Montesano v Madison

[*1] Montesano v Madison 2006 NY Slip Op 51609(U) [12 Misc 3d 1197(A)] Decided on July 18, 2006 Supreme Court, Monroe County Polito, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on July 18, 2006
Supreme Court, Monroe County

Joseph Montesano, Individually and as President of The Rochester Firefighters, Inc., Local 1071, IAFF, AFL- CIO, as Trustee of the Rochester Firefighters Association Mutual Aid Fund, and on Behalf of All Other Individuals Providing the Fire Protection to the City of Rochester, Similarly Situated; and Frederick DiNoto, Gary DiNoto, Kevin Bills and Michael Sulli, Individually as Rochester Firefighters and as Trustees of the Rochester Firefighters Association Mutual Aid Fund; and the Rochester Firefighters Association Mutual Aid Fund, Plaintiffs, .

against

Floyd A. Madison as Chief of the Fire Department of the City of Rochester, New York, and as Administrator of the Firefighters' Insurance Fund of the City of Rochester; William A. Johnson Jr., as Mayor of the City of Rochester, New York; Vincent J. Carfagna as Director of the City of Rochester's Finance Department; Charles A. Benincasa as Treasurer of the City of Rochester and as Trustee of the Firefighters' Insurance Fund of the City of Rochester; City of Rochester, New York; Fire Department of the City of Rochester, New York; and Firefighters Insurance Fund of the City of Rochester; and the Rochester Firefighters Benevolent Association, Defendants.



05/12253



CHAMBERLAIN, D'AMANDA, OPPENHEIMER &

GREENFIELD, LLP

MATTHEW J. FUSCO, ESQ., of Counsel

Attorneys for Plaintiffs

Office and P.O. Address

Two State Street, Suite 1600

Rochester, NY 14614

CITY OF ROCHESTER LAW DEPT. JOHN M. CAMPOLIETO, ESQ., of Counsel

Attorneys for Defendants

Office and P.O. Address

30 Church Street, Room 400A

Rochester, NY 14614

William P. Polito, J.

Relief Requested:

This is an action commenced on or about May 2, 2002 by service of a summons and complaint. Issue was joined on or about June 12, 2002. Plaintiff in the action and by summary judgment motion dated October 27, 2005, seeks a declaratory judgment that Section 9104(a), (f), and (g) of the Insurance Law and similar language contained in Section 9105 passed in 1988 require the 2% insurance premium funds to be received and administered by the Rochester Firefighter's Association Mutual Aid Fund (RFAMAF) with the actual use of such funds to be directly determined solely by the firefighters of the City of Rochester; that the prior 1979 City Charter Amendment Sec. 8B-11 which directs receipt and discretionary use of such funds to the City of Rochester Treasurer and City Council was superceded by Insurance Law Sections 9104 and 9105 and is in violation thereof; and that the past and future use of such funds for the Old Fire Pension Fund and/or for expenses which the City is already obligated to pay under its Collective Bargaining Agreement are and have been improper expenditures of the 2% fund; and that such misuse of the funds by the City since 1996 be accounted for and reimbursed.

Defendants oppose and cross move for summary judgment and a declaration that Local Law Section 8B-11 of the City of Rochester Charter is constitutional, that the Custody and Administration of the Fire Insurance Fund as presently handled by the City Treasurer and City Council with a joint agreement with the firefighter's associations is not in violation of Insurance Law Sections 9104 and 9105.

Defendant more specifically contends that it has complied with Section 9104(a), (f) and (g) by its receipt and use of such funds by virtue of a 1981 written [*2]mutual agreement with the representatives of two firefighter's organizations for the fund's use, and that the expenditures have since been in compliance with such agreement, and within the allowable uses of such funds.

Decision:

Plaintiffs' motion and defendants' cross motion for declaratory determinations and attendant relief are granted as follows: The Court declares that Insurance Law Sections 9104 and 9105 do not supercede and/or pre-empt City Charter 8B-11, that the procedure adopted by the City of Rochester through its council in a consultive arrangement with the two firefighter's organizations is not violative of Sections 9104 or 9105 or the Constitution, that the City Treasurer is the proper recipient of the 2% funds and not the Rochester Firefighter's Association Mutual Aid Fund, that the retention of such funds in a Certificate of Deposit in an account separate from other monies of the City of Rochester is a proper temporary designation of such funds until used, that the approval of the firepersons or RFAMAF is not required for such temporary use, that the obligations assumed by the City of Rochester through its collective bargaining agreement are ordinary obligations for which the 2% fund cannot be used, and that pension, health or other benefits are appropriate uses of the 2% fund provided they are applicable or available to all firefighters; that the unitemized designation of miscellaneous to a large amount of those 2% funds is improper disclosure and accounting.

