Brief for Plaintiffs-Respondents-Cross-Appellants

    To be Argued by: 

BARBARA I. OLSHANSKY 
(Time Requested: 30 Minutes) 

Queens County Clerk’s Index No. 10763/96 
  

  

(ourt of Appeals 
of the 

State of New York 
    

CAMPAIGN TO SAVE OUR PUBLIC HOSPITALS — QUEENS COALITION, 

an unincorporated association, by its member WILLIAM MALLOY; 

CAMPAIGN TO SAVE OUR PUBLIC HOSPITALS — CONEY ISLAND 

HOSPITAL COALITION, an unincorporated association, by its member 
PHILIP R. METLING; ANNE YELLIN; and MARILYN MOSSOP, 

Plaintiffs-Respondents-Cross-Appellants, 

— against — 

RUDOLPH W. GIULIANI, THE MAYOR OF THE CITY OF NEW YORK; 

NEW YORK CITY HEALTH AND HOSPITALS CORPORATION; and NEW 
YORK CITY ECONOMIC DEVELOPMENT CORPORATION, 

Defendants-Appellants-Cross-Respondents. 
  

  

BRIEF FOR PLAINTIFFS-RESPONDENTS- 

CROSS-APPELLANTS 
  

  

BARBARA J. OLSHANSKY 

ROBERT T. PERRY 

CENTER FOR CONSTITUTIONAL RIGHTS 

666 Broadway, 7th Floor 
New York, New York 10012 

(212) 614-6439 

ELAINE R. JONES 

Director/Counsel 

NORMAN J. CHACHKIN 

OLATUNDE C.A. JOHNSON 

NAACP LEGAL DEFENSE & 

EDUCATIONAL FUND, INC. 

99 Hudson Street, 16th Floor 

New York, New York 10013 

(212) 965-2200 

Attorneys for Plaintiffs-Respondents- 
Cross-Appellants 

Date Completed: November 9, 1998 
  

   



TABLE OF CONTENTS 

TABILEOCRAUTHORITIES .. 0. iiss its tvcrsnsnssssansnssnsenoronanns ii 

PRELIMINARY STATEMENT (i. cient ines ites se suo dneestvdvscanonenss 1 

QUESTIONS PRESENTED: i... ood ihe ede bine se dibevsvsosdstnmrsrreda doit ceens 3 

STATEMENT OERACTS co. iri ioe ieinrrnrtinsaseduaninssnsvaiansesos se 3 

PROCEEDINGS BELOW ....cioiiciitvriecsseiivinrsvscnnennsnssitocsnsnnne 27 

OPINIONS BELOW cn ii vi isnt nd iinssseniiasansdovasecasinsscssnns 28 

ARGUMENT ...... i cic sec viririncvnrsrsssiirserssesssonsnsonsmenseesns 30 

I. THE HHC ACT DOES NOT AUTHORIZE HHC TO DELEGATE ITS 

ADMINISTRATIVE, MANAGEMENT AND OPERATIONAL DUTIES 

REGARDING THE PUBLIC HOSPITALS THROUGH A SALE OR LONG-TERM 

SUBLEASE TO A PRIVATE, FOR-PROFIT CORPORATION ............... 30 

A. The Transfer of Administrative, Management, and Operational Control Over 

A Public Hospital to a Private, For-Profit Corporation Is Plainly Inconsistent 

With HHO S Corporate PUIPOSES . «ccc scvvnvnersnesnesvenscnes Cen 30 

B. The Inherent Conflict Between HHC’s Public Purpose and the Economic Goals 

of A For-Profit Corporation Also Compels Rejection of the Proposed Hospital 

Privatization PI. .. c i os recistnrnssnacmnsnsiiossintnsesesinsess 38 

C. Even If The Hospital Privatization Plan Did Not Contravene The HHC Act, The 

Proposed Sublease of Coney Island Hospital Would Violate The Act ..... 46 

II. EVEN IF HHC WERE PERMITTED TO SUBLEASE CONEY ISLAND HOSPITAL 

TO PHS-NY UNDER THE HHC ACT, THE ACT WOULD REQUIRE A ULURP 

REVIEW AND FINAL CONSENT OF THE CITY COUNCIL, ............... 31 

CONCLUSION, i oe veces Dadar tse tinrsarisnnsssnassnnssssnnnsssersnaneniinhe 60 

 



  

TABLE OF AUTHORITIES 

FEDERAL CASES 

  

  

  

  

  

  

  

  

  

Brym y. Roch, 627 F.2d 612 (2d Cir. 1980), affc 492 F. Supp. 212(S.D.N.Y. 1980) ....... 51 

Commissioner of Internal Revenue v. Fortney Oil Co., County Farm Lease, 125 F.2d 995 

BCH 1992. 0.0.0. aio. Lr SLBA Sn 31 

Tockson vy HHC, 419F Supp. SOO(SDNY. 1978) ....... coi. einen, 51 

Meriwether vy. Garrett, 1000S. 472, 261. Bd. 1971880) ............................ 41 

Mortis v. Board of Education, SSI F.Supp. 6S2(ED N.Y. 1932) ...................... 52 

Morris v. Board of Estimate, 592 F. Supp. 1462 (E.D.N.Y. 1984), aff'd, 831 F.2d 384 

(24:Cir. 1937), affd. 489 U.S. 688 (1980)... 5, so a A eB as 52 

Momisv. Board of Estimate 707 F.24.636 (3d Cir. 1983) ........ ....... 00. 0 0h 52 

Morrisy Board of Bstimate. S31 FP 24334 02d CIr 1987) ....... oo. 0. iii. 52 

New York City Board of Bstimatey, Moris 439 US.688(1989) ........ .............. 53 

Wallace vy. Oceancering International, 727 F.24 427 (Sh Cit 1984) ..............cv vicinus 31 
  

STATE CASES 

Aldrich v. City of New York, 208 Misc. 930, 145 N.Y.S.2d 732 

(Queens Co. Sup. Ct. 1953), aff'd. 2 A.D.2d 760, 154 N.Y¥.$.2d 927 (2d Dept. 1956) ....... 42 

  

Alpert v. 28 William Street Corp., 478 N.Y.S.2d 443 (N.Y. Co. Sup. Ct. 1983), 
did, 63 N.Y 2d5357, 473 NE 2d 19,483 NY S2A667(1934). .... ..........0.....0ui 39 
  

American Dock Co. v. City of New York, 174 Misc. 183, 21 N.Y.S.2d 943 

(Sup. Ct. N.Y. Co. 1940), affd., 261 A.D. 1063, 26 N.Y.S.2d 704, 
  

  

afd. 286 N.Y. 653,36 NE2d G96 (1941) ....... co. 3. oo hh. ial, 30, 42 

Branford House. Ine. V. Michetti, 51 N.Y.24 631,603 N.Y.S.2d 29001990) .............. 34 

Cohen'y, Cocoline Products. Inc, 309 N.Y. 119,127 NE2d906 (1955) ........onses 39, 40   

Cotrone v. City of New York, 38 Misc. 2d 580, 237 N.Y.S.2d 487 

(SUD, CL INES C0. 106 fh ns vc vssnnnn ranitidine vavanies 41, 42 

   



  

Council of City of New York v. Giuliani, 231 A.D.2d 178, 662 N.Y.S.2d 516 
  

  

  

  

  

  

  

  

RRL EE Se a Le i 3.31,32,37 

Ellington Construction Co. v. Zoning Board Of Appeals 

of Incorporated Village of New Hempstead, 77 N.Y.2d 114, 564 N.Y.S.2d 1001 (1990) ..... 35 

Falbros Realty v. Michel, 200 A.D.2d 85, 612 N.Y.8.2d 561 (1st Dept. 1994) ............ 57 

Ferrer v. Dinkins, 218 A.D.2d 89, 635 N.Y.S.2d 965 (1st Dept. 1996), 

ghneal denjed, 83 N.Y.2d 801,644 N.Y.8.24 493, 666 N.E2d 1366 (1997) ............... 57 

Fox v. Mohawk & tiudson River Humane Society, 165N.Y.517(19_) ..........0... 46, 47 

Gewitzy. City of Long Beach: 330 NY .S.2d4 495 (Sup. Ct. Nassau Co. 1972) ............ 42 

Giuliani v, Beves], SON. Y 2d 27,659 N.Y.S2d138(1997) ,..........c. civ inines vias 32 
  

Great Atlantic & Pacific Tea Co. Inc. v. State, 22 N.Y.2d 75, 238 N.E.2d4 705, 

2OINY. S24 20001068)... ae. a BE EE es iia 55 
  

Lai Chun Chan Jin v. Board of Estimate, 92 A.D.2d 218, 460 N.Y.S.2d 28 (1st Dept. 1983) .57 
  

Lake George Steamboat v. Blais, 30 N.Y.2d 48, 281 N.E.2d 147, 330 N.Y.S.2d 336 (1972) .. 42 
  

Lenard v. 1251 Americas Associates, 241 A.D.2d 391, 660 N.Y.S.2d 416 (1st Dept. 1997), 

goneal withdrawn 20 N.¥Y.24 937, 664 N.Y. S.24275(1998) ................ ove... 35 
  

  

Long v. Adirondack Park Agency, 76 N.Y.2d 419, 559 N.E.2d 635, 

SON YS 24941 (1990) 8, 8, Sunt. ci i a a LE viii 30 
  

Maidgold Associate v City of New York, 64 N.Y.2d 1124, 479 N.E.2d 823, 

AON YS dd IST I08S) ho ia A IM hee a 56 
  

Majewski v. Broadalbin-Perth Central School District, 91 N.Y.2d 577, 

INN SBS. 20061008) a ee haa 31 
  

Mann Theatres Corp. v. Mid-Island Shopping Plaza, 94 A.D.2d 466, 

464 N.Y.S.2d 793 (2d Dept. 1983), aff'd, 62 N.Y.2d 930, 462 N.E.2d 51, 

479 NY. S24 21341084) i... on aa IAN IIRL IIA ia 55 

  

Matter of Davis v. Dinkins, 206 A.D.2d 365, 613 N.Y.S.2d 933 (2d Dept. 1994), 

Iv. app. de. SSENLY. 2A 804 (1995) haat a a a ST a ies 55 
  

  

Matter of Dodgertown Homeowners Associate, Inc. v. City of New York, 652 N.Y.S.2d 760 

(24 Dept. 1997 mot. lv app. pending... 0. cues ee aa 55 
  

   



  

Matter of New York Public Interest Research Group, 83 N.Y.2d 377, 632 N.E.2d 1255, 
  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

BIONY S24 93201984)... ci. i i ean 38 

Matierof OnBank & Trust Co., 0 N.Y.24 725,663 N.Y.S.2d380(1998) ................ 34 

Miller vi City of New York, ISNY2d 34, 25SNYS2T8Q9%4). ..........c0iviiciiiis 33 

Ministers, Elders and Deacons of Reformed Protestant Dutch Church 

of City of New York v. 198 Broadway, Inc., 76 N.Y.2d 411, 559 N.Y.S.2d 866 (1990) ..... 33 

New York City Health and Hospitals Corp. - Goldwater Mem. Hospital v. Gorman, 

113 Misc:2d33, 443N.V.S2d 623 (Sup. CL NV. Co. 1983). . oc. eosin 6 

Oppenheimer & Co. v. Oppenheim, 86 N.Y.2d 685, 660 N.E.2d 415, 

B36 NY S24734(1995) ........ cr RIND 56 

Palak v- Pojal, SO NV. 2d 394 45INY.S20381 (1982) ...ccovvvuviiivivavervess 35 

Parks Cay Cov. Annunzio 41210. 549, 107 NEA S33 (A032) .....coovviieiivsuiod, 31 

People Hill SSNIY 2d 256, 2A NY. SIAT79(1995) .....c.ccvvoiiiiidadoiivirss 36, 37 

People v» Olrensicin, 7ZN.Y.2d 38, S63 N.Y. SIA 744 (1990) ....... 0. vvvivin ou Sl, 43 

People v. Smith. 532 N.Y.S.24 946, 79 N.Y.24 309, 591 NE2d 11321993) ............. 38 

People v. Wesichestor County Notional Banke 23INY.465¢10 ) ............. ......., 43 

Perlbinder v. New York City Conciliation and Appeals Board, 67 N.Y.2d 697, 
490 NE: 2d 844, 400 N.Y. 8S 2A 925(1986), . 1... soi vids vrei ded 56 

Rodriguezy Perales SON. Y.2d 361, 633N YS. 24252 (1995) ......... .....0oviuiuuuss 34 

Rowe v. Great Atlantic & Pacific Tea Co., Inc., 46 N.Y.2d 62, 385 N.E.2d 566, 

AI2INY S.A R0741973) RS a EE ee a 55 

Schulz v. State of New York, 86 N.Y.2d 255, 630 NYS2d9781995) ...... ............. 43 

Waybro Corp. v. New York City Board of Estimate, 67 N.Y.2d 349, 493 N.E.2d 931, 
SONY. S24 707 (1930) 4h ik rs seh ce nan a ee 57 

Weiny. State, 39N.¥.2d4 136,347 N.E.2d 336,333 N.Y.8.2d 2251976) ............... 44 

1934 0p AY Gen 93 citi LL. ol i Ui i a ee 37 

1v  



  

DOCKETED CASES 

  

  

Kelley v. Michigan Affiliated Healthcare System. Ing. No. 96-83834B-C7 ................ 45 

Tribeca Community Associate Inc. v. New York State Urban Development Corp., 

Index No: 2035502 (April 1, 1993 Sup. CL NY) ........ cciis cco aii. 55 

FEDERAL STATUTES 

HSL me La Bn el ep HE i a el Ses Te 12 

U.S. Department of Health and Human Services Designation Lists, 

61 Fed. Rea. No. 251 (Dec 31, 1996). ... or. .  ciis tite invisavs ainsi. 12 

STATE STATUTES 

New York State Constitution, Article XVII ............. AEC RC en passim 

Municipal Home Rule Law S 10(5)  ....... ci. vr icin cd ie ts saints dns aids 58 

NY. Bus Comp Law S701 ....... 0. iis insects sis irisniois ives uss 39 

Unconsolidated Lows 88 7381 e800: .. in... . ves etn isi te vas hci passim 

MISCELLANEOUS 

C. Brecher and S. Spiezo, 

Privatization and Public Hospitals: Choosing Wisely for New York City, 

AReportbythe Twentieth Century Fund (1995) ............c ci 0s esis 11,12 
  

  

Commission on Delivery of Personal Health Services, 

Comprehensive Community Health Services for New York Citv (Dec. 1967) .............. 5 
  

New York City Comptroller Alan Hevesi, Analysis of Fundamental Issues 

That Have Yet To Be Resolved (November 7,1996) ....... ...................... passim 
  

  

Eleventh Annual Report of the Temporary Commission of Investigation 

of the State of New York to the Governor 

and the Legislatwre ofthe Stats of New York (1969) ............... 0 ii inin. 11 

  

  

  

J. P. Morgan, Queens Hospital Network Offering Memorandum (October 25, 1995) ........ 14 
  

New York City Commission on the Delivery of Personal Health Services, 

Community Health Services for New York City (Dec. 1967) ........... cocoa 4 
  

Vv  



New York State Comptroller H. Carl McCall, Challenges Facing New York City’s 
Public Hospital System, Rep. 4-99 (Aug. 5, 1998) «ee 9 10, 11 

  

  

 



  

PRELIMINARY STATEMENT 
  

The New York State Constitution requires New York State and New York City ("City") to 

ensure that dignified and comprehensive physical and mental health care is available to all New York 

residents regardless of their ability to pay for such care. New York State Constitution, Article XVII. 

Pursuant to this mandate, in 1969, the State Legislature created the New York City Health and 

Hospitals Corporation ("HHC") to operate the municipal hospitals and fulfill the City’s 

constitutional obligations. Since that time, HHC's public hospital system has provided care for 

hundreds of thousands of poor and uninsured New Yorkers who cannot afford the care of private 

hospitals, and has played a disproportionately large role in caring for those who suffer from special 

access problems due to conditions such as HIV/AIDS, tuberculosis, and psychiatric disorders. 

Unlike private hospitals, by law, the public hospitals may not turn away patients because of their 

inability to pay. Public Health Law § 2805-b. 

In 1993, facing a budget deficit and committed generally to the privatization of certain assets 

of the City as a fiscal solution, Mayor Rudolph Giuliani commenced his plan to dismantle the HHC 

system though the sale or long-term lease of the public hospitals. In 1994, the City, through the 

Mayor’s Office, began to explore the possibility of privatizing three of those hospitals, Coney Island 

Hospital, Elmhurst Hospital Center and Queens Hospital Center. Under the Mayor’s hospital 

privatization plan, HHC would no longer serve as the primary mechanism by which the City 

provides health care services to its poorest residents; instead, private companies would operate and 

manage the hospitals for their own profit and for that of their shareholders. Coney Island Hospital 

in Brooklyn was selected as the first public hospital to be privatized, and on November 8, 1996, the 

HHC Board of Directors approved a resolution authorizing the HHC Board President to negotiate 

the terms of a 99-year sublease of Coney Island Hospital to PHS-New York, a private, for-profit  



  

corporation. 

