the unilateral reduction of claimant's monthly pension payment constitutes a breach of contract entitling claimant to damages.
Currently before the court are motions to dismiss the complaint by the defendants. Defendants NYCERS & HPD are represented by the same counsel and assert that the small claims court lacks subject matter jurisdiction, as the proper proceeding, if any exists, is one commenced pursuant to Civil Practice Law & Rules (CPLR) Article 78. Defendant NYCHA moves to dismiss the complaint pursuant to CPLR § 3211 asserting that the claimant fails to state a cause of action and neglected to comply with a condition precedent, the timely filing of a notice of claim. Claimant has filed opposition to each motion. The defendants have submitted replies and claimant sur-replies.
Background:
Claimant, was formerly employed as an attorney initially with HPD and then with NYCHA. He retired in November 2015 after having served for 28 years and began collecting his pension on December 31, 2015. By letter dated March 15, 2016, claimant was notified that his benefits had been improperly calculated and that there was a deficit in his account of $4,604.46. He was given the option of either making one lump sum payment of that amount to NYCERS or having his retirement allowance reduced by $288.65 a month for the remainder of his life. Failure to respond would result in all benefits being suspended. Claimant elected the monthly payments. The notice did not give any details as to the details of how the deficit was calculated, did not indicate if it was a final determination, nor did it apprise the claimant of any administrative or legal remedies available to him should he want to dispute the determination.
Presumably the lifetime payment of $288.65 is derived from actuarial tables although this is not explained by defendants anywhere. According to the Pattern Jury Instructions, the life expectancy table for claimant, who was born in 1957 in about 20 years. This means if he lives 20 years he would repay $5,773.00 to NYCERS to make the pension fund whole for the alleged $4,604.46 shortage. The court must question then at what point is NYCERS made whole?
Claimant inquired as to what was the basis of NYCERS determining there was a deficit. On April 21, 2016, it responded that in 1993, 1994 & 1995, his account was calculated as if he were contributing to the pension system when in fact, no payments were made. NYCERS alleged that there were 33 missing payments and they were entitled to have the account made whole by claimant to cover the cost of the amount of the monthly deductions plus the interest that was earned on those amounts which was credited to the account.
On June 13, 2016, claimant received a second letter from NYCERS stating that an additional $932.48 had wrongfully paid to claimant on March 29, 2002 when a refund check was issued to him because pension payments were taken from his pay more than ten years after being a member in Tier 3. The pension plan provides that after ten years in Tier 3, the employee no longer has to contribute to the fund. Tier 3 members are subject to the provisions of article fourteen of the retirement and social security law [ New York City Administrative Code § 13–101(73) ]. There is no explanation as to how this amount was calculated or why if he was subject to the Tier 3 regulation, he now must refund monies to which he was apparently legally entitled to receive.
Claimant attached as an exhibit to his opposition papers a copy of a printout from NYCERS dated June 13, 2016 which allegedly explains the deficit calculations. If the court is reading it correctly, it shows he should have contributed 3% of his earnings each of those years. It appears that in 1993 he should have paid $281.51 but contributed nothing; in 1994 he should have paid $1,244.29 but again contributed nothing; and in 1995 he should have paid $1,274.43 but only contributed $1,187.45. This is a total deficit of $1,612.78.
According to NYCERS claimant did not enroll in the retirement system until September 1993 even though he was employed by the City of New York as early as October 19, 1986. Apparently, the claimant had seven years of service where he did not contribute to the pension system, yet for all but one of those years contributions were made by someone not identified on the form. It is not clear if the claimant "bought back this time" or was ever given the opportunity to do so.
If we round the NYCERS shortage to $1,600.00 and apply the 5% interest rate which NYCERS indicates it paid on contributions, the amount of interest earned each year would be $80.00. After 22 years (1993–2015) the total interest would be $1,760.00. This number might vary slightly because of compounding, but it would result in a total due of about $3,400.00 and not $4,604.46. Other than providing a chart with the raw numbers, the discrepancy is not adequately explained.
On March 25, 2002, claimant received a letter from NYCERS stating that he had reached ten years of credited service as of September 1, 2001, and as a Tier 3 employee he was no longer required to contribute to the pension system. The letter indicated he paid into the system between September 6, 2001 and February 21, 2002. This resulted in an overfunding of his account by $917.41. Claimant was entitled to a refund of that amount plus interest ($15.07) a total of $932,48. He was issued a check in the amount of $839.48 as taxes had to be withheld. Claimant cashed that check.