A justiciable issue is raised as to the appropriate use of some of the funds, such as pension, dental and health care benefits which have become the City's obligation under the Collective Bargaining Agreement or are not applicable to or available to all firepersons, which require a limited accounting. In accordance therewith, the defendant city shall provide an itemized accounting of its use of the 2% fund from four months prior to the commencement of the 2002 action to date for review and determination. To the extent violation of the uses aforesaid exist and the parties cannot agree upon a resolution, or the appointment of a mutually agreeable referee to hear and make recommendations, the failure of which resolution, or agreement of a referee, such referee will be determined by the Court.

Relevant History: [*3]

The parties have briefed in great detail the history of the two percent fund (2% fund) and the plethora of litigation surrounding the use and management of said fund monies including the many opinions of the State Comptroller over the last two centuries. Insurance Law Sections 9104 and 9105, which sections were amended in 1988 from the former 1940 State Insurance Law Sections 553, 554, which emanated from Section 133 first enacted in 1849. Those sections each consistently provided that foreign and alien fire insurance companies and mutual fire insurance companies must pay a 2% tax on the amount of all fire insurance premiums, and that the funds shall be paid into the respective fire districts where the property was located for which the premiums were collected. Those funds were to be used solely for the benefit of that district's firefighters. Historically, those laws consistently throughout every amendment allowed generally for the district fire departments and its members to receive and determine such use, unless otherwise provided by special state law.

In accordance with the special state law exception, the State Legislature passed a special law in 1864 directing the Fire Dept. of the City of Rochester, a corporation of only several firefighters to be the recipient of the 2% tax and, most importantly, also declared that the several trustees of the recipient entity had the sole discretion to select and determine the appropriate placement of the fund's distribution for the benefit of the firemen, notwithstanding the later existence of another similarly named corporation which did constitute all of the city firefighters to whom payment would have been more in keeping with the plan's intent. (Ashley v. The Fire Department of the City of Rochester, et al., 73 Misc 636, (Sup. Ct., Monroe County, 1911)).

In 1963 when State Insurance Law Sections 553 and 554 had been in effect for several years, the City of Rochester exercised its Home Rule Authority superceding the 1864 law with passage of City Local Laws 5 and 6, which replaced the Fire Dept. of the City of Rochester as the recipient and administrator with the City Treasurer and Comptroller (now the City Treasurer) to be the entity to receive and administer the 2% funds.

In 1979, the City passed an additional charter amendment (Sec. 8B-11) which directed the Section 553 and 554 monies be placed into a separate fund maintained by the Treasurer and authorized its expenditure as approved and authorized by City Council through its annual budget process, but limited such use to (1) Reimbursement of annual costs of payments under the Fire Pension Fund, (2) [*4]payment to indigent and disabled firefighters not already receiving those benefits and (3) the remainder for the use and benefit of the fire department.

The stated purpose of the aforesaid legislation 8B-11was to provide specific broader authorization to the City to use the 2% tax "not only for pension payments, but also for other programs for all the members of the fire department, such as the cardio fitness program proposed in the 1979-80 budget." (Transmittal letter 6/28/79 - Fusco, Ex. E; Louis Kash memo dated 1/5/78 - Fusco Ex. D).

Thereafter, in determining the use of the 2% tax funds in 1981, the City entered into a joint cooperative arrangement with two Fire Organizations, whose bodies consisted of almost all of the city firefighters. The finalized signed written agreement was entitled "Memorandum of Consultation". All parties agreed therein that the selected uses designated were both appropriate and legally allowable uses of those funds for the firefighter's benefit under Sections 553 and 554.

That agreement commits the City to specified uses with limitations. The benefits for which the funds were to be used are:

1. Upgrade of dental plan for all firepersons not

included in Collective Bargaining Agreement from

7/1/80 to 6/30/83.

2. Annually two riders to Blue Cross and Blue

Shield received by all active members of the Fire Dept.

commencing 7/1/81.

3. A dental plan for certain retired members of

the Rochester Fire Dept. who retired after 11/1/80 but

before 1/1/81 and after 1/1/81.

4. A prescription rider for certain retired members [*5]

of the Rochester Fire Dept., ie, spouses and minor children

of firefighters who die while on active duty.