The Mayor's plan to privatize Coney Island Hospital and Queens and Elmhurst Hospital 

Centers (the "hospital privatization plan") represents a significant departure from the constitutionally 

and statutorily mandated practices of New York City and HHC, which have, for many years, 

successfully ensured that New York City residents are provided with quality health care regardless 

of their ability to pay. 

For many of the City's poorest residents, the care they receive at the public hospitals run by 

HHC is critical and life-sustaining. These residents are the most vulnerable to illness, possess the 

fewest resources, and are the most in need of the medical protection offered by the public hospital 

system. And, it is these residents who will be most affected by the changes contemplated under the 

Coney Island Hospital sublease and the entire hospital privatization plan. 

The proposed sublease of Coney Island Hospital constitutes an abandonment by HHC of its 

long-standing policy of providing care to indigent and uninsured residents through services and 

programs intended to address the specific needs of such patients. There can be little doubt that the 

transfer of Coney Island Hospital to a for-profit company -- under terms which (1) place a financial 

cap on the indigent care to be provided, (2) permit the termination of critical services to poor 

residents, and (3) eliminate any effective monitoring system -- risks compromising the health status 

of these New York City residents. 

By instituting these changes in the provision of physical and mental health care services to 

City residents, the Mayor’s hospital privatization plan disavows the City’s constitutional mandate 

to provide quality and dignified care to indigent and uninsured New Yorkers, contravenes the New 

York City Health and Hospitals Corporation Act, and effectively undermines HHC’s public mission. 

Because Defendants-Appellants-Cross-Respondents (“Appellants”) have no authority to 

2  



  

undertake these actions, Plaintiffs-Respondents-Cross-Appellants (“Respondents”) Campaign to 

Save the Public Hospitals et al. urge this Court to: (1) uphold the judgment of the Appellate 

Division, Second Department, entered on September 8, 1997, and reported as Council of City of 
  

New York v. Giuliani, 231 A.D.2d 178, 662 N.Y.S.2d 516 (2d Dept. 1997), in so far as it affirmed   

that portion of the decision of the Queens County Supreme Court holding that the HHC Act 

precludes the dismantling of the HHC system generally, and the long-term sublease of Coney Island 

Hospital to PHS-NY, specifically; and ( 2) reverse the judgment of the Appellate Division, Second 

Department with regard to its deletion of that portion of the Supreme Court’s decision holding that 

any lease of an HHC facility must be approved pursuant to ULURP, and that any such lease must 

be approved by the City Council as well as the Mayor. 

QUESTIONS PRESENTED 

1. Does the HHC Act authorize Appellants to privatize the public hospitals, when the 
Act established HHC to operate the municipal hospitals in order to fulfill the State's 
and the City's constitutional obligations to provide health care for the residents of 
New York City who cannot afford such services? 

2 Do Appellants have the authority to sublease Coney Island Hospital to PHS-NY, a 
private, for-profit corporation, for 99 years, despite the fact that the HHC Act 
established HHC as a public benefit corporation with a public purpose, and does not 
authorize the transfer of a public hospital to a private corporation to be operated for 
private gain? 

3 Must the sublease of Coney Island Hospital be evaluated under the City's land use 
review process and be approved by the City Council given that the HHC Act 
provides that HHC leases must be consented to by the Board of Estimate, and the 
City Charter now divides the authority for approving dispositions of City property 
between the Mayor (for business terms) and the City Council (for land use terms)? 

STATEMENT OF FACTS 

The public hospital system has existed in the City since the early nineteenth century in 

recognition of the principle that “[t]he availability of health services, as a matter of human right,  



  

should be based on health needs alone, not on a test of ability to pay.” New York City Commission 

on the Delivery of Personal Health Services, Community Health Services for New York City 3 (Dec. 
  

1967). Ensuring that health and medical care is available to all City residents, and particularly to 

those who are unable to pay for these services, is not only a “moral undertaking,” id., but also a 

constitutional obligation. New York State Constitution, Article XVII. 

The New York City Health and Hospitals Corporation was created in 1969 at the request of 

New York City to fulfill the City's constitutional obligation to provide health care services to its 

residents, and was specifically charged with ensuring the provision of "high quality, dignified" care 

to "those who can least afford such services." Unconsolidated Laws ("HHC Act") § 7382; New 

York State Constitution, Article XVII. Reaffirming the City’s commitment to meeting this 

constitutional mandate through the new public benefit corporation, Mayor John V. Lindsay, in a 

letter addressed to Governor Rockefeller, stated: 

In establishing a public benefit corporation, the City is not getting out of the hospital 
business. Rather it is establishing a mechanism to aid it in better managing that business for 
the benefit not only of the public served by the hospitals but the entire City health service 
system. The municipal hospitals and health care system will continue to be the City’s 
responsibility governed by its policies, determined by the City Council, the Board of 
Estimate, the Mayor, and the Health Services Administration on behalf of and in consultation 
with the citizens of New York City. 

  

  

  

Letter of Mayor John V. Lindsay to Governor Nelson A. Rockefeller, Governor's Bill Jacket, L. 

1969, ch. 1016. (emphasis supplied). This commitment by the City -- that it would continue to 

oversee and control the operation of the public hospitals and determine health care policy as it had 

since the beginning of the municipal hospital system -- is the foundation of the HHC Act. 

Although the HHC Act was enacted into law in April 1969, the events that led to its 

enactment began nearly three years earlier, in June 1966, when the New York Times published a 

front-page story by reporter Martin Tolchin on the City’s public hospitals, describing shocking 

4  



  

neglect of patients and alleging waste of public funds." Tolchin’s article prompted a series of 

investigations of the City’s public hospital system and led Mayor Lindsay in December 1966 to 

create the nine-member Commission on the Delivery of Personal Health Services, under the 

chairmanship of Gerard Piel, the publisher of Scientific American, to study the system and propose 

reforms.” A year later, in December 1967, the Piel Commission, as it became known, issued its final 

report.’ 

In December 1968, one year after the Piel Commission had issued its final report, Mayor 

Lindsay announced that he would ask the State Legislation to create a public benefit corporation, the 

HHC, to manage and operate the City’s public hospitals. The need for prompt action on the 

  

'City to Set Up Panel to Review Hospitals, N.Y. Times, Dec. 21, 1966 at 1. 
  

°Eleventh Annual Report of the Temporary Commission of Investigation of State of New 
York, Legis. Doc. No. 93 (Mar. 1969), at 69; see also Tolchin, Serious Troubles Plague City 
Hospitals as Medicare Approaches, New York Times, June 27, 1966, at 1. 

  

  

*Commission on Delivery of Personal Health Services, Comprehensive Community 
Health Services for New York City 51 (Dec. 1967) (“Piel Commission Report”). The issuance 
of the Piel Commission Report followed public hearings on another report, Alternative 
Organizational Frameworks for the Delivery of Health Services in New York City (Sept. 1967) 
(“Alternative Frameworks”), prepared for another commission convened by the City’s Health 
Services Administration (“HSA Commission”). Although it did not make recommendations, the 
HSA Commission weighed the advantages and disadvantages of various organizational 
frameworks, discussing the establishment of a public benefit corporation to run the City’s public 
hospitals as an alternative to leasing those hospitals. Compare Alternative Frameworks at 31-33 
(pros and cons of leasing public hospitals) with id. at 44-87 (public benefit corporation). While 
selling or leasing the hospital was seen as having the advantage of reducing the City's operating 
role, it was also seen as potentially "increas[ing] fragmentation of services, inequality of 
distribution of services and inaccessibility of services to some patients." Id. at 32. In contrast, 
the Report notes, the establishment of a public "Authority" to run the public hospitals would not 
absolve the City of its responsibility to plan health services and to ensure that comprehensive, 
quality care is available to all citizens. See id. at 57. In evaluating the various alternatives, the 
HSA Commission recognized that one of the City’s primary goals was “[t]o insure that 
comprehensive personal health care of high quality is available to all persons unable to pay its 
full cost.” Id. at 4. 

  

  

 



  

proposed legislation was brought home in January 1969, with the threatened closure of Harlem 

Hospital because of funding cuts and the prospect that thousands of Harlem residents unable to 

afford private hospitals would have nowhere to turn for health and medical care.” In late April 1969, 

the State Legislature passed the HHC Act and in May 1969 Governor Rockefeller signed it into law. 

The HHC Act 

The HHC Act’s Declaration of Policy and Statement of Purposes declares that the City’s 

hospitals: 

are of vital and paramount concern and essential in providing comprehensive care and 

treatment for the ill and infirm, both physical and mental, and are thus vital to the protection 
and promotion of the health, safety and welfare of the inhabitants of the state of New York 
and the city of New York. 

HHC Act, § 7382. The Declaration of Policy further states that in order to accomplish these ends, 

“a public benefit corporation, to be known as the New York City health and hospital corporation, 

should be created” “to provide the needed health and medical services and health facilities.” Id. 

The Act also expressly states that HHC’s exercise of its functions, powers and duties 

“constitutes the performance of an essential public and governmental function” and charges the 
  

  

corporation with the duties of operating and maintaining the public hospitals “in all respects for the 

benefit of the people of the State of New York and the City of New York.” HHC Act § 7382   

(emphasis supplied); New York City Health and Hospitals Corp. - Goldwater Mem. Hosp. v. 
  

Gorman, 113 Misc.2d 33, 448 N.Y.S.2d 623 (Sup. Ct. N.Y. Co. 1983). 

To ensure that the performance of this “essential public and governmental function” would 

remain under the control of the City, the Act requires that HHC “exercise its powers to provide and 

  

“See Harlem Hospital Facing Shutdown, New York Times, March 21, 1969, at 1; Harlem 

Hospital Firm on Closing, New York Times, March 22, 1969, at 1. 

6  



  

deliver health and medical services to the public in accordance with policies and plans” formulated 

by the City. HHC Act § 7386(7). Moreover, the City is required to subsidize HHC for the costs 

it incurs in providing medical services to indigent and uninsured City residents as mandated by the 

Act. HHC Act § 7386(1)(a). Under the Act, this subsidy must be no less than $175 million per 

year and must be adjusted annually to account for increases in health care costs and changes in the 

volume of services rendered by the corporation for the City for which no third-party reimbursement 

is available. Id. 

Section 7385 of the Act confers upon HHC the power to borrow money, to make and execute 

contracts and leases necessary for the fulfillment of its corporate purposes, and to operate, manage 

and control any health facility under its jurisdiction. The power to operate a health facility also 

includes the authority to contract with a private corporation for the provision of a discrete set of 

“health and medical services for the public” to be offered “through and in health facilities of the 

corporation.” HHC Act § 7386(8). 

Section 7385 also specifically delineates the limits of HHC's authority to acquire or dispose 

of the City’s health facilities. Under § 7385(6), HHC is empowered to acquire and to dispose of real 

property, including a health facility, only "for its corporate purpose," and only after it holds a public 

hearing and obtains the consent of the Board of Estimate. HHC Act § 7385(6). The corporation may 

also, under § 7385(20), perform all or part of its functions through a wholly-owned subsidiary public 

benefit corporation, so long as the subsidiary is subject to the same statutory limitations as those 

imposed upon HHC.® 

  

"The Act also authorizes HHC to sublease its properties to the City, HHC Act § 
7386(2)(a), and empowers the City to sublease any health facility from HHC. HHC Act § 
7386(2)(b). However, any such sublease must be either for the operation or the construction of a 
health facility. HHC Act § 7386(3).  



  

Finally, if HHC determines that a health facility (or any other real property of the City) is no 

longer required for its corporate purposes and powers (i.e., operation as public health facility), it may 

either surrender the property to the City or otherwise dispose of the facility subject to the approval 

of the Board of Estimate, and the condition that all proceeds derived from the disposition be used 

for HHC’s corporate purposes. HHC Act § 7387(4). 

In creating HHC, the State Legislature thus intended to form the municipal hospitals into an 

integrated public hospital system that would operate under the auspices of a single public benefit 

corporation. See HHC Act § 7832. The Act specifically provides for the central administration of 

the public hospital system to be assumed by HHC, and delineates the management role that HHC 

must play in coordinating the operations of all of the municipal hospitals. See HHC Act, § 7835. 

Today, under its operating agreement with the City,” HHC operates eleven acute care hospitals, five 

long-term care facilities, seven free-standing diagnostic and treatment centers, two satellite clinic 

networks, twenty hospital and neighborhood clinics, and a health maintenance organization. Ca 166. 

The HHC Public Hospital System Today 

The public hospital system operated by HHC is today the largest health care provider in the 

City, having an annual operating budget of approximately $3.6 billion and over 38,000 employees.’ 

All of the City’s public health care facilities are under HHC’s control and subject to HHC’s 

centralized management, administration and accounting, and HHC prepares a single, consolidated 

  

°In 1970, HHC and the City executed an agreement in which HHC leased all of the public 
hospitals from the City for a term consisting of the corporate life of HHC, at an annual rent of $1 
(the “Lease”). The Lease requires HHC to operate the facilities and stipulates that “the services 
that [HHC] will render are particularly for those who can least afford such services.” Ca 118. 

"State Comptroller H. Carl McCall, Challenges Facing New York City’s Public Hospital 
System, Report 4-99 (“State Comptroller’s 1998 Report”) (August 5, 1998) at 3. According to 
the State Comptroller, HHC operates the largest municipal hospital system in the nation. Id. 

  

8  



  

revenue and expense budget for the entire system rather than separate budgets for individual health 

care facilities. The financial interrelationship among the public hospitals is evinced by HHC’s 

revenue sharing policy. Those hospitals which have revenues that exceed expenses may keep only 

a portion of the excess revenue, with the remainder funneled back into the system to subsidize 

weaker institutions. Thus, as was contemplated by both the City and the State Legislature at HHC’s 

inception, the City’s public hospitals are today operated as a single integrated system under HHC’s 

control ® 

Regrettably, the creation of HHC has not eliminated all of the public hospital system’s 

problems. Most observers attribute the current vulnerable position of the system to a number of 

local pressures as well as industry-wide trends, including: (I) a drastic reduction in tax levy support 

from the City; (ii) changes in State Medicaid reimbursement policies; (iii) a series of significant 

workforce reductions; (iv) a substantial rise in the uninsured population; (v) an older and less well 

maintained infrastructure and a fluctuating capital budget; (vi) competition for the public hospitals’ 

traditional patient population from managed care plans associated with the City’s voluntary 

hospitals; and (vii) uncertainty arising from the hospital privatization plan.’ 

Since 1994, the City has decreased its tax levy support of HHC, intended to defray the costs 

of health care provided to uninsured patients, prisoners, and uniformed officers, by nearly $300 

  

®The public hospitals are not only subject to centralized management, but also 

coordinated regional networking and planning. Ca 602; State Comptroller’s 1998 Report at 3. In 
1994, HHC grouped its facilities into eight regional networks so that it could compete more 
effectively for managed care patients by offering coordinated services within specific geographic 
sections of the City. Id. 

  

See State Comptroller’s 1998 Report at 3-19. 
  

9  



  

million, from $351 million (in fiscal year 1994) to $58 million (in fiscal year 1998)." Since 1994, 

HHC has eliminated more than 10,000 positions throughout the system, a cumulative reduction of 

22 percent, and plans to reduce staffing by another 3,000 employees by fiscal year 2002." Between 

1994 and 1996, the absence of a system-wide capital budget brought major capital projects to a 

virtual standstill, and delayed any consideration of new projects.’> Finally, as noted by State 

Comptroller H. Carl McCall, there has been a significant increase in the City’s uninsured population: 

“the number of individuals lacking health insurance residing in New York State has grown by nearly 

50 percent since 1991, from 2.2 million to 3.1 million. Nearly 2 million of these individuals live in 

New York City where the problem is more pronounced, and the uninsured rate is 50 percent higher 

than the national average.” All of these factors have made it more and more difficult for HHC to 

continue providing essential physical and mental health services to the City’s poorest residents, i.e., 

to perform the essential government functions for which it was created. 

  

*°See State Comptroller’s 1998 Report at 5-7. According to the State Comptroller, rising 
Medicaid payments over the last decade have “masked significant reductions in City funding in 
other areas. . . . In total, the City paid $550 million to HHC in FY 1988. ...In FY 1998, the 
City provided HHC with only $58 million, which was tied directly to services HHC provided for 
the City, such as mortuary services and medical care to uniformed employees.” Id. at 6-7. 

  

See State Comptroller’s 1998 Report at 14. 
  

"According to the State Comptroller, HHC’s $668 million Capital Plan for fiscal years 
1999 through 2003, will be financed through State Dormitory Authority (“SDA”) bonds. The 
City, through a lease agreement, will reimburse SDA for the debt service on the bonds. State 
Comptroller’s 1998 Report at 23. 
  