NYCERS now alleges that this amount should also be included in the deficit owed to the pension system. The court must question why this refund is now part of the deficit unless NYCERS is claiming that this was wrongfully issued. However, there is no explanation as to what is the error in calculations that requires the claimant to refund this amount. Did the requirement for him to pay into the pension system continue after September 1, 2001 making the March 25, 2002 letter incorrect? Or is NYCERS saying that because of the deficit they can "claw back" this payment and apply it to the amount due? This makes no sense. If claimant was entitled to this money, he can keep it. The amount of the shortage should be based in the 1993–1995 period only based on what is presented in this case.
In any event, irrespective of claimant's legal arguments, defendants owe him, as an employee a more detailed explanation of how the deficit was calculated, and as set forth below may have violated his due process rights by not providing him with the opportunity to have a hearing before the reduction went into place. There should be some administrative process in place for a pension system member to challenge an agency determination without having to resort to litigation in the first instance.
Legal Issues Presented:
I. Did NYCERS Have the Right to Adjust Claimant's Pension Payments?
Because this involves NYCERS which has been in existence since 1920, the rights of the parties are governed by New York City Administrative Code (N.Y.CAC). Relevant to this situation is NYCAC § 13–182, "Protection against fraud or mistake," which provides:
Should any change or error in records result in any member or beneficiary receiving from the retirement system more or less than he or she was entitled to receive otherwise, on the discovery of any such error, and as far as practicable, shall adjust the payments in such manner that the actual equivalent of the benefit to which he or she was entitled shall be paid.
Based on this statute, NYCERS has an absolute right to adjust claimant's account. Case law has consistently upheld this right.
Under this statute payment of public or trust funds in excess of what the beneficiary is entitled to can be recovered. If an overpayment is made the agency has the authority to recoup the overpayment by withholding or reducing the current pension benefits to which the retiree would otherwise be entitled [Matter of Olick v. D'Alessandro, 31 Misc.3d 1218(A) ].
The fact that there is a substantial passage of time before the agency corrects an error does not give rise to the doctrine of estoppel being available to the claimant. The fact that a pension system member relied on letters and statements made by NYCERS is of no consequence and it does not give rise to a claim that the agency is estopped from recouping any overpayment no matter how long a passage of time [ Freda v. Board of Education of the City of New York, 224 A.D.2d 360 (1996) ].
The retirement system's statutory responsibility, supported by broad public policy considerations, requires that it take all necessary steps to insure the financial integrity of the pension fund [ Galanthay v. New York State Teacher's Retirement System 50 N.Y.2d 984 (1980) ].
This Administrative Code section is an "exculpatory statute," which is even better than an "exculpatory contract clause," because an exculpatory clause is always subject to being found unenforceable as against public policy by an activist judge. An "activist judge" is a judge who decided a case against you. Just as a political "moderate" is someone in the other party that agrees with you. The statute must have been enacted when it was determined that the doctrine of governmental immunity would not apply to this situation. Governmental immunity is a democracy's equivalent of "sovereign immunity" and as noted in Mel Brooks' "The History of the World Part I," why "it's great to be king."
Based on the foregoing, NYCERS was within its rights to adjust claimant's pension payments.
II. NYCERS & HPD Motion to Dismiss
A. CPLR Article 78 Claim
NYCERS and HPD have moved to dismiss the small claims action on the ground that the only remedy available to the claimant is a special proceeding pursuant to CPLR Article 78 and that the small claims part of the civil court lacks subject matter jurisdiction. Claimant had filed a Notice of Claim with the New York City Comptroller's office pursuant to General Municipal Law § 50–e. The Notice of Claim was filed on May 25, 2016 which was within 90 days of the claimant receiving notice of the adjustment to his pension payments. It is not clear whether the notice was served on each defendant at its respective headquarters or service was just made upon the Corporation Counsel and Comptroller's Office. NYCHA in its motion denied service.
The notice of claim listed NYCERS, HPD and NYCHA as all being negligent in their failure to properly make deductions from his salary to fund his pension account and breaching the contractual relationship that existed between the claimant and the defendants to properly maintain his retirement account.
By letter dated June 29, 2016, the Comptroller's office rejected the claim and directed the claimant to pursue NYCERS rather than the City of New York or its agencies. Claimant filed this small claims action on September 13, 2016 alleging the breach of contract action.