5. For the cost of pension benefits for active duty

retirees or surviving spouses of retires under Articles VIII-c

of Charter of the City of Rochester.

The City is "not hereby committing itself to a continuation of (the upgraded dental plan) beyond the expenditure of ($375,000)". (Underlining added). The commitment is to continue as to benefits 1 to 4 as long as the City continues to use the 2% funds for pension expenses pursuant to Article VIII-C of the City Charter. "... provided necessary authorization and approval from the City Council is received as required by Article VIII B-Section 8B-117 of the Charter of the City of Rochester." (Fusco affidavit, Ex O).

In the ensuing 20 years, the union representatives complained verbally and in written communications that the firemen should be the sole determiner of the use of those funds, that the City's application of the fund was outside the scope of the Consultation Agreement, and further, that even the uses within the agreement were no longer proper due to subsequent Collective Bargaining Agreement changes.

The Union cited to the City the Opinion of State Comptroller No.81-389 (Fusco aff. 10/27/05, Ex. M) in support of its continued position that direct and sole firemen's approval for the expenditure of the 2% fund was required by statute, and asserts the same authority to this Court. Counsel to petitioner further cites the added language of Section 9104 and 9105 as amended in 1988, and the MacIsaac v. City of Poughkeepsie case. (158 AD2d 140, (3rd Dept., 1990), motion for leave to appeal denied 76 NY2d 714 (1990)).

Issues [*6]

The primary issue raised is whether the additional language of Section 9104(f) "as determined by the (firemen) members" coupled with 9104(g) precluding any changes by local law was intended to implement a statewide scheme in the use of said fund mandating direct and sole firefighters' determination, and revoking or superceding any existing or future Local Laws inconsistent therewith, especially City Charter 8B-11.

Secondly, whether the expenditures by the City were outside its mutual agreement and/or the restricted purposes of the 2% fund , and if so, whether an accounting should be made and judgment taken.

Rationale and Law

The relevant sections of 9104 and 9105 upon which petitioner relies are underlined as follows: (1) Sections 9104(a) and 9105(d) - such funds shall be paid "to such other person or entity as shall be designated in any special law to receive such premiums";(2) Sections 9104(f) and 9105(3) - "except as otherwise provided in any special law, ..., such tax shall be used for the benefit of as determined by the members (of the Fire Department)"; and(3) Sections 9104(g) and 9105(3) - "the provisions of this section shall not be changed, modified or amended by any charter, local law, ordinance, resolution or regulation".

9104 and 9105 does not supercede or pre-empt City Charter 8B-11 [*7]

In 1911, the Fourth Department Appellate Division determined under Section 133 that the special state law passed in 1864 as authorized by Section 133, which designated a local organization to receive and the sole discretion to disburse the exact use of such 2% funds, was valid and within the scheme of the Insurance Law 133, notwithstanding the objection to that scheme by the firefighters of that district. However, provided the funds were ultimately expended for the use and benefit of the firefighters in that district. (Ashley, supra).

In 1965, under Section 553 and 554, the Court of Appeals reaffirmed and extended the prior ruling by declaring that the said 1864 law was local and not statewide in its application, and, therefore, could be and was validly superceded by the City of Rochester under its constitutionally protected Home Rule Authority. That local legislation (City Law 5 and 6) designated the Treasurer of the City (then Comptroller) as the recipient with the sole discretion to determine the use of such funds provided that they were ultimately expended for the benefit of the firefighters in that district. (Fire Department of City of Rochester v. City of Rochester, 23 AD2d 183, (4th Dept., 1964), aff'd 16 NY2d 933, (1965)).

In 2004 under Section 9104 and 9105 the Fourth Department Appellate Division in a challenge similar to the one here, again, declared that the prior existing State special law passed in 1945 for the Town of Greece, which designated a specific entity to receive the funds as well as the discretion of that organization to determine how to disburse the tax funds to benefit the firefighters, was not superceded by the additional 9104 and 9105 language mandating direct firefighters' approval. (Watt et al v. Richardson et al, 6 AD3d 1117 (4th Dept., 2004); appeal denied 9 AD3rd 920 (4th Dept.), appeal denied 3 NY3d 735).