**State Comptroller’s 1998 Report at 8. As the State Comptroller notes in his Report, this 
growth is due to the decline in private coverage, which often requires prohibitively expensive 
employee contributions from low-wage employees, and the loss in Medicaid coverage as 
individuals are removed from the welfare rolls pursuant federal welfare reforms. As a result of 
these factors, HHC is currently experiencing “a 33 percent increase in the number of patients 
without public or private insurance.” Id. at 9. 

  

10  



  

The Essential Health Care Services Provided By HHC 

The public hospital system run by HHC -- including Coney Island Hospital, Queens Hospital 

Center, and Elmhurst Hospital Center, the three hospitals currently targeted by the Mayor for sale 

or long-term sublease to private, for-profit corporations -- provides critical mental and physical 

health care services for City residents who are indigent or uninsured. In this regard, the HHC system 

fulfills the unique and irreplaceable function of providing care for those who cannot afford to be 

cared for by private hospitals. Ca 590. While public hospitals may not turn away patients because 

of their inability to pay for their care, private hospitals may refuse to serve the uninsured and 

underinsured except in cases of emergency. Public Health Law § 2805-b. Thus, many private 

hospitals limit the volume of Medicaid and uncompensated care they provide. 

City-wide, HHC clinics provide 65 percent of all hospital-based outpatient care for uninsured 

residents. Although HHC facilities have only 19 percent of all inpatient beds in the entire New York 

City health care system, those facilities provide nearly 40 percent of all inpatient care for the City 

residents enrolled in Medicaid and those lacking any insurance." In 1994, 96 percent of all inpatient 

care provided by HHC was for the City’s indigent residents, those receiving Medicaid and Medicare, 

  

“Reference is made herein to three types of hospitals: public, voluntary and proprietary. 

Public hospitals are those owned and operated by government, such as the municipal hospitals of 

New York City. Voluntary hospitals are private, non-profit institutions, and proprietary hospitals 

are privately owned and are operated for profit. See Eleventh Annual Report of the Temporary 

Commission of Investigation of the State of New York to the Governor and the Legislature of the 

State of New York 67 (1969). Coney Island Hospital operated for-profit by PHS-NY would fall 
within the “proprietary” category. 

  

  

  

>See Charles Brecher and Sheila Spiezo, Privatization and Public Hospitals: Choosing 

Wisely for New York City, A Report by the Twentieth Century Fund (1995) at 21-22. 
  

  

11 

 



  

and those who were uninsured. '® 

HHC facilities also play an essential role in caring for patients with special access problems. 

Ca 590-594. In 1996, HHC provided 51 percent of the hospital-based outpatient care received by 

HIV/AIDS, and served 37 percent of HIV/AIDS patients who required inpatient visits, 46 percent 

of all tuberculosis patients, and 45 percent of all psychiatric patients. Ca 590-594. 

The Medical Needs Of The Affected Communities 

The communities served by Coney Island Hospital, Queens Hospital Center, and Elmhurst 

Hospital Center — the three public hospitals initially targeted for privatization — have significant and 

continuing needs for those public hospitals, notwithstanding Appellants’ suggestion to the contrary. 

App. Br. at 4-5. 

Both South Queens and Southeast Brooklyn have been designated as primary medical care 

professional shortage areas by the United States Secretary of Health and Human Services, pursuant 

to Section 332 of the Public Health Service Act. 42 U.S.C. § 254. The Coney Island community 

has also been designated as a dental health care professional shortage area.'’ 

Many of the health status indicators for South Queens and West Queens have been found to 

be significantly worse than those of Queens as a whole, and in some cases, even the City as a whole. 

For example, according to the Health Systems Agency's July 1993 Community Health Profiles, both 

Queens communities suffer from: (i) a high incidence of infant mortality and a high proportion of 

low birth weight births; (ii) a high incidence of AIDS cases and a high death rate for AIDS patients; 

  

**See Charles Brecher and Sheila Spiezo, Privatization and Public Hospitals: Choosing 
Wisely for New York City, A Report by the Twentieth Century Fund (1995) at 9. 

  

  

"See U.S. Department of Health and Human Services Designation Lists, 61 Fed. Reg. 
No. 251 (December 31, 1996). 

12 

 



  

(iii) high death rates for drug related conditions; and (iv) a high incidence of tuberculosis. 

Of'the 85,401 AIDS cases reported in the City in 1996, Brooklyn had 24 percent, and Queens 

had 15 percent,” of which 37 percent were found in South Queens.’ While the tuberculosis rate 

for Queens (27.3 per 100,000) is below the City average (44 per 100,000), 33 percent of those have 

tuberculosis in Queens live in South Queens. The tuberculosis rate for Brooklyn (45.8 per 100,000), 

exceeds the City average.” Brooklyn also accounts for 30 percent of the City's population with 

substance abuse problems and has a substance abuse hospital admission rate roughly equal to the 

city-wide figure.” 

Coney Island Hospital is the largest health care facility in southern Brooklyn with 457 beds 

It serves a population of 750,000. Like Queens Hospital Center, Coney Island Hospital provides a 

wide range of inpatient and outpatient services and community-based programs, including a 

comprehensive women's health center, pediatrics and adolescent medicine clinics, and extensive 

mental health and chemical dependency services. In 1995, 87.8 percent of all outpatient visits to 

Coney Island were by Medicaid and Medicare beneficiaries or by uninsured patients. Ca 591. 

Queens and Elmhurst Hospital Centers are the only public acute care facilities in the Borough 

  

"Health Systems Agency of New York City, Queens Community Health Profiles (J uly 
1993). 

"New York City Department of Health - Bureau of Disease Intervention Research, 
“Epidemiologic Profile of HIV/AIDS in New York City” (“DOH Profile”) (August 1996) at 1. 

**New York City Department of Health - Bureau of Disease Intervention Research, 
“Epidemiologic Profile of HIV/AIDS in New York City” (“DOH Profile”) (August 1996) at 1. 

**New York City Department of Health - Bureau of Tuberculosis Control, “Tuberculosis 
in New York City 1994 Information Summary at 12. 

??Health Systems Agency of New York City, Interim HIV/AIDS Strategic Plan for the 
City of New York, (1996) Volume 1 at 62. 

13 

 



  

of Queens. Queens Hospital Center operates a 408-bed inpatient facility, an extensive ambulatory 

program and emergency room, alcoholism and drug treatment programs, a methadone maintenance 

clinic, psychiatric facilities, and an alternative care program for patients who have difficulties finding 

a home. In 1995, 36 percent (113,199 patients) of all outpatient visits to Queens Hospital Center 

were made by uninsured patients.” 

Elmhurst Hospital Center operates a 563-bed inpatient facility, and recently completed a 

major modernization project which included the development of a Community Medical Center and 

a Surgical and Diagnostic Center. It also operates one of the City's most extensive Home Care 

Departments, with programs including an Adult Program for medical and surgical patients, a 

Maternal Child/Pediatric Program to meet the needs of mothers, infants, and children, a Pediatric 

Respiratory Program to assist children with asthma, and an Infusion Therapy Program to provide 

antibiotic and anti-viral therapy for outpatients (including HIV/AIDS patients). Like Queens 

Hospital Center, Elmhurst Hospital Center also renders a significant portion of its health care 

services to indigent and uninsured residents. In 1995, 47 percent (258,428 patients) of all outpatient 

visits at Elmhurst were made by uninsured patients. 

In Brooklyn and Queens, HHC clinics provide 72 percent and 64 percent of HIV/AIDS 

primary care, respectively. 

Despite HHC’s cardinal role in providing these essential health and medical services, 

Appellants have made no assessment of the current utilization rates, functions, and services 

  

2]. P. Morgan, Queens Hospital Network Offering Memorandum (October 25, 1995) at 
  

36. 

*]. P. Morgan, Queens Hospital Network Offering Memorandum (October 25, 1995) at 
  

36. 

14 

 



  

provided in the affected communities by any of the three public hospitals targeted for privatization, 

or the potential effects of the changes on City residents that might result from the long-term leasing 

of these facilities. 

The Hospital Privatization Plan: Contracting For The Provision Of Care 

The dismantling of the public hospital system through the sale or long-term lease of the 

City’s public hospitals to private companies has been a cornerstone of Mayor Giuliani's fiscal 

program since he came into office. In early 1994, the Mayor chose the New York City Economic 

Development Corporation ("EDC") to manage the hospital privatization plan. In August of 1994, 

EDC retained J.P. Morgan Securities, Inc. ("J.P. Morgan") to prepare an initial assessment of the 

plan. 

On April 4, 1995, EDC announced that the hospital privatization plan would commence with 

three hospitals. The selection of Coney Island Hospital, Queens Hospital Center, and Elmhurst 

Hospitals Center was evidently based on a single report by J.P. Morgan Securities, Inc. ("J.P. 

Morgan Report") which concluded that these three public hospitals had desirable assets that would 

attract buyers, and that the current shift to managed care provided a unique opportunity for the City 

to sell these facilities. 

The J.P. Morgan Report, however, did not consider the impact of the sale upon the continuity 

of care for indigent residents of New York City. Although recognizing that this factor was a critical 

issue in evaluating the Mayor’s privatization plan, the Report conceded that it had not been 

addressed at all: 

The financial benefits to the City of New York, of course, also depend upon factors 
not considered in this analysis, such as conditions of sale relating to care of the 
indigent, provision of services to the City and the like. 

See J.P. Morgan Report at 30, Ca 190. 

15 

 



  

Despite the complete absence of any analysis of the impact of the sale upon the continuity 

of care for indigent City residents, EDC proceeded with the Mayor’s plan. On August 1, 1995, EDC 

retained J.P. Morgan once again, this time to act as the City’s financial advisor, and to perform 

financial analyses of the three targeted public hospitals, design financing structures for each 

transaction, prepare marketing materials, identify and contact buyers, and assist in analyzing offers 

and negotiating financial terms. 

On October 26, 1995, EDC received the two Offering Memoranda that had been prepared 

by J.P. Morgan for the privatization of the three public hospitals. Contrary to Appellants’ 

description of the privatization plan development process, App. Br. at 4, there was no input from 

the HHC Board of Directors, the HHC Community Advisory Boards, the City Council or the public 

in the planning process. Their input was neither solicited nor accepted by the Mayor’s Office or 

EDC. Nor was any opportunity afforded for these groups to provide input in the drafting of the 

Offering Memoranda. Ca 113. 

While Appellants assert that the Offering Memorandum for Coney Island Hospital “set 

rigorous conditions to ensure that any private entity that subleased the hospital would advance 

HHC’s corporate mission,” App. Br. at 6, that simply was not so. The Memoranda given to 

prospective buyers did not delineate any health care services requirements, specify any level of care 

to be provided, require any specific level of access for uninsured patients, or set any objective 

standard for determining the impact of the privatization plan on the City's service delivery or its 

costs. The Offering Memoranda were nonetheless distributed by EDC to a secret list of potential 

buyers, who were then allowed to submit bids on the three public hospitals. 

The Coney Island Hospital Transaction 

While the Offering Memoranda expressly stated that the hospital privatization plan was to 

16 

   



  

  

be accomplished through long-term leases of the three facilities to not-for-profit health care 

providers, this did not happen. Instead, without any input from the HHC Board, Appellants’ selected 

a for-profit corporation, PHS-NY, Inc. (“PHS-NY”),”> a subsidiary of Primary Health Systems, Inc. 

("Primary"),”® to sublease and operate Coney Island Hospital. 

On June 26, 1996, Peter J. Powers, then First Deputy Mayor of the City, Dr. Luis Marcos, 

President of HHC, and Steven Volla, Chairman of Primary and PHS-NY, executed a letter of intent 

to conduct negotiations on a long-term sublease of the property, plant and equipment of Coney 

Island Hospital to PHS-NY. Ca 245. On October 8, 1996, pursuant to § 7385(6) of the HHC Act, 

the New York City Department of Health and HHC jointly convened a public hearing on the 

proposed sublease of Coney Island Hospital. Although the hearing was scheduled ostensibly in 

order to receive public input on the proposed sublease, the City did not make the ninety-page 

document — nor any of the other transaction documents” — available to the public prior to the 

hearing. Instead, only a 10-page summary was circulated just four days prior to the hearing. While 
  

Appellants assert that “an abstract of the terms and conditions of the sublease was distributed to the 

  

*’PHS-NY was incorporated on June 25, 1996 in Kings County, New York as a privately- 

held, for-profit corporation. 

**Primary is a privately-held Delaware corporation whose principal officers also serve as 

the officers and shareholders of PHS-NY. Primary has a very limited (but controversial) record 

as a health care provider, having entered the field by acquiring three hospitals in Ohio between 
1992 and 1993. Ca 251-53, 

"These documents included the Governing Agreement between HHC and PHS-NY, the 

Guaranty of Collection by Primary to HHC, ensuring PHS-NY’s performance of the Indigent 

Care Obligations set forth in the Lease, and the Tri-Party Agreement. The Tri-Party Agreement, 

signed by the City, HHC, and PHS-NY, permits PHS-NY to succeed HHC in the prime lease 

when it expires, requires the City to seek authorization for the sale of Coney Island Hospital if 

PHS-NY demands, and sets the purchase price at $1.00 plus the remaining debt service rent. 

Indeed, these documents were not made available to the public or even the HHC Board until May 
13,1997. 

17 

   



  

public,” App. Br. at 10, that summary omitted a number of key provisions contained in the proposed 

sublease, and did not discuss any of the other terms of the transaction.”® The City did not publicly 

release the 90-page proposed sublease until October 23, 1996, more than two weeks after the public 
  

hearing. 

The HHC Board Vote And The Missing Information 

On November 7, 1996, Comptroller Alan Hevesi (the "Comptroller") published a 

comprehensive analysis of the proposed sublease of Coney Island Hospital, addressing the potential 

impact of the deal on the continued provision of quality care to the South Brooklyn community 

served by Coney Island Hospital and the continued ability of the HHC system to provide care for 

those who cannot afford to pay. In his report, the Comptroller concluded, among other things, that: 

. the "sublease does not guarantee that PHS-NY will see everyone who needs care 
regardless of ability to pay"; 

% the "sublease does not require that PHS-NY see a specific number of uninsured 
patients"; 

% "[Primary’s] own data shows that it has a poor track record in providing indigent 
care’; 

i "the sublease does not specify the particular services that PHS-NY must provide"; 
and 

X "the sublease does not make provision for effective outside monitoring." 

  

See Comptroller Alan Hevesi, Analysis of Fundamental Issues That Have Yet To Be Resolved 

(November 7, 1996) (hereinafter “Fundamental Issues”) at 1-28, Ca 606-634. 
  

On November 8, 1996, just two weeks after the proposed sublease had been made publicly 

available, and without any public hearing on the 90-page document, the HHC Board of Directors 

  

**Given the minimal amount of information provided, Appellants’ “Public Briefing” 
efforts cannot be termed anything other than a sham. App. Br. at 9-10. 

18 

 



  

voted to approve a resolution authorizing the sublease of Coney Island Hospital to PHS-NY for an 

initial term of 99 years, with an option to renew for an additional 99-year term to be held by PHS- 

NY.” Not only were HHC Board members constrained to evaluate the limited information that was 

provided to them in an extremely compressed time frame, they were also denied critical information 

regarding key terms of the deal and three of the four primary agreements governing the relationships 

among the parties, including the Governing Agreement between HHC and PHS-NY, the Guaranty 

of Collection by Primary to HHC, and the Tri-Party Agreement. See n.24 supra. 

Specifically, at the time of the vote, HHC Board members had not been provided with any 

of the following items: (1) the contract setting forth the conditions to closing; (2) the agreement 

embodying Primary's guarantee of PHS-NY's indigent care obligations; (3) an agreement setting 

forth the terms of financing for the sublease; (4) a complete and enforceable agreement between the 

City and HHC regarding the City's reimbursement of the costs of indigent care in excess of the 

trigger point; (5) a delineation of the specific services that PHS-NY will be required to provide under 

the sublease; (6) the findings and underlying documentation regarding any investigation into the 

background and financial interests of the corporate and individual stockholders of Primary; (7) an 

appraisal of Coney Island Hospital that would indicate its market value to permit an assessment of 

whether the transaction represents the best deal; (8) information on whether PHS-NY will continue 

to provide free care for prisoners and for the work-related needs of the City's uniformed services: 

and (9) an analysis of the impact of the planned layoffs at Coney Island Hospital on the HHC 

system. Given the nature and amount of information missing from the presentation, Appellants’ 

  

2In his report, Comptroller Hevesi questioned whether HHC even has the authority to 
sublease Coney Island Hospital property for a period of 99 years, given that HHC’s own lease of 
Coney Island Hospital expires in 71 years. See Hevesi, Fundamental Issues, at 28, Ca 633. 

  

19  



  

depiction of the Board briefing prior to the vote, see App. Br. at 11, simply cannot be credited. All 

of this information was also unavailable to the general public at the time of the public hearing on the 

proposed sublease. 

