Matter of Korean Am. Nail Salon Assn. of N.Y. Inc. v Cuomo

[*1] Matter of Korean Am. Nail Salon Assn. of N.Y. Inc. v Cuomo 2015 NY Slip Op 25412 Decided on December 1, 2015 Supreme Court, Albany County Melkonian, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and subject to revision before publication in the printed Official Reports.

Decided on December 1, 2015
Supreme Court, Albany County

In the Matter of the Application of Korean American Nail Salon Association of New York, Inc.; CHINESE NAIL SALON ASSOCIATION OF EAST AMERICA, INC., Petitioners,

against

Andrew M. Cuomo, Governor of the State of New York; NEW YORK STATE DEPARTMENT OF STATE; CESAR A. PERALES, New York Secretary of State; NEW YORK STATE DEPARTMENT OF FINANCIAL SERVICES; ANTHONY J. ALBANESE, New York State Acting Superintendent of Financial Services, Respondents.



15-4582



APPEARANCES:

Consovoy McCarthy Park, PLLC

Attorneys for Petitioners

(Michael H. Park, Esq., J. Michael Connolly, Esq., of Counsel)

3 Columbus Circle

15th Floor

New York, New York 10019

Hon. Eric T. Schneiderman

Attorney General of New York State

Attorney for Respondents

(Justin L. Engel, Assistant Attorney General,

of Counsel)

Department of Law

The Capitol

Albany, New York 12224
Michael H. Melkonian, J.

In this hybrid CPLR article 78 proceeding and declaratory judgment action, petitioners, two trade groups representing Korean and Chinese owned nail salons in New York State, seek an order and judgment vacating, voiding, and annulling the September 4, 2015 emergency rule adopted by respondent the New York State Department of State ("DOS") authorizing the state to enforce a wage bond mandate. Petitioners also seek a declaration that respondent Anthony J. Albanese, Acting Superintendent of the Department of Financial Services ("DFS") acted arbitrarily and capriciously and exceeded his authority in issuing an August 7, 2015 certification that the required wage coverage is "readily available" in the marketplace. Respondents oppose and move pursuant to CPLR § 3212 for summary judgment dismissing the petition and a denial of all injunctive relief. Petitioners cross-move pursuant to CPLR § 3212 for summary judgment prohibiting respondents from enforcing the September 4, 2015 emergency rule and from relying on the August 7, 2015 certification. Petitioners also seek leave to conduct discovery.

After the New York State Department of Labor conducted an investigation of nail salons that resulted in the finding of 116 wage violations at 29 nail salons across New York State, on May 11, 2015, respondent Governor Andrew M. Cuomo ("Governor Cuomo") launched a multi-agency enforcement task force investigate unlawful practices and unsafe working conditions in New York nail salons. Thereafter, on May 18, 2015, Governor Cuomo announced a package of legislation and new emergency regulations to protect workers in the nail salon industry. On that same date, the DOS filed emergency regulation DOS-22-15-00010-E ,which repealed and added 19 NYCRR § 160.9. This regulation required, inter alia, all "appearance enhancement businesses" to purchase wage bonds as security for any unpaid wages. This legislation was signed into law on July 16, 2015 as Chapter 80 of the Laws of 2015 ("Chapter 80"). The legislation also authorized respondent the New York State Secretary of State (the "Secretary of State") to fine or order such an appearance enhancement business to cease activity if it is found to be operating without the requisite wage coverage. Under this statute, these provisions do not become enforceable until sixty days after the DFS certifies in writing to the Secretary of State that the required wage coverage is "readily available" in the marketplace. On June 10, 2015, the DOS filed emergency regulation DOS-26-15-0002-E, which superceded the May 18, 2015 emergency regulation. The June 10, 2015 regulation required all appearance enhancement businesses that employ two or more individuals on a full-time basis to provide nail specialty services to purchase wage bonds as security for any unpaid wages. On August 7, 2015, respondent Anthony J. Albanese ("Mr. Albanese") certified that wage coverage is "readily available." As a result of this certification, the new wage coverage provisions became enforceable on October 6, 2015. On September 4, 2015, prior to the expiration of the June 10, 2015 [*2]emergency regulation, the DOS filed a notice of emergency adoption and a notice of proposed rule making affirmatively imposing the wage bond requirements on appearance enhancement businesses that employ two or more individuals on a full-time basis to provide nail specialty services (the "September 4, 2015 emergency regulation").