The Court determined that the general statewide requirement of direct firemen membership approval was not applicable where specific state legislation did "otherwise provide" as explicitly retained in the statute (9104(a) and (f)) from the prior Sections 553 and 554. Particularly helpful in understanding that concept is the flow chart attached hereto as Exhibit A which was urged by the defendant in the Watt case, and was in accordance with Fourth Department Appellate Division decision. (Ex. A attached). [*8]

However, the additional consideration to be determined here is whether the language of 9104(g), which pre-empts and precludes the local authorities from varying from the statewide scheme, was intended to pre-empt and supercede the local authorities from changing the 1864 Special State Law and, thereby, to override the City's ability to use its constitutionally protected Home Rule Authority. The Court finds no language or legislative history to support that intended result. At the time of passage it was clear law as interpreted in the 1963 Firemen's case under Section 553 and 554 that the City retained its right to supercede that 1864 special law by its Home Rule Authority for the reasons stated therein, viz., that the 1864 statute applies only to the City of Rochester and "does not in terms and in effect apply alike to all cities". (Fire Dept. City of Rochester, supra at pg. 187, 188). In light of that clearly stated case law, the retention of the 1864 special statute and excepted language in Sections 9104 and 9105, and the lack of any legislative history indicating an intent to override Home Rule Authority on that aspect of administrative determination lends to the conclusion against such pre-emption. As stated by the lower court in the original 1911 Ashley case in applying the principles of pre-emption to the statutory language of the precedent statute: "I cannot bring myself to believe that it was intended by the Codification and Consolidation of the Insurance Laws (apparently only done for convenience and ease of reference)to thus reverse a deliberate and well defined policy of the

state, adopted for the benefit of ... firemen and consistently

followed for many years. If such had been the intention, it would have been, in my judgment, manifested by positive and

unmistakable legislative action, and not left to the Courts to

make known by judicial construction'." (Ashley, pg 641).

State Comptroller Opinion #90-8 elaborates further on the reasons and basis of why Sections 9104 and 9105 of the Insurance Law do not supercede the Rochester City Charter, with which rationale and conclusion this Court agrees.

Further, such interpretation as proposed by the petitioner raises a serious [*9]issue as to whether the State may pre-empt the constitutionally protected Home Rule Authority of the City without first revoking the 1864 statute (which, as aforesaid, the Courts have determined is local and not statewide in its application). (Grumet v. Goodbody, 1 Misc 2d 222, (Sup. Ct., Kings County, 1953), aff'd 309 NY 956), cited by Fire Dept. Of City of Rochester, supra at 187, 188).

Perhaps, if the legislature had first repealed the 1864 special law, then the result of a uniform statewide precedent of firefighter approval precluding its variance by local legislation may have well occurred, if intended, (Castle Oil Corp v. City of New York, 89 NY2d 334, (1996)), notwithstanding the continued exception of state legislation applicable to other cities or areas of the state. (In the Matter of Thomas E. Radich v. Council of the City of Lackawana, 93 AD2d 559, 564-565, (4th Dept., 1983), aff'd 61 NY2d 652, (1983)).

Further, the petitioner's reliance on Comptroller's Opinion #81-389 opining that Insurance Law Sections 553 and 554 required firefighter approval for an expenditure is misplaced. That decision is based upon the situation where the Treasurer of the City of Rochester became the recipient due to the default in the absence of a City Fire Department treasurer, and not, as here, where the source is the special state law exception. The opinions cited therein (Comptroller Opinion #79-627 and #79-680) relate to the same default situation (Fusco affidavit 10/27/05 Ex. I and J). (Cf: Comptroller Opinion #78-619, Fusco Ex. N).

MacIsaac v. City of Rochester, supra also cited by petitioner was limited to a finding that the local legislation which directed use of the funds to pay for fire trucks and equipment, was violative of Sections 9104 and 9105 whose purpose for such funds required use of those funds to be for the personal benefit of all firefighters and not for items which the City was already obligated to purchase. The additional 9104(g) and 9105(3) language protected against the local authority changing that purpose. (MasIsaac at 143-144). Neither of the parties here have disputed that the City's ordinary obligations are excluded from such use, or that Sections 9104 and 9105 require that the funds be used solely for the benefit of firepersons. The MacIsaac court specifically stated that its own prior appellate decision on the subject did not decide the issue of "whether the City could designate the manner in which the tax proceeds could be expended". (supra, pg. 144). Nor did the MasIsaac court purport to make any such determination in [*10]regards thereto as asserted by petitioner.