The Proposed Coney Island Hospital Sublease 

Appellants’ superficial recitation of the terms of the Coney Island Hospital transaction, see 

App. Br. at 7-9, cannot mask the fact that the transaction contemplates the implementation of 

significant changes to the practices that lie at the heart of HHC's public mission to provide critical 

health care services to the poor residents of the City. 

The Cap On Indigent Health Care Services 
  

The proposed sublease does not guarantee that PHS-NY will treat everyone who needs care 

regardless of their ability to pay. Indeed, it does not even require PHS-NY to treat a specific 

number of uninsured patients. Rather, in Section 28.05, PHS-NY merely rontites to provide health 

care services to indigent and uninsured persons up to a specific charity care expense level.” See 

Proposed Sublease § 28.05. Ca 473j-473k. That section establishes a cap on PHS-NY's obligation 

to serve indigent residents, defining the extent of PHS-NY's obligation solely in terms of a fixed 

dollar amount. Id. Section 28.05 thus contemplates a complete departure from HHC's practice of 

seeing all patients without regard to insurance status or ability to pay. 

Under the terms of the proposed sublease, PHS-NY is required to absorb the costs of 

providing care to indigent residents up to a "trigger point" equal to 115 percent of the current annual 

charity care expense of Coney Island Hospital. Proposed Sublease § 28.05(d)(11). Ca 473k. This 

  

*’PHS-NY will also provide those essential health care services included in certain "core" 
departments "that Coney Island Hospital provides on the day before the closing on the sublease." 
Proposed Sublease § 28.01 at 67-68. Ca 473c-473d. 

20  



  

provision does not ensure that the same level of service currently provided to uninsured residents 

at Coney Island Hospital will be maintained under PHS-NY, nor does it guarantee that the health 

care needs of future indigent residents will be met. Id. Because the sublease sets forth PHS-NY's 

charity care obligation in dollar terms, the actual number of patients that PHS-NY will treat up to 

the trigger point will depend solely upon the method of cost calculation used by PHS-NY. While 

the sublease does not specify how PHS-NY will calculate its charity care expense, Comptroller 

Hevesi, after examining a number of transaction documents, ascertained that this expense "will be 

calculated on the basis of PHS-NY's fee schedule, rather than its actual costs." See Hevesi, 

Fundamental Issues at 1-2 (emphasis supplied). Ca 606-07. If, in fact, PHS-NY calculates charity   

care costs allocable to the cap by subtracting any payments from its own standard charges (as 

opposed to HHC’s method of calculating its charity care expense based on its actual costs), it will 

have higher charity care expenses than HHC,' and the volume of service provided by PHS-NY will 

in fact be lower than that currently provided. See id. 

More importantly, after the first year that the trigger point is exceeded, PHS-NY will no 

longer be obligated to provide indigent care above that cap. The proposed sublease explicitly 

permits PHS-NY to "manage access to health care in such a manner as it may deem appropriate so 

as to avoid ‘Excess Incurrence’" of indigent care 1f the costs of providing indigent care services 

exceed PHS-NY's cap in any given year. Proposed Sublease § 28.05(c). Ca 473k. Moreover, the 

sublease also explicitly states that after the first year in which PHS-NY reaches the trigger point, 

HHC cannot require PHS-NY to provide indigent care beyond that point: "[N]othing herein shall 

  

** According to Comptroller Hevesi, calculations based on a fee schedule rather than on 
actual costs will result in higher expense because fees charged are normally higher than costs. 
Hevesi, Fundamental Issues at 2. Ca 607. 
  

21  



  

give Landlord [HHC] the right to require Tenant [PHS-NY] to provide Indigent Care in excess of 

such amount." Id. With the exception of a single year of reimbursement guaranteed by HHC (for 

which the City has ostensibly promised to reimburse the Corporation), there is no articulated plan 

either for the provision of services to this population or for the payment of the costs attendant to such 

care.” 

With respect to the costs incurred in providing such services above the established charity 

care level, under the proposed sublease, PHS-NY is only required to absorb the costs of such care 

up to the trigger point. After the trigger point is reached, however, HHC will be obliged to 

reimburse PHS-NY for all costs incurred above that point for only one year. Proposed Sublease § 

28.05(c). Ca 473k. Although the City has represented that it will reimburse HHC for such outlays, 

there is no provision detailing how such expenditures will be budgeted and what impact they might 

have both on HHC's annual budgeting process and on the allocation of funds among HHC's other 

facilities. Nor is there any binding document setting forth the City’s commitment to HHC on this 

fiscal issue. 

PHS-NY's Control Over The Continuation Of Existing Services 

Similarly lacking in the sublease is any delineation of the specific medical services to be 

provided by PHS-NY or the entities that will provide these services. The proposed sublease 

distinguishes between "Core" services and "Non-core" services. Proposed Sublease § 28.01(a). Ca 

473c-473d. Under Article 28, PHS-NY would continue to provide "core" services, including 

  

“If PHS-NY turns away patients so as to avoid exceeding the contractual cap, HHC will 
still be required to fund the costs of such care at other municipal facilities. This would require 
HHC to divert resources from other institutional facilities, which would in turn affect the ability 
of those institutions to carry out their stated missions of delivering care to all regardless of ability 
to pay. 

22  



  

"Emergency Medicine, Medicine, Obstetrics/Gynecology, Pediatrics, Psychiatry, Rehabilitation 

Medicine and General Surgery," "to substantially the same degree as provided by Coney Island 

Hospital on the day prior to Commencement Date." Proposed Sublease § 28.01(a). Ca 473d. 

However, this list of "core services” merely designates various departments of the Hospital; 

it does not specify the services that PHS-NY must continue to provide in each department.   

Similarly, there is no clue as to which of the Hospital's 90 out-patient clinics (including allergy, 

asthma, diabetes, cardiac rehabilitation, out-patient surgery, hearing, geriatrics continuing care, pre- 

natal, alcoholism, and family planning clinics, for example) PHS-NY must continue to operate. 

Moreover, because PHS-NY will only be obligated to continue those services that are being offered 

at the time that it assumes operating responsibility, no assessment can be made of the impact of any 

possible service cuts on the affected communities. 

The proposed sublease also permits PHS-NY both to change the ways and means of 

delivering these "core" department, and to alter the specific services offered within them. PHS-NY 

thus can close a "core" department altogether for certain articulated reasons -- i.e. changes in 

government reimbursement mechanisms -- without getting HHC's approval. Proposed Sublease § 

28.01(b). Ca 473d. PHS-NY can also close “core” departments if it deems the closure to be a 

“reasonable” response to "changes in health care practices, changes in the health care needs of the 

Coney Island community," or "fundamental changes in government reimbursement mechanisms, or 

other fundamental changes which materially affect the delivery of health care services." Proposed 

Sublease § 28.01(b). Ca 473d. 

The proposed sublease similarly permits PHS-NY to change the ways and means of 

delivering "non-core" services (which include dental care, cardiology, urology, endocrinology, 

ophthalmology, orthopedic surgery, podiatry, anesthesiology, oral surgery, cardiac cath, pharmacy, 

23  



  

surgical subspecialties and all other services not listed as "core" services) at PHS-NY's "reasonable 

discretion." Proposed Sublease § 28.01(a) and (c). Ca 473d. Under this provision, PHS-NY can 

close or transfer any non-core service without any effective limitation. Before doing so, PHS-NY 

need only give HHC notice; HHC is provided with no recourse should PHS-NY reject its 

recommendation. 

Finally, the sublease would allow PHS-NY to transfer responsibility for performing inpatient 

and outpatient "non-core" services to other providers without garnering any assurance that such 

providers will accept referred patients without regard for their ability to pay. No assurance is 

required regarding the accessibility of services to uninsured patients when they are referred to private 

providers (e.g., for lab work or private practices for follow-up patient care). These provisions could 

seriously jeopardize the continuity of care for the chronically ill, for diabetics, asthmatics or persons 

living with AIDS. 

Primary’s Troubling Health Care Record 

Finally, contrary to the documents concerning Primary’s background submitted by 

Appellants in the Record, Ca 473bb et seq., the documentation provided by Primary as well as 

reports filed by HHC's own staff based on their initial reviews of Primary’s current operations, raise 

significant troubling questions regarding both quality of care and access to care at Primary’s 

Cleveland hospitals. Ca 617. According to data provided by Primary, for the years 1993 through 

1996, total levels of uncompensated care have dropped significantly since Primary assumed control 

of these facilities. Ca 609. A report by Comptroller Hevesi that relies on figures supplied by 

Primary shows significant declines in the amount of care provided to the uninsured working poor 

and total uncompensated care, after Primary assumed control of two of the hospitals, St. Alexis and 

24  



  

Deaconess.” Ca 609. According to Dr. Walid Michelen, Senior Vice President for Medical & 

Professional Affairs for HHC, St. Alexis hospital performed worse than expected in its most recent 

survey in the areas of patient satisfaction, mortality, and length of stay. Ca 643-645. Dr. Michelen 

was also informed that both Deaconess and St. Alexis Hospitals "subtly" turn away indigent care 

patients. Ca 644. Initsreview of Primary’s current operations, HHC staff raised concerns regarding 

Primary’s practice of discontinuing and outsourcing services. Ca 485-88. 

The Discontinuation Of Funding For Charity Care Services 

In their analysis of PHS-NY’s assumption of HHC’s indigent care responsibilities, 

Appellants have apparently failed to consider the likely unavailability of funds from certain portions 

of the New York State Bad Debt and Charity Care Pools which have in the past defrayed nearly 50 

percent of the annual cost to HHC of providing charity care. According to Comptroller Hevesi, if 

PHS-NY takes over operation of Coney Island Hospital, the Hospital will no longer be eligible for 

funds from two pools of the New York State Bad Debt and Charity Care Pools -- the Supplementary 

Pool and the Supplementary Low Income Program Adjustment Pool -- because these funds are 

available only to government hospitals.>* Hevesi, Fundamental Issues at 17. Ca 622. 
  

Even HHC's own numbers illustrate the importance of this factor.”> The Environmental 

  

** According to the Comptroller’s analysis, care for the uninsured working poor dropped 
by 30 percent at St. Alexis Hospital, and by 39 percent at Deaconness Hospital. The 
Comptroller’s analysis also finds a significant decline in the total uncompensated care provided 
at both of these hospitals: 17 percent at St. Alexis, and 47 percent at Deaconess. Hevesi, 
Fundamental Issues at 4. Ca 609. 
  

**The Draft Memorandum of Understanding between HHC, PHS-NY, and the City, also 
states that "due to the sublease of Coney Island Hospital to PHS-NY, Coney Island Hospital will 
no longer participate in the public hospital pools.” 

**While PHS-NY will continue to be obligated to provide care up to the trigger point, as 
the analysis below illustrates, it will reach the trigger point more quickly if it is not eligible for 

25  



  

Assessment Form (“EAF”) published by the City pursuant to the City Environmental Quality 

Review (“CEQR?”), 62 Rules of the City of New York ("RCNY") §§ 5-01 et seq. & Appendix A, 

projects that the trigger point, above which HHC must absorb the costs of charity care, will be 

$18,825,500, EAF at C-20; Ca 561, and that the number of uninsured will reach 37,100 by the year 

2000 (a figure which Respondents contest as a serious underestimation). HHC assumes that PHS- 

NY's cost of providing care for this number of patients will be $19,807,700.>° It also assumes that 

PHS-NY will be reimbursed, and that its charity care expenses will be reduced by $9 million to 

$10,307,700. EAF at C-21; Ca 562. If PHS-NY proves to be ineligible for reimbursement from 

some of the Bad Debt and Charity Care Pools, however, PHS-NY's reimbursement may be reduced 

by up to $7.5 million.” PHS-NY's contractual contribution to charity care will thus reach trigger 

point well before it has served the number of patients that HHC has served in previous years. 

Furthermore, HHC also fails to take into account the fact that the sublease allows PHS-NY 

to choose its method of cost calculation. Because the sublease sets forth PHS-NY's charity care 

obligation in dollar terms, the actual number of patients PHS-NY treats will depend solely upon the 

method of cost calculation used by the company. If PHS-NY calculates charity care costs allocable 

to the cap by subtracting any payments from its own standard charges (as opposed to the HHC 

method of expenses minus revenues), the volume of service may in fact be lower than that currently 

provided for this reason as well. Moreover, HHC staff has noted that Primary has a practice of 

  

these funds. After PHS-NY has exceeded the trigger point for one year, in all future years, 1t will 
be entitled to turn people away once the cap is reached. Proposed Sublease $23.05(c). Ca 
473(k). 

**Plaintiffs also challenge this number, which assumes without basis that PHS-NY's 
calculations of cost will be identical to Coney Island Hospital's current calculation. 

*"Hevesi, Fundamental Issues at 17. Ca 622. 
  

26  



  

outsourcing and spinning off services such as emergency services, radiology, pharmacy, and 

dietary.”® If PHS-NY adopts this practice, it will charge separately for such services as X-rays and 

lab tests, in contrast to Coney Island Hospital's current practice of charging all-inclusive rates. This 

will allow PHS-NY to increase substantially the costs of charity care. Nowhere are either of these 

limitations on PHS-NY’s assumption of charity care responsibilities analyzed, nor is the fact that the 

sublease fails to provide a mechanism for auditing PHS-NY's method of calculating costs taken into 

account. 

The Proceedings Below 

In March 1996, the New York City Council (the “Council”’) commenced an action against 

Appellants in Queens County Supreme Court challenging the Mayor’s hospital privatization plan. 

In May 1996, Respondents filed a similar suit in the same court. Both Retonters and the Council 

sought a declaration that Appellants had violated § 197-c of the New York City Charter (the Uniform 

Land Use Review Procedure or “ULURP”) and § 7385(6) of the HHC Act by failing to obtain 

Council approval of the proposed long-term subleases. Both Respondents and the Council also 

sought a permanent injunction prohibiting HHC’s sublease of Coney Island Hospital to PHS-NY. 

After the HHC Board of Directors approved the Coney Island Hospital sublease, plaintiffs 

in both actions amended their complaints to allege that the proposed sublease constituted an ultra 

vires act by HHC. 

By order and judgment entered February 5, 1997, the Supreme Court (Posner, J.) granted 

summary judgment to Respondents and the Council, declaring: (1) that HHC’s proposed sublease 

of Coney Island Hospital to PHS-NY was ultra vires under the HHC Act; and (2) that the proposed 

  

**See EAF (HHC Staff Concerns) Ca 484-505. 

27  



  

sublease required the Council’s approval under both ULURP and the HHC Act. 

By per curiam opinion dated September 15, 1997, the Appellate Division, Second 

Department, affirmed the Supreme Court’s decision insofar as the lower court had found the 

proposed sublease of Coney Island Hospital to PHS-NY to be ultra vires, but deleted those portions 

of the decision holding that the proposed sublease required the Council’s approval under both 

ULURP and the HHC Act. 

OPINIONS BELOW 

The Trial Court Opinion 

The Queens County Supreme Court (Posner, J.) entered judgment on February 5, 1997 

denying Defendants motion for summary judgment and granting Plaintiffs’ cross-motion for 

summary judgment. In granting summary judgment for Plaintiffs, the Supreme Court held that: 

(1) the HHC Act precludes the dismantling of the HHC system generally, and the long-term sublease 

of Coney Island Hospital to PHS-NY, specifically; (2) any lease of an HHC facility must be 

approved pursuant to the City Charter Uniform Land Use Review Procedure; and (3) any lease of 

an HHC facility must be approved by the City Council. 

Specifically, the court first rejected Defendants’ argument that the City Council had no 

authority to review the land use implications of decisions made by HHC. The court noted that the 

HHC Act ensured the City's continuing control over its real property by requiring consent from the 

Board of Estimate prior to the disposition of a health facility or any other real property of the City. 

When the HHC Act was passed, the Board of Estimate was vested with the authority under the City 

Charter to consider both the business terms and the land use effects of any disposition of the City's 

property. After the demise of the Board of Estimate, the City Charter divided that authority: the 

Mayor was granted authority to approve the business terms of any disposition of City property and, 

28  



  

through ULURP, the City Council was granted the authority to review the land use implications of 

any such disposition. Following this clear devolution of power to the two branches of City 

government, the Supreme Court concluded that the only interpretation of the HHC Act consistent 

with its language and its purposes is one which conforms to the City Charter revisions: the authority 

to consent to business terms lies with the Mayor and the authority to review the land use implications 

lies with the City Council through ULURP. Ca 854. 

With regard to the ultra vires claim, the court found that the language of the HHC Act and 

the history surrounding its enactment made clear that the State Legislature created HHC as a public 

benefit corporation to assume the governmental function of operating the public hospitals and fulfill 

the City’s constitutional obligation to provide health and medical services to residents that cannot 

afford such care. In so concluding, the court rejected Defendants’ attempt to read narrow provisions 

of the Act permitting HHC to contract for the provision of specific health care services to allow the 

wholesale delegation of all of HHC’s operational and management responsibilities to a private, for 

-profit corporation. Such a reading, the court noted, would clearly frustrate the purposes of the Act. 