To the extent that petitioners argue that Mr. Albanese acted in an arbitrary or capricious fashion or exceeded his authority by certifying that "the bonds and liability insurance necessary to meet the financial guarantee requirements established by DOS are readily available for purchase in New York State," the Court rejects such an argument (see, Matter of Board of Educ. of Monticello Cent. School Distr. v. Commissioner of Educ., 91 NY2d 133, 139 [1997]; Viglietta v Mills, 39 AD3d 1119 [3rd Dept. 2007]). The affidavit of Troy Oechsner, Acting Executive Deputy Superintendent of DFS's Insurance Division, demonstrates that as of August 7, 2015, the DFS had determined that nine insurers and twelve producers in the existing surety industry intended to issue and sell wage bonds to nail salon owners when they applied for them. Based on the record, it cannot be said to be irrational or unreasonable for Mr. Albanese to ascertain that wage bonds were indeed "readily available" in the marketplace. The Court also rejects petitioners' argument that the DFS lacked the statutory authority to certify that wage coverage is readily available to nail salons. Chapter 80 expressly grants the DFS sole authority to render such a determination.The Court also rejects petitioners' argument that the DOS violated the State Administrative Procedure Act's ("SAPA") requirements in implementing the September 4, 2015 emergency regulation without first identifying the circumstances necessitating such. SAPA § 202(6)(d)(iv) requires that an agency seeking an emergency rule adoption to fully articulate in writing: "... the specific reasons for such findings and the facts and circumstances on which such findings are based. Such statement shall include, at a minimum, a description of the nature and, if applicable, location of the public health, safety or general welfare need requiring adoption of the rule on an emergency basis; a description of the cause, consequences, and expected duration of such need; an explanation of why compliance with the requirements of subdivision one of this section would be contrary to the public interest; and an explanation of why the current circumstance necessitates that the public and interested parties be given less than the minimum period for notice and comment provided for in subdivision one of this section." In response to this requirement of SAPA, the DOS prepared a regulatory impact statement, regulatory flexibility analysis, rural area flexibility analysis and job impact statement. The DOS explained the reasons for adopting the September 4, 2015 emergency regulation on an emergency basis by stating the following in the State Register: "... a number of businesses have taken unfair advantage of a significant number of licensed workers who contribute to the community and economy. The ease with which some establishments have been able to deprive workers of fair wages and other rights is due in part to the inadequate protections. On July 15, 2015, Governor Cuomo signed into law new legislation (S.5966) which among other things established new penalties for operating an appearance enhancement business without appropriate wage coverage. This rulemaking is re-adopted on an emergency basis to further the legislative intent of provide (sic) adequate protections to workers. To help ensure that workers receive wages that are legally due, new bonding and insurance requirements are needed. The enhancement of public safety, health and general welfare necessitates the promulgation of this regulation on an emergency basis. [DOS] finds that by imposing new bonding and insurance provisions potential abuses by unscrupulous business owners will be reduced and hardworking employees will be protected..." This Court finds that respondents [*3]have sufficiently demonstrated that nail salon workers are being deprived of legally due wages and that immediate adoption of the September 4, 2015 emergency regulation was necessary for the preservation of the public health, safety or general welfare of nail salon workers.

The Court also rejects petitioners' argument that the DFS certification is violative of their constitutional rights to due process and equal protection. The basic requirements for procedural due process are notice and an opportunity to be heard (Sharrock v Dell Buick-Cadillac, Inc., 45 NY2d 152, 163 — 164 [1978]). Petitioners' allegations, however, are not based upon an alleged lack of notice and opportunity to be heard. Rather, the amended petition alleges that "respondents' false certification that wage bonds are readily available for purchase in New York State' lacks any rational basis and will result in the arbitrary bankruptcies of thousands of small businesses in the State of New York." Petitioners' due process claim, therefore, is rejected.