The City Treasurer as Recipient

Other than the unconstitutionality of City of Rochester Charter Amendment Section 8B-11, the petitioner provides no authority in its brief for its contention that the Rochester Firefighter's Assistance Mutual Aid Fund is the proper recipient of the 2% fund. Section 9104(a) and 9105(4) and former Section 553 and 554 allowed the recipient to be designated by special law. (Fire Department of City of Rochester v. City of Rochester, 23 AD2d 183, (4th Dept., 1964), aff'd 16 NY2d 933, (1965); Watt et al v. Richardson et al, 6 AD3d 1117 (4th Dept., 2004); appeal denied 9 AD3rd 920 (4th Dept.), app. den. 3 NY3d 735)). If the recipient designated by the 1864 special law is no longer in existence and the City's superceding law was invalid, the recipient would still devolve to the City Treasurer. That default result was noted in the Fire Department of the City of Rochester, supra at 188).

Improper Use of 2% Funds

The petitioner raises the contention that once the City agreed to provide benefits through its Collective Bargaining Agreement, those benefits become ordinary expenses of the City, and are inappropriate for payment or apportionment from the 2% funds.

The Court agrees. Since the Collective Bargaining Agreement reduces the benefits to the general obligations for which the City assumed direct responsibilities as part of its general operating charges, it can no longer use the 2% funds for those obligations which it contracted to assume. (Wilcox v. Schenck, 52 AD2d 349, (3rd Dept., 1976)). The City seems to recognize that principal since it explicitly excluded the 2% funds from its Bargaining Agreement (Campolieto aff, Ex. E, pg. 20 of Collective Bargaining Agreement) and excluded the Bargaining Agreement from its "memorandum of consultation". (Fusco, Ex. ), pg. 4 #7 of Consultation Agreement). [*11]

Accordingly, the use of the 2% funds for those items which become the City's obligations under its Collective Bargaining Agreement are improper, include:

(1) Payment to the upgrade of the dental health benefits or

health insurance benefits after they become the obligation

of the City under its Collective Bargaining Agreement.

(2) Payment for the health insurance riders which the insurance

company provided under its standard Blue Cross plan for which standard plan the City was obligated under its Collective Bargaining Agreement, and for which the City apportioned payment from the 2% funds, and

(3) Those pension fund payments which, although outside of the

Collective Bargaining Agreement, were not applicable and available to all firepersons (Comptroller Opinion #78-619 - Fusco Ex. N; Comptroller Opinion #95-14 - funds allowable for personal computer for Fire Dept and for ceremony cost to dedicate fire house and apparatus).

An accounting shall be provided as to the aforesaid as well as to that portion of the 2% fund, which was attributed to "miscellaneous" during the hereinafter stated time limitation.

Four Month Statute of Limitation:

The defense of time limitation was raised by respondents in its answer, and in its responding motion papers. (Undated Campolieto affidavit #9; Answer dated 6/12/02 - #17; Montesano Ex. T).

Accordingly, "... since this declaratory judgment action is brought against a governmental body and officials to resolve a dispute which could be settled by a CPLR Article 78 proceeding, the four month limitations period of CPLR 217 [*12]governs. (Ct. of Appeals citations omitted; Langham v. State of New York, 124 AD2d 405, 406, (3rd Dept., 1986)).

"The statute begins to run when the person aggrieved by the determination receives notice of it". (Biondo v. NYS Board of Parole, 60 NY2d 832 (1983); Hahn v. Garrett, 2006 NYSlip Op. 1950, (4th Dept., 2006)).

The Statute of Limitations has expired upon the requested period, except for 4 months prior to the commencement. The accounting shall run from four months prior to the date of the commencement of the action.

Personal Liability of defendants

Inasmuch as the Fire Chief and the City Treasurer have a fiduciary responsibility to the beneficiaries of the 2% funds, they are properly named parties. (See Tillinghast v. Merrill, 151 NY 135, (1896); Office of State Comptroller Opinion #95-14; Comptroller Opinion #2004-5 - Campolieto, ex F). The Mayor and the Director of the City Finance Dept. should be dismissed as party defendants.

This shall constitute the decision and order of the Court. The signing of this decision and order shall not constitute entry or filing under CPLR 2220. Counsel is not relieved from the provisions of that rule regarding entry, filing and notice of entry. However, the filing of the underlying motion papers upon which this motion was made is hereby dispensed with pursuant to CPLR 2220. Attorney for the plaintiffs is directed to enter this Decision/Order without notice and to serve all attorneys of record with a copy of this decision with notice of entry.

SO ORDERED.

Dated this 18th day of July, 2006 at Rochester, New York. [*13]

______________________________

HON. WILLIAM P. POLITO

JUSTICE SUPREME COURT