Defendants, NYCERS & HPD, allege that the claimant is seeking to challenge an administrative determination and therefore his only relief is a special proceeding pursuant to CPLR Article 78. Although there is no equivalent language in the NYCAC, New York State Retirement and Social Security Law (RSSL) § 74 in regard to the state pension system specifically gives the comptroller the authority to investigate every application for a retirement allowance, issue a determination as to what benefits will be paid, give the retiree an opportunity within four months of such determination to request an administrative hearing and redetermination, and after a final determination seek redress through an Article 78 proceeding. RSSL § 74 provides:
d. At any time within four months after the mailing of such notice, the applicant or his counsel may serve a written demand upon the comptroller for a hearing and redetermination of such application After such final hearing the comptroller shall make his final determination. A copy thereof shall be mailed to the applicant and his counsel, if any. Such final determination shall be subject to review only as provided in article seventy-eight of the civil practice law and rules.
If the claimant is covered by the RSSL then the NYCERS procedures are not in compliance with the state law as claimant was not offered to have a hearing to contest NYCERS determination. In fact, a review of the correspondence submitted as exhibits discloses that the claimant was not offered any choice other than to pay the money NYCERS claims is due or have all retirement payments suspended. Claimant was not advised if there is any legal redress of the determination other than to call or visit the customer service center. If this were a clause in a nongovernmental contractual setting, some person might label such a clause as unconscionable or an adhesion contract. Because the letter only advises the claimant to contact the customer service center, it may be argued that there has not in fact been a final determination which would trigger Article 78 relief.
CPLR § 7803"Questions raised" provides:
The only questions that may be raised in a proceeding under this article are:
1. whether the body or officer failed to perform a duty enjoined upon it by law; or
2. whether the body or officer proceeded, is proceeding or is about to proceed without or in excess of jurisdiction; or
3. whether a determination was made in violation of lawful procedure, was affected by an error of law or was arbitrary and capricious or an abuse of discretion, including abuse of discretion as to the measure or mode of penalty or discipline imposed; or
4. whether a determination made as a result of a hearing held, and at which evidence was taken, pursuant to direction by law is, on the entire record, supported by substantial evidence;
The question must be asked, into which of these four categories do claimant's allegations fit to trigger the application of this statute?
Subsection one does not apply because there is nothing in the NYCAC that requires NYCERS to account to the claimant once a determination has been made as to how the payment was calculated and there is no process to compel review.
Subsection two does not apply because there is no allegation that NYCERS lacks the jurisdiction to do what it did. In fact, as set forth above, the statute gives NYCERS the power to adjust accounts.
Subsection three does not apply because there is no allegation that NYCERS violated lawful procedures, made an error or law, or was arbitrary and capricious in its determination, or abused its discretion because NYCERS did not provide any documentation to support its findings. Apparently, there is no requirement that it do so. Claimant cannot determine if the actions were arbitrary or capricious or NYCERS abused its discretion because NYCERS has no obligation to justify its actions and findings, so how can the claimant allege that the actions were arbitrary and capricious when there is an insufficient record of NYCERS actions. The fact that there is no hearing process nor is there any notification of rights to the claimant, does not create an Article 78 issue.
Subsection four does not apply because there was no hearing nor does the NYCAC provide for one. This failure does give rise to other remedies for the claimant to pursue.
Even if the actions of the defendants fit into one of these categories, the availability of an Article 78 proceeding does not absolve NYCERS from providing its members with an adequate pre-deprivation of benefits hearing [ King v. NYCERS, 212 F.Supp.3d 371 (2016) ] and does not eliminate other legal theories by which clamant may seek redress.
B. Due Process Violation Claim
Case law has established that the failure to give explicit notice of the basis of denial of benefit and the opportunity to redress that denial violates due process. This includes the right to bring an Article 78 proceeding [ Morris v. NYCERS, 129 F.Supp.2d 599 (2001) ]. As pointed out above, no letter or correspondence to claimant informed him of any right to seek redress including the right to bring an Article 78 proceeding. To allege that the claimant failed to bring an Article 78 proceeding in a timely manner when that avenue was not offered to him is not fair. It does not matter that claimant is an attorney. The burden is on the agency to advise the affected individual of that individual's rights [ Weaver v. NYCERS, 717 F.Supp. 1039 (1989) ]. The failure to give a pensioner notice of his or her rights to challenge the agency action along with an opportunity to seek redress, gives that person the right to assert the doctrine of equitable estoppel and may be asserted regarding a statute of limitations defense [ McNair v. New York City Housing Authority, 613 F.Supp. 910 (1985) ].