The Appellate Division Opinion 

On appeal, the Appellate Division, Second Department, by order dated September 8, 1997, 

affirmed, without dissent, that portion of the Supreme Court’s decision which held that the hospital 

privatization plan and the proposed sublease of Coney Island Hospital constituted an ultra vires act. 

The court, however, modified the judgment of the Supreme Court by deleting those provisions that 

declared the sublease subject to ULURP and the approval of the City Council. 

29  



  

ARGUMENT 

I. THE HHC ACT DOES NOT AUTHORIZE HHC TO DELEGATE ITS 

ADMINISTRATIVE, MANAGEMENT AND OPERATIONAL DUTIES 

REGARDING THE PUBLIC HOSPITALS THROUGH A SALE OR LONG-TERM 
SUBLEASE TO A PRIVATE, FOR-PROFIT CORPORATION 

A. The Transfer of Administrative, Management, and Operational Control Over 

A Public Hospital to a Private, For-Profit Corporation Is Plainly Inconsistent 
With HHC’s Corporate Purposes 

The HHC Actmust receive "a sensible and practical over-all construction, which is consistent 

with and furthers its scheme and purpose," Long v. Adirondack Park Agency, 76 N.Y.2d 419, 420, 
  

559 N.E.2d 635, 636-37, 559 N.Y.S.2d 941, 942-43 (1990), in light of the "general rule in the 

construction and interpretation of statutes that the intent of the legislature is the primary object 

  

sought and [that] . . . courts do not favor a departure from literal construction." American Dock Co. 

v. City of New York, 21 N.Y.S.2d 943, 952, 174 Misc. 813 (1940). The construction advanced by   

Appellants violates these and other well established canons of statutory construction. 

In urging this Court to reverse the Appellate Division and uphold the sublease of Coney 

Island Hospital to PHS-NY, Appellants primarily rely on § 7385(6) of the HHC Act, which 

authorizes HHC “to dispose of by sale, lease or sublease, . . . a health facility . . . for its corporate 
  

purposes.” HHC Act § 7385(6) (emphasis supplied). App. Br. at 17. Their reliance on § 7385(6) 

is entirely misplaced, however, since the transfer of full administrative, management and operational 

control over one of the City’s public hospitals to a private, for-profit corporation is plainly 

inconsistent with HHC’s “corporate purposes.” 

This is nowhere more evident than in the statement of legislative policy that begins the HHC 

Act. In enacting the HHC Act, the State Legislature declared that: 

hospitals and other health facilities of the city are of vital and paramount concern and 
essential in providing comprehensive care and treatment for the ill and infirm, both physical 

30 

 



  

and mental, and are thus vital to the protection and the promotion of the health, welfare and 

safety of the people of the state of New York and the city of New York. 

HHC Act § 7382 (emphasis supplied). To this end, the Legislature mandated the City to enter into 

  

an agreement with the newly created HHC “whereby [HHC] shall operate the hospitals then being 

operated by the city for the treatment of acute and chronic diseases . . . .” HHC Act § 7386(1)(a) 

(emphasis supplied). Thus, as the Appellate Division observed, “[tlhe Legislature clearly 

contemplated that the municipal hospitals would remain a governmental responsibility and would 

be operated by HHC as long as HHC remained in existence.” Council of City of New York v. 
  

Giuliani, 231 A.D.2d 178, 181, 662 N.Y.S.2d 516, 518 (2d Dept. 1997). “It is fundamental that 

a court, in interpreting a statute, should attempt to effectuate the intent of the Legislature.” 

Majewski v. Broadalbin-Perth Central School Dist., 91 N.Y.2d 577, 583, 673 N.Y.S.2d 966, 968 
  

(1998) (quoting Patrolmen’s Benevolent Ass’n v. City of New York, 41 N.Y.2d 205, 208, 391 
  

N.Y.S.2d 544, 546 (1976)). Given the State Legislature’s clearly expressed intent to have HHC 

“operate” the public hospitals and ensure the provision of dignified health care services to the City’s 

indigent and uninsured residents, it cannot be credibly argued that transfer of administrative, 

operational and management control over Coney Island Hospital to a private, for-profit corporation 

  

*°As used here, the term “operate” plainly connotes management of the City’s public 
hospitals, not delegation of control over those hospitals through a long-term lease. Cf. Wallace 
v. Oceaneering International, 727 F.2d 427, 437 (5 Cir. 1984) (Cities Services had “no 
operational control” over independent contractor, since its employee “had no actual control over 
or responsibility for the details of the drilling and diving work, but merely inspected the 
progress”); Commissioner of Internal Revenue v. Fortney Oil Co.. County Farm Lease, 125 F.2d 
995, 997 (6" Cir. 1942) (“no assignee at any time had the right to operate the property and hence 
could not delegate such authority to an agent”); Parks Cab Co. v. Annunzio, 412 Ill. 549, 107 
N.E. 2d 853, 855 (1952)(“appellant was licensed to operate cabs, not to lease them”). 

  

  

  

31  



  

9940 > J (19 is, in any way, shape, or form, consistent with HHC’s “corporate purposes. 

Appellants also purport to find authority to sublease Coney Island Hospital to a private, for- 

profit corporation in § 7385(8) of the Act, which authorizes HHC “[t]o provide health and medical 

services for the public directly or by agreement with or lease with any person, firm or private or 

public corporation or association, through and in the health facilities of the corporation . . ..” HHC 

Act § 7385(8) (emphasis supplied). App. Br. at 18. Here too, their argument is flawed. The term 

“health and medical services” is defined by the Act to mean “items or services provided by or under 

the supervision of a physician or other person trained or licensed to render health care,” such as 

“home care, physician’s care, nursing care,” or “laboratory services.” HHC Act § 7383(13). While 

such discrete services are “component[s]” of hospital care, they are not the hospital system itself. 

Giuliani v. Hevesi, 90 N.Y.2d 27, 37, 659 N.Y.S.2d 159, 163 (1997) (“Thus, we conclude that, in   

permitting the Authority to issue bonds to cover necessary costs [of ‘water projects’], the Legislature 

contemplated that a ‘water project’ would be a component of the Water System, not the Water 

System itself”). 

Moreover, as the Appellate Division observed, HHC’s authority under § 7385(8) to contract 

with private parties for the provision of health and medical services is “limited by” the requirement 

(119 that such services be provided “‘through and in the health facilities of the corporation.” Council 

  

*°As shown in Point I. C., infra, the proposed sublease of Coney Island Hospital is also 
inconsistent with HHC’s “corporate purposes” because it does not obligated PHS-NY to provide 
care to all City residents, regardless of their ability to pay, as HHC must do under the State 
Constitution, the HHC Act, the Lease, and HHC's own Bylaws. New York State Constitution, 
Article XVII, §§ 3 & 4; HHC Act § 7382; HHC Lease, Article II, § 2.1 (Ca 124); HHC Bylaws, 
Article II (B) (Ca 659). HHC's corporate purpose is to "[e]xtend equally to all we serve 
comprehensive health services of the highest quality in an atmosphere of human care and 
respect." HHC Bylaws, Article II (B). Ca 659. The Lease similarly provides that "the hospitals 
under [HHC's] jurisdiction and the services that it will render are particularly for those who can 
least afford such services." Lease, Art. II, § 2.1. Ca 124. 

32 

  

  
 



  

of City of New York v. Giuliani, 231 A.D.2d 178, 182, 662 N.Y.S.2d 516, 519 (quoting HHC Act 
  

§ 7385(8)). In maintaining that Coney Island Hospital will remain a health facility of HHC, despite 

the 99-year sublease to PHS-NY, App. Br. at 19, Appellants, in effect, ask this Court to narrowly 

focus on the form and ignore the substance of the proposed deal. This, of course, the Court should 

not and cannot do. Miller v. City of New York, 15 N.Y.2d 34, 255 N.Y.S.2d 78 (1964) (rejecting 
  

City’s argument that commercial lease of park land was merely a license). Indeed, the Mayor 

recently acknowledged that the practical effect of such a long-term lease is to transfer ownership of 

the property when commenting on the Port Authority’s proposed 99-year lease of the World Trade 

  

Center Towers to a private developer: “I am a lawyer, . . . I understand that a 99-year lease is 

tantamount to a sale. I know that in court they’re not going to get away with it because the courts 
  

... will construe a 99-year lease, for tax purposes, to be a sale.” 

In arguing that § 7385(8) provides HHC with the authority to undertake the hospital 

privatization plan, Appellants also fail to address the real and important distinction between a 

contract to engage a private, for-profit corporation to provide discrete health and medical services 

  

“David Seifman & Carl Campanile, “Rudy Wants WTC’s Towering Taxes,” New York 
Post (September 25, 1998) at 21 (emphasis supplied). 

While, in theory, “HHC will have all remedies available to a landlord, including the 
authority to evict its tenant,” App. Br. at 19, any attempt to evict PHS-NY for material breach of 
its public health obligations, is likely to be a long, drawn-out process, during which the patients 
serviced by Coney Island Hospital are likely to suffer. Cf. Ministers, Elders and Deacons of 
Reformed Protestant Dutch Church of City of New York v. 198 Broadway, Inc., 76 N.Y.2d 411, 
559 N.Y.S.2d 866 (1990) (commercial tenant remained in possession seven years after eviction 
judgment). Indeed, the very terms of the proposed sublease severely restrict the bases upon 
which HHC may claim such a breach, since PHS-NY: (1) cannot be required to provide indigent 
care above the trigger point after the first year in which the trigger point is reached; (2) can close 
a "core" department altogether without getting HHC's approval for certain articulated reasons-- 
i.e. changes in government reimbursement mechanisms; and (3) can transfer responsibility for 
performing inpatient and outpatient "non-core" services to other providers without garnering any 
assurance that such providers will accept referred patients without regard for their ability to pay. 
Proposed Sublease § 28.01. Ca 473c. 

  

  

33 

  

  
 



  

in a public hospital operated by HHC, and one designed to transfer operational control of that public 

hospital from HHC to the corporation -- a distinction which further compels rejection of Appellants’ 

broad construction of § 7385(8). Under a contract with a private, for-profit corporation for the 

provision of specific health care services, HHC delineates policies and retains management and 

administrative authority over the provision of services with HHC’s public purpose being the guiding 

principle for all decisions. See HHC Act § 7382. By contrast, a complete transfer of management 

and control of a public hospital to a private, for-profit corporation necessarily means that the private 

corporation will make critical decisions regarding the health and medical services to be provided, 

often based on its assessment of their potential for economic gain. Indeed, as described above, the 

proposed sublease of Coney Island Hospital in no way restricts PHS-NY from doing precisely that. 

While purporting to find statutory authority in Sections 7385(6) and 7385(8) for the transfer 

of operational control over Coney Island Hospital to PHS-NY, Appellants completely overlook § 

7385(20), which authorizes HHC to transfer such control to a wholly-owned subsidiary public 

benefit corporation, subject to the Mayor’s approval. HHC Act § 7385(20). The construction of 

Sections 7385(6) and 7385(8) urged by Appellants -- giving HHC authority to transfer operational 

control over a public hospital to a public or private entity without Mayoral approval -- would, if 

adopted, render § 7385(20) superfluous, in violation of the well-settled rule that a statute must not 

be construed a manner which would render any section mere surplusage. See, e.g., Matter of 

OnBank & Trust Co., 90N.Y.2d 725, 731, 665 N.Y.S.2d 389, 391 (1998); Rodriguez v. Perales, 86 
  

  

N.Y.2d 361, 366, 633 N.Y.S.2d 252, 254 (1995); Branford House, Inc. v. Michetti, 81 N.Y.2d 681, 
  

6603 N.Y.S.24 290 (1990). 

Moreover, even if Appellants’ statutory argument did not render § 7385(20) superfluous, 

it still would have the anomalous effect of requiring Mayoral approval of an HHC decision to 

34 

  
 



  

transfer operational control over a public hospital to a wholly-owned, subsidiary public benefit 

corporation, but not requiring Mayoral approval in the event that HHC decides to transfer such 

control to a private, for-profit corporation. Compare HHC Act § 7385(20) with HHC Act §§ 7385(6) 

and 7385(8). The State Legislature surely never intended the HHC Act to be construed so as to 

  

produce such an “unreasonable” result. Ellington Constr. Co. v. Zoning Bd. Of Appeals of 

Incorporated Village of New Hempstead, 77 N.Y .2d 114, 124-25, 564 N.Y.S.2d 1001, 1007 (1990)   

(“Under established rules, we must presume that the Legislature could not have intended 

respondent’s interpretation of the statute which produces such unreasonable . . . consequences”). 

The presence of § 7385(20) in the HHC Act provides yet another reason for rejecting 

Appellants’ position. The fact that the State Legislature only granted HHC express authority to 

"exercise and perform all or part of its purposes, powers, duties, functions or activities through one 

or more wholly-owned subsidiary public benefit corporations,” HHC Act § 7385(20) (emphasis 

supplied), strongly suggests that the Legislature did not intend HHC to have the authority to make 

similar broad delegations to private, for-profit corporations. Pajak v. Pajak, 56 N.Y.2d 394, 397, 
  

452 N.Y.S.2d 381, 382 (1982) (“the failure of the Legislature to include a matter within a particular 

statute is an indication that its exclusion was intended”); Lenard v. 1251 Americas Assocs., 241 
  

A.D.2d 391, 660 N.Y.S.2d 416, 418 (1* Dept. 1997) (when a provision is included in one particular 

subdivision, but excluded from other subdivisions, it is presumed that the Legislature intended the 

  

provision to apply solely to subdivision in which it is contained), appeal withdrawn, 90 N.Y.2d 937, 

664 N.Y.S.2d 275 (1998). 

As both courts below correctly recognized, HHC was created to fulfill a critical public 

mission — the provision of comprehensive, quality health care services to the poor and uninsured 

residents of the City. The specific limitations included in § 7385(20) plainly were incorporated 

35 

  

  
 



  

therefore, not as mere surplusage, ot rather to ensure that the public mission of HHC would run 

with the operational authority -- i.e., that any entity taking over the operation of a health facility from 

HHC would be likewise constrained to fulfill the City’s constitutional obligations of providing care 

for the needy. 

Just as the statutory language of the HHC Act plainly shows that HHC lacks authority to 

transfer operational and administrative control over a public hospital to a private, for-profit 

corporation, so too the legislative history confirms that lack of authority. See People v. Hill, 85 
  

N.Y.2d 256, 262, 624 N.Y.S.2d 79, 82 (1995). There is nothing in the legislative history that even 

remotely suggests that the State Legislature intended to grant HHC such authority; rather, it suggests 

the opposite. As both the Appellate Division and Supreme Court noted, the legislative history 

clearly shows that the Legislature specifically intended to create HHC so that it could be the 

"mechanism" to “manage” the public hospitals: 

[I]n establishing a public benefit corporation, the City is not getting out of the hospital 
business. Rather it is establishing a mechanism to aid it in better managing that business for 
the benefit not only of the public served by the hospitals but the entire City health service 
system. 

  

Opinion at 20 (quoting Letter of Mayor John V. Lindsay to Governor Nelson A. Rockefeller, 

Governor's Bill Jacket, L. 1969, ch. 1016 (emphasis supplied)). Ca 860. The principle is well 

established that “[t]he construction of [the HHC Act] is, [of course,] the exercise of determining the 

intent of the Legislature when the act was passed.” People v. Hill, 85 N.Y.2d 256, 262, 624 
  

N.Y.S.2d 79, 82 (1995). 

That the State Legislature created HHC to “manage” the City’s public hospitals and not 

delegate that task to private, for-profit corporations such as PHS-NY on a hospital by hospital basis, 

is further evident from the views of the Piel Commission on whose recommendations the HHC Act 

36 

 



  

was based. In recognizing that the provision of health services was a “responsibility that belongs 

inescapably to local government,” the Piel Commission expressly rejected the notion that the “City 

. . . turn over the responsibility for delivering publicly financed personal health services to the 

‘private sector’ — in effect, transforming the City hospitals into free-standing voluntary hospitals,” 

1d. at 70, because it found such an approach would “contribute little to the system-wide objectives 

[of an integrated system] set forth in the Commission’s Recommendation 1.” Id. 

As the Appellate Division aptly observed, to the extent that the long-term lease of Coney 

Island Hospital to PHS-NY divides Sern authority over the public hospital system, that too 

is plainly inconsistent with HHC’s “corporate purposes,” since HHC was created “to establish one 

entity accountable to the public to operate the municipal hospitals for the benefit of the public.” 

Council of City of New York v. Giuliani, 231 A.D.2d 178, 182, 662 N.Y.S.2d 516, 518-19. 
  

Finally, post-enactment construction of the HHC Act also confirms that HHC lacks authority 

to transfer operational control to a private, for-profit corporation. In a 1984 opinion rendered by the 

Attorney General in response to HHC’s inquiry, the Attorney General concluded that HHC did not 

have the power to create a for-profit subsidiary. 1984 Op. Atty Gen. 93. This opinion underscores 

the intent of the legislature to create a public benefit corporation to operate the City’s hospitals for 

the benefit of its residents. Furthermore, the opinion also reveals Appellants’ efforts to circumvent 

the extant legal barriers to their hospital privatization plan: given that HHC could not privatize 

itself, Appellants attempted to employ a strategy of privatizing the hospitals through long-term 

subleases in order to accomplish the same goal. This Court must not sanction the use of such tactics. 