Petitioners allege that the DFS certification and September 4, 2015 emergency regulation target only those appearance enhancement salons employing individuals who provide nail specialty services — the vast majority they claim are owned by Asian Americans. Because it cannot be disputed, however, that the DFS certification and September 4, 2015 emergency regulation are facially neutral, the test for determining whether the emergency regulation (and the DFS certification) violates equal protection rights is whether there is a rational relationship between the legislation and a legitimate state interest (CECOS Intern., Inc. v Jorling, 895 F2d 66 [2nd Cir. 1990]). In general, a statutory classification should not be disturbed " unless the varying treatment of different groups or persons is so unrelated to the achievement of ... [a] legitimate purpose[]"' that the legislator's actions must be deemed to have been irrational (see, Barry v Barchi, 443 US 55, 67 [1979]; see, also, Affronti v Crosson, 95 NY2d 713 [2001]). In addition, where a claimed classification is not based on a suspect category (nor affects a fundamental right), it is presumed to be valid, and the burden rests with the challenging party to show its invalidity (see, Mass. Bd. of Retirement v Murgia, 427 US 307 [1976]).

To the extent, if any, that respondents can be deemed to have established separate "classifications" of appearance enhancement establishments, such classification is presumptively valid, and petitioners have offered no evidence that respondents' conduct was irrational or arbitrary. Respondents' reasons for imposing the wage bond requirement specifically on businesses that provide nail specialty services was laid out in depth in the legislative history. The Legislature explained that it has found abuses in the nail salon industry in particular and determined that the legislation was needed to protect nail salon workers in particular. The State of New York has a legitimate interest in protecting workers in the nail salon industry from unsafe working conditions and unfair labor practices, including wage theft and payment of below-minimum wages. As such, the legislation is related to a legitimate purpose and there has been no violation of equal protection.

The parties' remaining contentions have been considered and are either without merit or not necessary to resolve in light of the foregoing. To the extent petitioners' move for leave to conduct discovery in order to pursue their claims of constitutional violations, their motion is denied.

Accordingly, based on the foregoing it is ORDERED AND ADJUDGED AND DECLARED that the petition is dismissed; and it is further ORDERED AND ADJUDGED AND DECLARED that the request for injunctive relief is denied.

This constitutes the Decision and Order of the Court. This Decision and Order is returned to the Attorney General. All other papers are delivered to the Supreme Court Clerk for transmission [*4]to the County Clerk. The signing of this Decision, Order and Judgment shall not constitute entry or filing under CPLR 2220. Counsel is not relieved from the applicable provisions of this rule with regard to filing, entry and Notice of Entry.

SO ORDERED.

ENTER.

Dated: Troy, New York

December 1, 2015

_________________________________

Michael H. Melkonian

Acting Supreme Court Justice

Papers Considered:

Notice of Petition dated September 16, 2015;

Petition dated September 16, 2015;

Amended Notice of Petition dated September 30, 2015;

Amended Petition dated September 30, 2015;

Affidavit of Sue Choi dated September 29, 2015;

Affidavit of Ming Li dated September 30, 2015;

Memorandum of Law;

Affirmation of Michael H. Park, Esq., dated October 1, 2015;

Order to Show Cause dated October 2, 2015;

Answer dated October 20, 2015;

Affirmation of Linda Baldwin, Esq., dated October 19, 2015, with exhibits annexed;

Notice of Motion dated October 20, 2015;

Affirmation of Troy Oeschner, Esq., dated October 20, 2015, with exhibit annexed;

Petition dated August 28, 2015, with exhibits annexed;

Answer dated October 19, 2015;

Memorandum of Law;

Notice of Cross-Motion dated October 23, 2015;

Memorandum of Law;

Correspondence dated October 29, 2015;

Correspondence dated November 9, 2015, with attachments.