The fact that there is all this existing case law questioning the practices of NYCERS concerning its failure to give notice of procedural due process rights to its aggrieved members all these years later, leads to the conclusion that this is a deliberate policy decision to ignore the warnings of the federal and state courts. An administrative hearing may be required to provide procedural due process notwithstanding the absence of any particular statutory provision [ D'Agostino v. Dinapoli, 24 Misc.3d 1090 (2009) ]. As noted in D'Agostino,"there has been no showing of a likelihood, or even a significant possibility, of difficulty in recouping payments made during the additional period required for a pre-deprivation hearing." Nor would it impose any great burden in the agency to have such a process.
C. Contract Claim
Contrary to the position being asserted by the defendants, there is a recognized basis in law to assert that the claimant has a contract right which was violated by the defendants. New York State Constitution Article 5 § 7 provides:
After July first, nineteen hundred forty, membership in any pension or retirement system of the state or if a civil division thereof shall be a contractual relationship, the benefits of which shall not be diminished or impaired.
Not only is claimant's relationship with NYCERS a contractual one, it also is a fiduciary relationship. Both give rise to a cause of action for an accounting. Claimant has a common law right to have how his pension benefits were calculated and to have a detailed explanation as to why they were modified. A contract cause of action exists for claims that benefits existing under a pension or retirement have been diminished or impaired [ Lippman v. Bd. of Educ. of the Sewanhaka Central. High School District, 66 N.Y.2d 313 (1985) ]. Where the allegations that contract rights have been violated a plenary action may exist irrespective of an Article 78 claim [Abiele Contracting, Inc. v. NYC School Construction Authority, 91 N.Y.2d1 (1997) ].
The only thing that might negate any right to a contractual cause of action or to a hearing would be if the claimant is the member of union that negotiated away these rights in a collective bargaining agreement [ D'Agostino v. Dinapoli, 24 Misc.3d 1090, app dism, 70 AD3d 1285 (2009) ]. However, there is no evidence that claimant is the member of any collective bargaining unit and that if he is, that entity by contract forfeited the claimant's due process rights to a hearing.
Case law has acknowledged that a claimant may maintain a breach of contract action separate and apart from an Article 78 claim [ McDarby v. Dinkins, 907 F.2d 1334 (1990) ]. The fact that the Civil Court has only limited equitable jurisdiction and may limit the claimant's ability to seek relief in that forum does not necessarily mean that the action should be dismissed with prejudice. In fact, if a cognizable equitable cause of action is asserted, the Civil Court may transfer the action on its own motion to Supreme Court pursuant to Article 6 Section 19 of the N.Y. State Constitution [ Kaminsky v. Connolly, 73 Misc.2d 789 (1972) ].
A cause of action exists by claimant for the violation of his due process rights by NYCERS failure to provide a notice of his rights and the ability to have a hearing regarding the reduction of his benefits. In addition, claimant has a contract claim under New York law.
III. NYCHA Motion to Dismiss
NYCHA has filed a separate motion to dismiss. Basically, it asserts that it has nothing to do with how NYCERS calculated claimant's pension time and payments. It also contends that it was never served with the Notice of Claim in this action and that pursuant to Public Housing Law (PHL) § 157, NYCHA as an independent entity, must be separately served. NYCHA asserts that prior to commencement of any suit a claimant must comply with the terms of the PHL. There is nothing in the record that any Notice of Claim was ever served on NYCHA.
The PHL requires that a such a notice be served for any claim against the agency. Case law has created an exception for an Article 78 proceeding [ North County Development Corp. v. Massena Housing Authority, 65 Misc.2d 105 (1970) ]. So, if the nature if claimant's cause of action is governed by Article 78 then no Notice of Claim is needed. If the action arises from any other theory including negligence and breach of contract, then the notice was needed and this small claims action is defective.
NYCHA also asserts that General Municipal Law (GML) § 50–e with its Notice of Claim procedure also is applicable. GML § 50–e only applies if there is a tort claim being asserted. If claimant is advancing a contract claim, then GML § 50–e does not apply.