If, as Appellants urge, HHC were permitted to turn over full operational authority to private 

corporations, it would be abdicating its statutory obligations. Appellants’ proposed statutory 

construction would thus “permit the incongruous result that HHC can delegate or shift all of its 

37 

 



  

responsibilities to a non-public entity as a means of ‘furthering its corporate purposes,’” Opinion at 

21, Ca 861, even though these purposes are defined as “a state, city and public purposes,” and the 

functions delegated to HHC to achieve such purposes “constitute the performance of an essential 

public and government function.” HHC Act § 7382. As is clear from the plain language of the 

statute, in order to support the proposed hospital privatization plan, a fundamental alteration of the 

statutory scheme would be required. Only the state Legislature has the authority to make such a 

change. Opinion at 21, Ca 862; see Matter of New York Public Interest Research Group, 83 N.Y.2d 
  

377,632 N.E.2d 1255,610N.Y.S.2d 932 (1984) (City officials cannot frustrate a legislative purpose 

by eviscerating an agency or group created by the statute for a public purpose). The HHC Act, as 

the Supreme Court below correctly held, neither authorized nor even contemplated privatization. 

Appellants’ actions in furtherance of such an end are therefore ultra vires. Opinion at 24, Ca 864; 

see People v. Smith, 582 N.Y.S.2d 946, 947, 79 N.Y.2d 309, 311, 591 N.E.2d 1132, 1133 (1993)   

(the purpose of statutory interpretation "is not to pass on the wisdom of the statute or any of its 

requirements, but rather, to implement the will of the Legislature as expressed in its enactment"). 

B. The Inherent Conflict Between HHC’s Public Purpose and the Economic Goals 
of A For-Profit Corporation Also Compels Rejection of the Proposed Hospital 
Privatization Plan 

Even apart from the analysis set forth above, the inherent conflict between HHC’s statutory 

mission and the profit maximizing goals of a private, for-profit corporation precludes the 

implementation of a privatization plan which contemplates the transfer of total operational control 

over a public hospital to a for-profit entity. The emphasis of for-profit corporations on economic 

gain simply cannot be reconciled with the primary public service mission of HHC. 

Even Appellants concede -- as they must -- that in creating HHC, the Legislature intended 

to create a public benefit corporation that would operate the City's public hospitals and fulfill the 

38 

 



  

constitutional obligations of the City and the State to provide "high quality, dignified and 

comprehensive care and treatment for the ill and infirm, particularly to those who can least afford 

such services." HHC Act § 7382; see App. Br.at____. Moreover, under the Act, HHC’s statutory 

charge, to fulfill the essential governmental function of providing health care services for the 

“benefit of the people of New York,” is expressly designated as a public purpose: 

that the creation and operation of the New York city health and hospitals corporation, 

New York and of the city of New York, and is a state, city and public purpose; and 
that the exercise by such corporation of the functions, powers and duties as 
hereinafter provided constitutes the performance of an essential public and 
governmental function. 

  

HHC Act § 7382 (emphasis supplied). Moreover, the law is clear that a public benefit corporation, 

such as HHC, is "organized to construct or operate a public improvement wholly or partly within the 

State, the profits from which inure to the benefit of this or other states, or to the people thereof." 

Gen. Constr. Law § 65. By contrast, a private, for-profit corporation, such as PHS-NY, exists, under 

state law, to "provide maximum economic returns to its shareholdérs." Alpert v. 28 William Street 
  

Corp., 478 N.Y.S.2d 443, 448 (N.Y. Co. Sup. Ct. 1983), affd., 63 N.Y.2d 557, 473 N.E.2d 19, 483 

N.Y.S.2d 667 (1984); see also 1 J.D. Cox et al., Corporations § 1.2 (1995) (defining business 

corporation as association of persons "in a business enterprise with the object of economic gain"). 

Indeed, under New York law, the directors of a for-profit corporation such as PHS-NY, who are 

charged by law with managing the corporation's affairs, N.Y. Bus. Corp. Law § 701 (McKinney's 

1986), owe a legal duty to the corporation and its shareholders in the quest for economic gain, see 

  

Cohen v. Cocoline Products, Inc., 309 N.Y. 119, 123, 127 N.E.2d 906 (1955) -- a duty in direct 

conflict with HHC’s statutory responsibilities to the uninsured patients seeking care and treatment 

at Coney Island Hospital. For this reason, the transfer of a public health facility to a for-profit 

39 

 



  

corporation, which has as its core PUIPOSS the seeking of profits for its shareholders, simply is not 

a permissible mechanism for pursuing HHC's public purpose. 

Indeed, the inherent conflict between HHC’s public purpose and the goals of a health care 

institution run by a private, for-profit corporation was recognized by experts evaluating the public 

hospital system more than 30 years ago, and played a significant role in the City’s and State 

Legislature’s decisions to create a public benefit corporation to run the municipal hospital system. 

From late 1966 through 1968, the New York State Temporary Commission of Investi gation of the 

State of New York (“State Investigation Commission”) undertook an investigation of the public 

hospital system, concentrating primarily on the “Affiliation Program,” the arrangement under which 

the City contracted with voluntary hospitals and medical schools to provide professional staff for 

the municipal hospitals. See Temporary Commission of Investigation of the State of New York, 

Eleventh Annual Report to the Governor and the Legislature of the State of New York (1969) at 71- 

72. The State Investigation Commission found that because of the “general lack of effective control 

and supervision” some of the hospitals were engaging in financial abuse and providing poor quality 

health care. Id. at 69. In addition, the Commission noted that at the heart of the problem was the 

"basic conflict between the public and private hospital philosophy of health services." Id. at 101. 

While City hospitals exist “to serve the public” and must “remain open to all who need medical 

attention,” the voluntary hospitals and medical schools “regard themselves as private institutions” 

and therefore “operate on the theory that they have the freedom to select only those patients they 

wish to admit.” Id. To cure the abuses of the affiliation system, the Commission made a variety 

of recommendations including the development of a "New Hospital System" that would integrate 

the hospitals, health and health-related city agencies. Id. at 202. While the Commission’s report was 

being finalized, the Mayor proposed the creation of a public corporation to manage the municipal 

40 

 



  

hospitals and other city health facilities. Id. The Piel Commission, fulfilling its charge during the 

same period, reached the same conclusions. It too found that the Affiliation Program was a disaster, 

noting specifically that health services were fragmented, and that there were inadequate ambulatory 

care services, long waits for outpatient appointments, crowded facilities, unsatisfactory record- 

keeping, and little or no continuity of care. Piel Commission Report at 14-15. According to the 

Report, the City had perpetuated a "dual system" in which poor people received inadequate care in 

the City hospitals while those who were well-off received better care in voluntary hospitals. Id. at 

17-19. The Commission recommended the creation of a public corporation to operate the City 

hospitals and health centers, construct additional health facilities, and develop and operate system- 

wide services including "communication and referral, medical information and data processing, 

personnel training . . . purchasing, and laboratory." Id. at 57-59. 

The general rule that municipal property dedicated to public use cannot be sold or leased to 

a private, for-profit corporation without legislative authority further demonstrates the manner in 

which the proposed transfer of operational control over Coney Island Hospital to PHS-NY 

fundamentally conflicts with HHC’s public purpose. In this regard, the United States Supreme 

Court has stated: "In its streets, wharves, cemeteries, hospitals, court houses, and other public 

buildings, the [municipal] corporation has no proprietary rights distinct from the trust for the public. 

It holds them for public use, and to no other use can they be appropriated without special legislative 

sanction."* Meriwether v. Garrett, 102 U.S. 472, 513, 26 L. Ed. 197 (1880) (emphasis supplied);   

Cotrone v. City of New York, 38 Misc. 2d 580, 237 N.Y.S.2d 487, 489 (Sup. Ct. Kings Co. 1962);   

  

**This general rule is set forth in § 383 of the City Charter which, in pertinent part, states: 
"The rights of the city in and to its waterfront, ferries, wharf property . . . and all other public 
places are hereby declared to be inalienable . . . ." (Emphasis supplied). 

  

41 

 



  

accord American Dock Co. v. City ol NEw York, 174 Misc. 183, 21 N.¥.8.24 943, 957 (Sup. Ct. 
  

N.Y. Co. 1940), aff'd, 261 A.D. 1063, 26 N.Y.S.2d 704, aff'd, 286 N.Y. 658, 36 N.E.2d 696 (1941); 

see also Lake George Steamboat v. Blais, 30 N.Y.2d 48, 51, 281 N.E.2d 147, 148, 330 N.Y.S.2d 
  

336, 338 (1972) ("It has long been the rule that a municipality, without specific legislative sanction, 

may not permit property acquired or held by it for public use to be wholly or partly diverted to a 

possession or use exclusively private") (citations omitted); Aldrich v. City of New York, 208 Misc. 
  

930, 145 N.Y.S.2d 732 (Queens Co. Sup. Ct. 1955), aff'd, 2 A.D.2d 760, 154 N.Y.S.2d 427 (Dept. 

21956); 10 McQuillin on Municipal Corporations § 28.37 (3d ed. 1990) (“The general rule is that 

municipal property held in a governmental capacity, i.e., for a public use, cannot be sold without 

legislative authority but must be devoted to the uses and purposes for which it was intended”).* 

Furthermore, the legislative authority authorizing the diversion of public land to a private entity must 

be "clear and certain." Lake George Steamboat Co., 30 N.Y.2d at 52, 281 N.E.2d at 149, 330 
  

N.Y.S.2d at 339; see also American Dock Co., 174 Misc. at 824, 21 N.Y.S.2d at 957 (legislative 
  

authority must be "special"). Plainly, in the instant case, HHC did not obtain the requisite “clear 

and certain” authority from the State Legislature prior to its attempt to transfer Coney Island 

Hospital to PHS-NY. Because Coney Island Hospital “performs an essential public and 

governmental function,” HHC Act § 7382, it is clearly dedicated to public use. And because there 

  

** According to McQuillin, this restriction has its genesis in two distinct doctrines. First, 
a municipality is “a mere agent of the state” as to its governmental functions, and is therefore 
“subject to control by the state legislative authorities.” 10 Municipal Corporations at § 28.38. 
Second, municipal corporations hold all property in which the public is interested “in trust for the 
use of the public; and, on principle, such trust property can be disposed of by the municipality 
only in accordance with the terms of the trust, i.e., in the public interest as declared by statute.” 
Id. See Gewitz v. City of Long Beach, 69 Misc2d 763, 777, 330 N.Y.S.2d 495, 511 Sup. Ct. 
Nassau Co. 1972); Cotrone v. New York, 38 Misc.2d 580, 582, 237 N.Y.S.2d 487, 489 (Sup. Ct. 
Kings Co. 1962). 

  

  

42 

 



  

1s no “clear and certain” legislative authority permitting the sale or lease of the Hospital, the 

proposed sublease to PHS-NY is ultra vires. 

Beyond these limitations on the alienation of municipal property, the use of these public 

assets by, and the anticipated diversion of public funds to PHS-NY, as contemplated by the sublease, 

may™* also Contpetle the constitutional prohibition on gifts of public monies to private entities. 

New York State Constitution, Article VIL, § 8 (1); Article VIII, § 1.* As this Court explained 

recently in Schulz v. State of New York, 86 N.Y.2d 225, 233, 630 N.Y.S.2d 978, 982 (1995): 
  

The prohibition against gifts or loans to private enterprises was first incorporated into the 

Constitution in 1846, in reaction to the prior practices of subsidizing private railroad and 

canal companies through long-term State debt obligations, which the State ultimately was 

forced to pay when many of those private enterprises failed during the depression of 1837- 
1842. Thus, subsidization by gifts of public funds to private undertakings, or by pledging 

public credit on their behalf, was banned. irrespective of how beneficent or desirable to the 

public the subsidized activity might seem to be. And this remains so even when the 

subsidized private organization performs functions beneficial to the public. 

  

  

  

(Citations omitted) (emphasis supplied); see People v. Ohrenstein, 77 N.Y.2d 38, 49, 563 N.Y.S.2d 
  

744, 749-50 (1990) (setting forth the history of Article VII, § 8 of the State Constitution). This 

Court has interpreted the prohibition against State subsidization of private enterprises to apply not 

only to instances where the State acts as a surety or guarantor of the debt of others, but also to those 

  

**Respondents submit this argument for the Court’s consideration despite the fact that 
neither they, nor the public, have had access to documents specifying the financial terms of the 
sublease, and thus can only speculate about the nature of the subsidization that will be provided 
by the City to PHS-NY. See Hevesi, Fundamental Issues at 20-21. Ca 625-26. 

  

*>Section 8 of Article VII of the State Constitution provides: 

The money of the state shall not be given or loaned to or in aid of any private corporation 

or association, or private undertaking; nor shall the credit of the state be given or loaned 

to or in aid of any individual, or public or private corporation or association, or private 
undertaking. 

Section 1 of Article VIII of the State Constitution provides: 

No county, city, town, village or school district shall give or loan any money or property 
to or in aid of any individual. 

43 

 



  

where the State has issued its own long-term bonds and made a gift of the proceeds. People v. 

  

Westchester County National Bank, 231 N.Y. 465, 476, 483 (1921) (invalidating State bonds used 

to raise money to pay bonuses for World War I veterans); cf. Wein v. State, 39 N.Y.2d 136, 347 
  

N.E.2d 586, 383 N.Y.S.2d 225, 228-29 (1976) (distinguishing State’s ability to lend money to assist 

a municipal corporation for a public purpose). 

Section 7386(1)(a) of the Act provides in pertinent part that: 

The city shall . . . enter into an agreement . . . with the corporation . . . whereby the 

corporation shall operate the hospitals then being operated by the city for the 
treatment of acute and chronic diseases . . . the city shall include in its expense 
budget an appropriation of tax levy for the services provided by the corporation.... 

HHC Act § 7386(1)(a) (emphasis supplied). Pursuant to this provision, the City reimburses HHC 

for its operation of the public hospitals in a manner consistent with HHC's corporate purposes. The 

Coney Island Hospital sublease requires HHC to use these monies to reimburse PHS-NY for the 

provision of charity care for any year in which the cost of such care exceeds the designated "Trigger 

Pont." Ca 473j. Thus, under this sublease provision, HHC (City and State) funds may be 

promised to a for-profit corporation. 

Under the Coney Island Hospital transaction, public monies are conferred upon PHS-NY in 

two ways. First, HHC and the City have committed to reimbursing PHS-NY for the costs of 

indigent care above the trigger point regardless of whether such services constitute an actual cost to 

PHS-NY -- i.e, any efficiencies achieved in the provision of other services which might offset the 

costs of indigent care paid by PHS-NY. Thus, under the proposed sublease, even if net economic 

gains are realized by PHS-NY, HHC will arguably still be required to transfer much-needed funds 

to PHS-NY, and PHS-NY's shareholders will garner a considerable profit at the City’s expense. 

Second, the Coney Island Hospital transaction contemplates that PHS-NY will pay $48 million for 

44 

 



  

the sublease, an amount equal to the hospital’s outstanding debt, while the City Comptroller has 

placed the value of Coney Island Hospital at well over $78 million.** Given that the physical plant, 

land, and equipment comprising Coney Island Hospital were all acquired with funds from the public 

coffers, the bargain basement deal accepted by Appellants plainly constitutes a subsidization of PHS- 

NY’s private, profit-making endeavor, and therefore arguably runs afoul of the constitutional 

prohibition of State subsidization of private corporations.”’ See New York State Constitution, 

  

“¢As Comptroller Hevesi noted: 

According to Coney Island Hospital’s audited balance sheet (attached to the Offering 
Memorandum), the net value of plant and equipment by themselves were worth $95 
million in FY95. The market value of the land is another $18.9 million, based on a 43% 

real estate equalization rate on a NYC Department of Finance assessment of $8.6 million. 

The total is roughly $78 million — $30 million more than the $48 million stated by 

Deputy Mayor Mastro. The discrepancy would be even greater if we also included the 

value of the hospital’s current and projected revenues. For example, the hospital’s FY95 
audited net patient service revenue was $221 million. 

Hevesi, Fundamental Issues, at 20. Moreover, even according to the City’s Offering 
Memorandum, Coney Island Hospital made a profit of close to $10.4 million in fiscal year 1995 
prior to deducting the cost of depreciation, interest, and the allocation of costs from the Central 
Office. 14. at 15. 

  

3, 

“"The illegality of mingling the assets of a health facility with the sole purpose, under 
state law, of providing care with the assets of a for-profit corporation with the objective, under 
state law, of providing an economic benefit to its shareholders has been addressed in other 
jurisdictions. In Michigan and California, mergers of for-profit hospitals and not-for-profit 
hospitals were found to violate those states' not-for-profit laws. See Kelley v. Michigan 
Affiliated Healthcare System, Inc., No. 96-8384B-CZ, September 5, 1996 Court Ruling, 
Michigan Circuit Court ("Michigan Ruling"); Ca 688; Decision of Daniel E. Lungren, Attorney 
General for the State of California, November 8, 1996 ("Attorney General Letter); Ca 701. 
While these cases involved not-for-profit hospitals and the states' not-for-profit laws, rather than 
public benefit corporations, the legal principles involved are analogous. 

In Michigan, the court held that a local not-for-profit hospital would be committing an 
ultra vires act by entering into a partnership with a for-profit health care conglomerate. The 
court found that the partnership would violate the state's Nonprofit Corporation Act because "no 
one is entitled to profit from [the] operation" of a not-for-profit hospital. Ca 693. The Court 
noted that the sale of the hospital to the conglomerate would be permitted if the proceeds were 
used purely for charitable purposes, but a joint venture would be prohibited because it would 
result in impermissible commingling of charitable assets with assets used to generate profits for 
the for-profit corporation and its shareholders. See Ca 696. 

  

  

45 

 



  
  

Article VII, § 1; Fox v. Mohawk & Hudson River Humane Society, 165 N.Y. 517 (1901) 
  

(invalidating a law making dog license fees payable to the humane society). 

Beyond their strained statutory interpretation, Appellants proffer solely the self-serving 

justification that HHC cannot continue on its current path due to “economic realities," and that the 

proposed transaction represents the best course of action. App. Br. at 23. However, Appellants 

cannot insulate their blatant disregard of the mandates and intent of the HHC Act by cloaking their 

actions in the guise of a discretionary policy determination. The question of whether the proposed 

transaction is consistent with the underlying legislative purpose behind the Act -- although clearly 

not consistent with its language -- and therefore may warrant an amendment of the statutory 

language, is one for inquiry, debate, and resolution by the State Legislature. Appellants cannot 

change the scope of HHC’s authority as codified in the Act by fiat, they must seek the desired 

change through the legislative process. 

C. Even If The Hospital Privatization Plan Did Not Contravene The HHC Act, The 
Proposed Sublease of Coney Island Hospital Would Violate The Act 

By asserting that PHS-NY's profit motive will be reined in by the terms of the proposed 

  

Similarly, in California, the State Attorney General determined that a provision of the 
Articles of Incorporation of a not-for-profit health organization would be violated if it merged 
two of its hospitals into a for-profit entity. The Articles of Incorporation require that the assets of 
the two hospitals be used for the purpose of "acquiring and operating a non-profit charitable 
hospital and medical center in the City of San Diego." Ca 703. The Attorney General stated hat 
"the transfer of these hospitals into the for-profit LLC constitutes an abandonment and breach of 
that trust." Ca 703. The Attorney General plans to initiate legal proceedings if the merger is not 
halted. Ca 707, 

The fact that the case at bar involves the assets of a public benefit corporation rather than 
those of a not-for-profit corporation makes this concern even more compelling. The Michigan 
court and the California Attorney General both found that the commingling of assets was 

impermissible because the not-for-profits were required either by state law or their internal 
corporate rules to use their assets solely for charitable purposes -- and not for the economic gain 
of another corporation's shareholders. Here, HHC was created to fulfill a vital public purpose, 
HHC Act, § 7382, and must use its assets to fulfill that purpose, see, e.g., HHC Act, § 7387(4). 

46 

 



  

sublease, Appellants disingenuously argue that there 1s no conflict between the express public 

purpose of HHC and the profit motive of PHS-NY. App. Br. at. Thus, according to Appellants, 

the Court should permit this unauthorized transaction because "HHC put strict limits on how far the 

profit motive could go; the sublessee must provide charity care for the poor and uninsured and 

continue all important medical services." Id. However, the terms of the sublease illustrate in bold 

relief the ways in which the wholesale transfer of control to a for-profit corporation will undermine 

HHC's stated purpose of providing comprehensive and quality health care to all City residents, 

including those who cannot afford these services. 

First, and most significantly, the proposed sublease does not guarantee that PHS-NY will 

continue to provide care to all those who need it without regard to their ability to pay, given that: 

1) the sublease establishes a cap on PHS-NY's obligation to serve indigent persons and defines the 

level of obligation in terms of a specific dollar amount, Ca 473j; 2) the charity care obligation is 

expressed in dollar terms and therefore will depend entirely upon the method of cost calculation used 

by PHS-NY,* Ca 606-07; 3) there is no guarantee that the current volume of service at Coney Island 

Hospital will be maintained by PHS-NY, id.; and 4) there is no articulated plan either for the 

provision of services to the uninsured population or for the payment of the costs attendant to such 

care when the charity care cap is reached and exceeded after the first year. These provisions, and 

the lack of any assurances regarding the volume of care to provided, represent a complete departure 

from HHC's practice of seeing all patients without regard to insurance status and plainly places the 

sublease in clear violation of contravene HHC's statutory duty to serve all City residents. HHC Act 

  

*®In fact, if, as stated in the EAF, PHS-NY calculates charity care costs allocable to the 

cap by subtracting payments from its own charges, as opposed to the HHC method of expenses 
minus revenues, the volume of service will in fact be significantly lower than that currently 
provided. See Hevesi, Fundamental Issues at 1-2. Ca 606-07. 

  

47 

 



  

§ 7382. 

Second, after the first year the trigger point is exceeded, PHS-NY will no longer be obligated 

to provide indigent care above that cap.” No other HHC facilities are permitted to "manage access 

to care" so as to limit the services provided to indigent persons: HHC by law must never turn 

patients away because of inability to pay.” Allowing PHS-NY to do so is clearly at odds with the 

mission of the public hospitals to provide such care. 

Third, the proposed sublease would permit PHS-NY to eliminate or greatly reduce services 

that may be costly, but are essential to the vulnerable populations currently served by Coney Island 

Hospital. Ca 473d. For example, expensive but critical services for the chronically ill, people with 

AIDS, asthma, and diabetes could be cut by PHS-NY to ensure profit for its shareholders. The 

elimination of services is authorized under the provisions of the proposed sublease dealing with the 

provision of “Core” and “Non-core” services. Although PHS-NY would be required to continue 

to provide "core" services, "to substantially the same degree as provided by Coney Island Hospital 

on the day prior to Commencement Date," Proposed Sublease § 28.01; Ca 473c-473d, this guaranty 

is extremely vague and vests PHS-NY with considerable discretion regarding the specific services 

to be provided. The sublease permits PHS-NY both to change the ways and means of delivering 

these "core" services, and to alter the range of specific services offered at the Hospital, allowing it 

  

**The proposed sublease explicitly permits PHS-NY to "manage access to health care in 
such a manner as it may deem appropriate so as to avoid ‘Excess Incurrence’" of indigent care if 
the costs of providing indigent care services exceed PHS-NY's cap in any given year. Proposed 
Sublease § 28.05. Ca 473j-473k. Moreover, the sublease also explicitly states that after the first 
year in which PHS-NY reaches the trigger point, HHC cannot require PHS-NY to provide 
indigent care beyond that point: "[N]othing herein shall give Landlord [HHC] the right to 
require Tenant [PHS-NY] to provide Indigent Care in excess of such amount." Id. 

>See Hevesi, Fundamental Issues at 2. Ca 607. 
  

48 

 



    

to change the services offered at its own “reasonable discretion,” and close a "core" department 

altogether without getting HHC's approval if the closure is a reasonable response to "changes in 

health care practices, changes in the health care needs of the Coney Island community,"*' or 

"fundamental changes in government reimbursement mechanisms, or other fundamental changes 

which materially affect the delivery of health care services."* Proposed Sublease § 28.01(b). Ca 

473d. Similarly, the sublease provides no indication of which of the Hospital's 90 out-patient 

clinics (including allergy, asthma, diabetes, cardiac rehabilitation, out-patient surgery, hearing, 

geriatrics continuing care, pre-natal, alcoholism, and family planning clinics, for example) PHS-NY 

will continue to operate. 

Fourth, the proposed sublease permits PHS-NY to change the ways and means of delivering 

"non-core" services, and to close or transfer any non-core service without any effective limitation. 

Proposed Sublease § 28.01. Ca 473d. It would therefore allow PHS-NY to transfer responsibility 

for performing inpatient and outpatient "non-core" services to other providers without garnering any 

assurance that such providers will accept referred patients without regard for their ability to pay. No 

assurance 1s required regarding the accessibility of services to uninsured patients when they are 

referred to private providers (e.g., for lab work or for follow-up patient care). Before closing or 

  

>*Furthermore, as noted in the Statement of Facts, supra, because PHS-NY will only be 
obligated to continue those services that are being offered at the time that it assumes operating 
responsibility, there is no baseline from which to gauge the diminution in services and therefore 
no assessment can be made of the potential impact of any possible service cuts on the affected 
communities. 

>?As Comptroller Hevesi notes, before it closes a department, PHS-NY must give HHC 
90-days advance notice. If HHC objects to PHS-NY’s decision, the company can appeal to an 
outside arbiter to determine whether the closure is a reasonable response to the conditions 
alleged. However, the arbitration process is “poorly defined” and the rules governing the process 
are not specified. See Hevesi, Fundamental Issues at 7. Ca 612. 

  

49



  

transferring any non-core service, PHS-NY need only give HHC notice; HHC is provided with no 

recourse should PHS-NY reject its recommendation. Thus, HHC would have even less influence 

over changes that can be made in these departments. 

Fifth, contrary to Appellants’ characterization of HHC's authority after commencement of 

the term of the sublease, the sublease does not provide for effective oversight by HHC. For 

example, as noted above, HHC cannot require PHS-NY to provide indigent care beyond the trigger 

point, Ca 473k, it cannot prevent PHS-NY from altering or even closing "core" services offered 

within the enumerated departments, Ca 473d, and it cannot prevent PHS-NY from closing or 

transferring a "non-core" service. Furthermore, the sublease circumscribes HHC’s ability to monitor 

PHS-NY’s performance. Under the sublease, HHC may only request operating or financial 

information, and before it is granted access to that information, PHS-NY must agree that the 

information requested is “reasonably needed to allow [HHC] to determine whether [PHS-NY] has 

performed its service obligations and the indigent care obligations.” According to Comptroller 

Hevesi, most monitoring by HHC, in fact, will be through review of PHS-NY’s statistical reports, 

rather than through independent auditing. See Hevesi, Fundamental Issues at 10. Ca 615. 
  

Moreover, no provision is made in the sublease for the Comptroller to verify PHS-NY’s estimate 

of its indigent care costs by auditing and inspecting its books and records. Id. at 9. Ca 614. In 

addition, HHC does not have authority under the sublease to observe the hospital’s operations 

outside of normal business hours, nor can it visit the facility without PHS-NY’s consent. 

Finally, even if HHC were to find a problem with PHS-NY’s performance, its ability to 

enforce the contract is severely limited. There is no recourse if HHC finds problems with the 

quality of care provided unless the problems are so great that the hospital loses its accreditation. 

Under those egregious circumstances, HHC may invoke a very lengthy and complex enforcement 

50  



  

process set forth in the sublease during which problems with the provision of health care services 

may continue unabated. See Hevesi, Fundamental Issues at 11. Ca 615. Section 28.04(h) of the 
  

sublease expressly states that HHC does not have any other recourse for problems in the provision 

of indigent care services. 

However, PHS-NY has not agreed to provide all of these services, nor has it agreed to 

maintain the HHC policy of serving all patients regardless of ability to pay. Ca 592. The 

Corporation's public purpose is not furthered by turning over its assets to a for-profit corporation that 

is not required by statute, constitution, or contract to provide the same level of charity care services 

that HHC 1s mandated to furnish. See HHC Act § 7387(4). 

The federal cases cited by Appellants as support for their contention, Bryan v. Koch, 627 
  

F.2d 612 (2d Cir. 1980), aff'g 492 F. Supp. 212 (S.D.N.Y.), and Jackson v. HHC, 419 F. Supp. 809 
  

(S.D.N.Y. 1976) are wholly unavailing. Both cases were challenges to decisions to close health care 

facilities following a determination that the facilities were no longer needed to provide care and, 

more importantly, were civil rights cases brought pursuant to the Fourteenth Amendment to the 

United States Constitution and Title VI of the Civil Rights Act of 1964, not the statutory mandates 

of the HHC Act. 

IL. EVEN IF HHC WERE AUTHORIZED TO SUBLEASE CONEY ISLAND 
HOSPITAL TO PHS-NY UNDER THE HHC ACT, THE PROPOSED SUBLEASE 
WOULD REQUIRE A ULURP REVIEW AND APPROVAL BY THE CITY 
COUNCIL 

The Lease between the City and HHC governing the municipal hospitals expressly requires 

that HHC operate the City’s health care facilities.”> Lease, Article II, Section 2.3. Ca 124. 

  

>’ Although the Appellate Division declined to reach this issue after determining that 
HHC’s actions in furtherance of the hospital privatization plan were ultra vires, this Court can 
affirm the Appellate Division’s ruling on any basis. 

51 

 



  

Continued City control over the specific use of the real property on which the hospitals are situated 

was secured through the operation of two separate mechanisms. First, the Lease between the City 

and HHC specifically provides that any amendment of its terms must be approved by the Board of 

Estimate. Second, the HHC Act also specifies that HHC may not lease any of its properties 

“without the consent of the Board of Estimate of the City.” HHC Act, § 7385(6).* 

Appellants argue that the Mayor is the sole successor to the Board of Estimate’s role in 

approving dispositions of HHC property delineated in § 7385(6) of the HHC Act. App. Br. at 29. 

As the Supreme Court correctly held, however, HHC must obtain consent from the Mayor for the 

business terms of the transaction, and approval of the City Council for the land use terms of the 

transaction after a review under ULURP, prior to a disposition of a health facility. Opinion at 19, 

Ca 859, 

Given the plain language of § 7385(6) of the HHC Act and the Lease, there can be no doubt 

that formal City review of the disposition of any City property leased to HHC was intended both by 

the Legislature and the contracting parties. However, the dissolution of the Board of Estimate in 

1989, see Morris v. Board of Estimate, 592 F. Supp. 1462 (E.D.N.Y. 1984), aff'd 831 F.2d 384, aff'd   

489 U.S. 688 (1989), created confusion regarding which arm of the reconstituted City government 

  

>“Section 7385(6) of the HHC Act provides in pertinent part: 
[N]o health facility or other real property acquired or constructed by the corporation shall 
be sold, leased, or otherwise transferred by the corporation . . . without the consent of the 
board of estimate of the city . . . 

>>The voting distribution in the Board of Estimate was challenged as a violation of the 
constitutional requirement of one person, one vote in Morris v. Board of Education, 551 F. Supp. 
652 (E.D.N.Y. 1982). The District Court initially held that the Board was a hybrid body having 
both administrative and legislative powers and, therefore, was not subject to the one person, one 
vote rule. The Second Circuit Court of Appeals reversed and remanded the case to the District 
Court for consideration of whether the voting patterns violated the one person, one vote rule. 
707 F.2d 686 (2d Cir. 1983). On remand, the District Court determined that the distribution of 

  

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would oversee such a disposition. In ascertaining the proper devolution of power, the Supreme 

Court aptly noted that the appropriate means of divining the successor to the land use review powers 

previously vested in the Board of Estimate is by reference to the new City Charter: "[t]he 

Legislature, by not having acted to eliminate the ‘board of estimate’ language, can be said to have 

opted to allow the consent power to devolve upon the body, agency or officer designated in the 

revised Charter to succeed to the powers of the Board of Estimate." Opinion at 12, Ca 852. 

The new Charter contains a mechanism that was created to address those circumstances in 

which the Board of Estimate’s powers were not expressly delegated to any specific branch of City 

government. Section 1152(e) of the Charter thus provides that upon dissolution of the Board of 

Estimate, the powers it exercised "set forth in any state or local law that are not otherwise devolved 

by the terms of such law[,]" are to "devolve upon the body, agency or officer of the city charged with 

comparable and related powers and responsibilities under" the Charter. New York City Charter, § 

1152(e) (emphasis supplied). 

The revised Charter divides the Board of Estimate's powers concerning the disposition of 

City property between the Mayor and City Council. As to the Mayor’s powers, section 384 

~ provides: 

Disposal of property of the city. a. No real property of the city may be sold, leased, 
exchanged or otherwise disposed of except with the approval of the mayor . . . . 

As to the City Council, section 384 provides: 

b.(5) Any application for the sale, lease (other than lease of office space), exchange or other 

  

votes among members of the Board was unconstitutional. 592 F. Supp. 1462 (E.D.N.Y. 1984). 
This ruling was affirmed by the Court of Appeals, 831 F.2d 384 (2d Cir. 1987), and by the 
Supreme Court. New York City Board of Estimate v. Morris, 489 U.S. 688 (1989). As a result 
of these decisions, the Board of Estimate was abolished, and the powers it formerly held were 
distributed elsewhere. 