New York's myriad notice requirements with the necessity of additional service for some agencies and not others create a trap for the unwary and the unrepresented litigant. A sensible system would have all these rules in the CPLR and not spread out in the individual statutes authorizing a particular agency. Unless, of course, the intent is to make it more difficult to sue the government and to create full employment for attorneys specializing in motions to dismiss for lack of compliance.
NYCHA also contends that the action is time barred because the error in claimant's pension contributions occurred between 1993–1995 well beyond the six-year statute of limitations [ CPLR § 213 ]. Considering that claimant was not notified of the alleged error by NYCERS until 2016, the statute of limitations defense is not available. The triggering event is the commencement of the payment of his pension benefits and NYCERS subsequent changing of them pursuant to its mandate in the NYCAC. Based on NYCHA's assertion, then the statute of limitations would be able to be used by claimant or others in his position to prevent NYCERS from correcting any error because the "mistake" was made more than six-years prior to discovery. As noted above, the case law has uniformly held that NYCERS and other retirement systems have an inherent and continuing right to correct errors and are not subject to any statute of limitations.
NYCHA does not address the allegation that NYCERS is entitled to recover monies paid to claimant in 2002 while he was a NYCHA employee which was collected for several months after his Tier 3 status terminated his individual obligation to contribute to the fund. Presumably, NYCHA does not support NYCERS on this issue.
NYCHA is correct in that claimant was required to file a Notice of Claim. However, a question of fact exists as to whether such notice was filed. On the other hand, this court has the power to allow the filing of a late notice of claim if the defendant will not be prejudiced [ GML § 50–e (5) ]. In addition, GML § 50–i(1), gives an agency thirty days to investigate a claim and during which time a claimant cannot commence the action.
Claimant in this case served the Notice of Claim on May 25, 2016. This apparently was triggered by the April 21, 2016 NYCERS letter. He commenced this small claims action on September 13, 2016. The papers in this case were finally submitted to the court in July 2017, almost a year later. NYCHA has had full knowledge of the essence of claimant's cause of action since September 2016 and had ample opportunity to prepare a response on the merits. There is no prejudice to NYCHA if claimant is permitted to file a late Notice of Claim.
Based on the foregoing, claimant was required to serve a Notice of Claim on NYCHA. Claimant is given leave to file a late Notice of Claim, in the event this litigation continues in another forum.
Conclusion:
The defendants' respective motions are granted to the extent that the small claims action is dismissed without prejudice. Claimant is challenging the actions of NYCERS. On its face, such a situation mandates a proceeding pursuant to CPLR Article 78. However, as pointed out above there are situations where contract and due process causes of action exist independent of the Article 78. It would seem that both HPD and NYCHA are not "actors" in the current dispute. But because they maintained payroll records and may have been responsible for the calculation, withholding and transferring of payments to NYCERS, they may be "necessary parties" for the claimant to obtain any relief.
Claimant has in his opposition papers articulated a possible claim for breach of contract and violation of his due process rights. Because he is alleging causes of action which may be equitable rather than seeking money damages, small claims court does not have subject matter jurisdiction and regular civil court may also lack jurisdiction. Claimant is given leave to commence a properly structured action in the appropriate forum. Because the defendants have failed to inform the claimant of his rights to challenge NYCERS either by an Article 78 proceeding or through some other process, the doctrine of equitable estoppel applies to the defendants and they cannot now assert a statute of limitations defense regarding claimant's current allegations.
Even though the defendants are fully aware of the claimant's allegations, have had an opportunity to assert any defenses they may have and have not been prejudiced, claimant is given leave to file a late notice of claim against each defendant.
Before September 30, 2017, defendant NYCERS is directed to hold an administrative hearing to determine the proper amount of any shortage in claimant's retirement account and to enter into a reasonable payment plan to replenish the fund. Prior to that hearing NYCERS will provide a detailed, comprehensive explanation of how it calculated the account shortage and why the 2002 payment to claimant must be returned.
NYCERS is directed to rewrite its standard form letter to explain to retirement system members what discrepancies exist in the members account, the cause of the discrepancies, how it was calculated and how it can be remedied. Every such letter must provide a retirement system member with the opportunity to have a pre-deprivation hearing and advise that member of the right to commence a proceeding pursuant to CPLR Article 78. It must implement the due process system set forth in RSSL § 74.
No later than 120 days after receipt of the results of the NYCERS hearing, claimant will commence an action in the appropriate forum for any relief to which he feels he is entitled should he dispute the results of the hearing.
The foregoing constitutes the decision and order of the court.