  

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disposition of real property of the city shall be subject to review and approval pursuant to 
sections one hundred ninety-seven ¢ [ULURP] and one hundred ninety-seven-d. Such 
review shall be limited to the land use impact and implications of the proposed transaction. 

New York City Charter § 384. Because the approval process required under ULURP unequivocally 

places land use review authority under the auspices of the City Council, see City Charter § 197-d,* 

the powers of review over dispositions of the City’s real property are clearly divided between the 

Mayor and the City Council. In this regard, the Final Report of the City Charter Revision 

Commission’ notes: "The basic change made by the 1989 charter amendments was to substitute the 

Council for the Board as the final decisionmaker in land use." Final Report of the City Charter 

Revision Commission, at 20; Appendix A at 6. 

Because the 1989 Charter Amendments provide the City Council with the power to consider 

land use effects, the Council clearly has powers “comparable” to the role given the Board of 

Estimate in the HHC Act. See City Charter § 1152. Thus, as the Supreme Court correctly held, the 

Mayor is authorized to review the business implications of any real property transaction, and the City 

  

>Section 197-d of the City Charter provides in pertinent part: 
Council Review. a. The city planning commission shall file with the council and with the 
affected borough president a copy of its decisions to approve or approve with 
modifications (1) all matters described in subdivision a of section one hundred ninety- 
seven-c, (2) plans pursuant to section one hundred ninety-seven-a, and (3) changes in the 
text of the zoning resolution pursuant to sections two hundred and two hundred one. 

e. All actions of the council pursuant to this section shall be filed with the mayor prior to 
the expiration of the time period for council action . . . [and] . . . shall be final unless the 
mayor within five days of receiving a filing . . . files with the council a written 
disapproval of the action. Any mayoral disapproval under this subdivision shall be 
subject to override by a two-thirds vote of all of the council members within ten days of 
such filing by the mayor. 

>’In response to the ruling that the voting distribution of the Board of Estimate was 
unconstitutional, the New York City Charter Revision Commission was formed to cure the 
constitutional deficiency and to revise the City Charter accordingly. 

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Council 1s granted the authority, formerly vested in the Board of Estimate, to be the final 

decisionmaker under ULURP to review the land use implications of such transactions.’® New York 

City Charter § 384(a) & (b)(5); City Charter Revision Commission Final Report at 19; see also 

Tribeca Community Assoc. Inc. v. New York State Urban Development Corp., Index No. 20355/92 
  

(April 1, 1993 Sup. Ct. N.Y.) (holding that under revised § 384, the Mayor approves the business 

terms of a sale or lease of city property, and the land use impacts are subject to ULURP).” 

Second, Appellants argue that ULURP does not apply to decisions regarding the disposition 

of HHC property. App. Br. at 27-28. Appellants attempt to obscure the clear purpose of ULURP 

to apply to dispositions of City-owned property by raising irrelevant property law concepts.” 

  

>*Under Section 197-d, although the Mayor has an opportunity to file a written 
disapproval of the City Council's ULURP decision, the Mayor’s decision can be overridden by a 
2/3 vote of the Council. 

>“Appellants cite Tribeca Community Assoc. for the proposition that "The City Council 
does not have authority to approve the terms and conditions of sales, leases or other 
dispositions," App. Br. at 29, conveniently ignoring a passage on the previous page of the 
decision which states: "the City Council makes land use determinations." Tribeca Community 
Assoc., at 30. 

  

  

*°The cases cited by Appellants in support of this argument are inapplicable to the issue 
at hand. By Appellants' own characterization, it is clear that Matter of Davis v. Dinkins, 206 
A.D.2d 365, 613 N.Y.S.2d 933 (2d Dept. 1994) lv. app. den. 85 N.Y.2d 804 (1995) (City only 
agreed to refer families to hotel; it did not lease rooms; thus ULURP did not apply), and Matter 
of Dodgertown Homeowners Assoc., Inc. v. City of New York, 652 N.Y.S.2d 761 (2d Dept. 
1997) mot. Iv. app. pending (ULURP required because agreement to use premises to house 
homeless men constituted a lease), involve a determination about whether the transactions at 
issue were in fact leases, and thus whether ULURP should apply to the transactions in the first 
instance. The cases cited contain no discussion of the difference between a fee and a leasehold or 
of any other property law concepts that Appellants seek to inject here. 

The relevance of the other cases cited by Appellants is even more attenuated. See Rowe 

Vv. Great Atlantic & Pacific Tea Co.. Inc., 46 N.Y.2d 62.335 N/E.2d 366, 412 N.Y.S.2d4 327 

(1978) (concerning whether a lease agreement of real property does or does not contain an 

implied covenant limiting the lessee's power to assign the lease); Great Atlantic & Pacific Tea 

Co., Inc. v. State, 22 N.Y.2d 75, 238 N.E.2d 705, 291 N.Y.S.2d 299 (1968) (dealing with 

assessing damages on property when there are two or more interests in the estate); Mann 

  

  

  

  

  

  

  

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Specifically, Appellants contend that the City holds the fee and HHC holds the leasehold, and that, 

therefore, the disposition does not concern the City's property -- the fee -- because the sublease 

involves only the leasehold. App. Br. at 25-26. The HHC Act, however, requires consent from the 

fee holder -- the City -- in § 7385(6). That consent can no longer be obtained from the Board of 

Estimate; accordingly, in the absence of an amendment to the HHC Act, consent must be secured 

from the entity that, under the City Charter, replaces the Board of Estimate. Section 384 of the City 

Charter now divides the consent authority of the former Board of Estimate between the Mayor and 

the City Council. 

Appellants’ argument that ULURP does not apply because the sublease of Coney Island 

Hospital does not fall within the parameters of ULURP, App. Br. at 33, is equally meritless. 

ULURRP applies to "any disposition of the real property of the City" by "any person." New York 

City Charter § 197-c (emphasis supplied). The statutory language is broad and no way limits review 

to specific property interests. Section 197-c plainly encompasses subleases, given that a sublease 

is clearly one way a "person" could dispose of City property. Had the intention been to limit the 

application of ULURP only to sales and leases by the City of certain property interests, the statute 

would have so provided. ULURP is written to reflect the overriding principle at issue: to ensure 

City oversight of the disposition of City land regardless of the entity undertaking the transaction. 

  

Theatres Corp. v. Mid-Island Shopping Plaza, 94 A.D.2d 466, 464 N.Y.S.2d 793 (2d Dept. 
1983), aff'd 62 N.Y.2d 930, 462 N.E.2d 51, 479 N.Y.S.2d 213 (1984) (addressing whether a 
lessee 1s bound by lease terms which prohibit subleasing). 

Appellants also cite a number of cases which hold that a right to sublease exists. See 
Oppenheimer & Co. v. Oppenheim, 86 N.Y.2d 685, 660 N.E.2d 415, 636 N.Y.S.2d 734 (1995); 
Perlbinder v. New York City Conciliation and Appeals Board, 67 N.Y.2d 697, 490 N.E.2d 844, 
499 N.Y.S.2d 925 (1986); Maidgold Assoc. v City of New York, 64 N.Y.2d 1124, 479 N.E.2d 
823,490 N.Y.S.2d 187 (1985). These cases do not address -- much less support -- Appellants’ 
contention that ULURP distinguishes between fees and leaseholds. 

  

  

  

  

56 

 



  

ULURP 1s intended to identify, at the earliest possible stage, those activities by any person 

concerning the use of City-owned land that will have a "significant impact on the community," 

Ferrer v. Dinkins, 218 A.D.2d 89, 94, 635 N.Y.S.2d 965, 967 (1st Dept. 1996), appeal denied, 88 
  

  

N.Y.2d 801, 644 N.Y.S.2d 493, 666 N.E.2d 1366 (1997),”' and was adopted specifically to provide 

greater participation by local communities in the development and use of such land. See Lai Chun 

Chan Jin v. Board of Estimate, 92 A.D.2d 218, 460 N.Y.S.2d 28 (1st Dept. 1983). In short, ULURP   

is intended to apply to all dispositions of City-owned property because City government and the 

communities of the City have an interest in the use of such land. The proposed sublease of Coney 

Island Hospital falls squarely in the realm of significant decisions concerning City property that 

ULUREP is intended to govern. 

Appellants also argue that ULURP should not be applied to this transaction because it is 

inconsistent with the HHC Act.*> For this contention, Appellants rely upon Waybro Corp. v. New 
  

  

** Appellants’ assertion that this transaction does not raise land use concerns misses the 
point. App. Br. at 32. The ULURP process is designed to identify potential land use impacts 
from dispositions of City property (or to determine that none, in fact, exist); Appellants are not 
authorized to make unilateral determinations that a disposition will definitely not raise land use 
concerns and is thereby exempt from the review required by the statute. Indeed, ULURP's 
requirement that any disposition of city property undergo a land use review reflects a legislative 
judgment that any such disposition potentially raises land use concerns. See Falbros Realty v. 
Michetti, 200 A.D.2d 85, 612 N.Y.S.2d 561 (1st Dept. 1994) (recognizing that changes in 
income level of residents of housing development may raise land use concerns because of 
different demands for public services). Finally, potential land use impacts that may arise from 
this transaction include, e.g., demand for services from the City following changes in, or 
discontinuance of, services by PHS-NY (like Falbros), and an increased need for ambulances if 
emergency care 1s provided elsewhere. 

  

** Appellants seek to rely upon the 1985 disposition of the R&S building at Bellevue 
Hospital to imply that the Board of Estimate lacked authority under the HHC Act to consider the 
land use effects of a disposition of City property. App. Br. at 30-31. Appellants’ argument fails 
for several reasons. First, the Board of Estimate did consider the land use impacts of that 
disposition, see Council Record on Appeal at 323-324. Ca 384. Second, whether the Board of 
Estimate subjected that sublease to ULURP is irrelevant to this Court's analysis. The Board of 

57  



  

York City Board of Estimate, 67 N.Y.2d 349, 493 N.E.2d 931, 502 N.Y.S.2d 707 (1986), which held 
  

that the New York State Urban Development Corporation ("UDC") Act preempted local land use 

regulations. App. Br. at27. As the Supreme Court noted, however, "Waybro . . . is distinguishable 

from this case." Opinion at 15, Ca 855. The UDC Act expressly grants UDC the authority to 

override the local charter; there is no such provision in the HHC Act. In contrast, "[t]he HHC Act, 

by requiring consent of the Board of Estimate under § 7385(6) for dispositions of property, 

expresses, if anything the contrary intent." Opinion at 15, Ca 855. 

Appellants further argue that under Municipal Home Rule Law § 10(5), state law must take 

precedence where compliance with local law is inconsistent with the state law. App. Br. at 27-28. 

As the Supreme Court correctly noted, however, this Court has interpreted the Municipal Home Rule 

Law to exempt public benefit corporations from local regulations only when those regulations would 

interfere with the purpose of the corporation. Opinion at 19, Ca 859. In the case at bar, "it is the 

HHC Act itself which grants a check on HHC's authority to dispose of real property." Id. (emphasis 

in original). Therefore, a local law fulfilling this objective cannot be viewed as impairing HHC's 

power in any way. 

In addition, Appellants assert that the HHC Act's intention of relieving HHC from 

compliance with City laws and regulations which burdened the efficient delivery of care and 

treatment somehow exempts HHC from compliance with ULURP. App. Br. at 30. However, 

Appellants are unable to proffer any evidence in support of the bald contention that the Legislature 

  

Estimate complied with ULURP in the companion resolution to sublease in which it approved 
the zoning change necessary for the purchase. Therefore, the disposition itself was subject to 

ULURP. See Ca 362-367. Finally, since the Board of Estimate did exercise its recognized land 

use powers in considering that sublease, such a decision would not support Appellants’ argument 
that the Board of Estimate lacked those powers. 

58 

 



  

intended to free HHC from restrictions on the disposition of City-owned property. In fact, the 

reverse is true. The HHC Act specifically requires consent from the Board of Estimate. Appellants 

cannot apply the general principle that the Legislature intended to free HHC from local restrictions 

regarding the provision of health care, and at the same time ignore the Legislature's specific 

instruction limiting HHC's freedom to dispose of City property. HHC Act § 7582(6). No canon of 

statutory construction permits Appellants to pick and choose which provision of the HHC Act may 

be enforced. 

Moreover, itis clear from the legislative history that the legislature's concern over inefficient 

City laws and regulations concerned the Department of Hospital's authority to make decisions such 

as purchasing supplies and equipment, not decisions concerning the disposition of entire hospitals. 

In the Letter from Mayor Lindsay to Governor Rockefeller, discussed supra, the Mayor explains that 

investigations have shown inadequacies in "existing procedures for purchasing, supplies, recruiting 

and utilizing needed personnel, accounting for purposes of reimbursement, managing vital patients 

records, repairing and maintaining the physical plant." Letter of Mayor Lindsay to Governor 

Rockefeller dated May 8, 1969, Governor's Bill Jacket at 15. When discussing the disposition of 

health care facilities, however, the Mayor stated: "The corporation could not transfer or dispose of 

any health facility or real property acquired from or constructed for the City without public hearing 

and consent of the Board of Estimate." Id. at 14. Thus, the first section of Mayor Lindsay's letter 

to the Governor urging the Governor to sign into law the HHC Act discusses the need to grant the 

public benefit corporation freedom from the onerous requirements and constraints upon daily 

operation and management. The second reassures the Governor that the corporation would not have 

the power to dispose of a health facility without a public hearing and consent from the Board of 

Estimate. HHC Act § 7385(6). 

59  



  

Nor does any other section of the legislative history provide support for Appellants’ 

argument. There are several explicit references in the materials contained in the Governor's Bill 

Jacket to HHC's power to sell, lease, or otherwise dispose of real property of the City.* Each such 

reference is accompanied by the explicitly delineated limitation upon this power: the Board of 

Estimate must consent to the disposition. The legislative history therefore conclusively demonstrates 

that to the extent that the Act provided HHC with the power to dispose of real property of the City, 

it did so with the express condition that the Board of Estimate must consent to the transaction -- 

exercising its full powers of review. In sum, the Supreme Court correctly held that the sublease of 

Coney Island Hospital to PHS-NY -- if the HHC Act was amended to permit such a transaction -- 

must undergo a ULURP review, with the final decision resting with the City Council. 

CONCLUSION 

In New York City, the public hospitals have long provided a safety net for people who 

traditionally have not had many other options: the uninsured, the underinsured, and Medicaid and 

Medicare recipients. The public hospitals have responded to successive devastating epidemics, and 

have dealt with the fallout from difficult social problems. All of these demands will remain, 

regardless of the configuration of the public hospitals in the City. There is no disagreement as to 

the need for the continued provision of physical and mental health services historically provided by 

  

**Thus, the Legislative Memorandum submitted by the Community Service Society of 
New York, Committee on Health, on April 14, 1969, provides: "Real or personal property could 
be disposed of by sale, lease, or sublease but could not be transferred from the corporation 

without a public hearing and the approval of the Board of Estimate." Governor's Bill Jacket at 

29. Similarly, a Letter of State of New York Department of Health to Counsel to the Governor, 

dated May 20, 1969, provides in part: "The powers of the Corporation are set forth, including 

that of receiving direct payment for health services rendered; to borrow money and issue bonds 

but if for construction of a health facility, only on prior approval of the Mayor; to dispose of real 

property after public hearing and with consent of the Board of Estimate." Governor's Bill Jacket 
at 66. 

60  



  

the municipal hospitals. Nor is a discussion of the appropriate mechanism through which to ensure 

continuation of these services even necessary. As currently structured, the proposed hospital 

privatization plan is unlawful, and thus, short of a legislative amendment, a different mechanism 

must be utilized to achieve the objectives sought by the City. The law is clear that any such 

mechanism, however, must fulfill the City’s constitutional obligation to provide comprehensive and 

dignified care to all of the City’s residents. 

For all of the foregoing reasons, Respondents respectfully request that the Court uphold the 

judgment of the Appellate Division, Second Department in so far as it affirmed that portion of the 

decision of the Queens County Supreme Court holding that the HHC Act precludes the dismantling 

of the HHC system generally, and the long-term sublease of Coney Island Hospital to PHS-NY, 

specifically; and reverse that portion of the judgment of the Appellate Division, Second Department 

deleting the Supreme Court’s decision holding that any lease of an HHC facility must be approved 

pursuant to ULURP, and that any such lease must be approved by the City Council as well as the 

Mayor. 

Dated: New York, New York 

November 4, 1998 

Respectfully submitted, 

CENTER FOR CONSTITUTIONAL RIGHTS 

By: fn oe Olly les pee 

Barbara J. Olshansky 
  

Robert T. Perry 

666 Broadway, 7th Floor 

New York, New York 10012 

(212) 614-6439 

NAACP LEGAL DEFENSE & EDUCATIONAL 

FUND, INC. 

Elaine R. Jones, Director-Counsel 

61 

 



Norman J. Chachkin 

Olatunde C. A. Johnson 

99 Hudson Street 

New York, New York 10013 

(212) 219-1900 

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