Appellants' Brief

    To be.argued by 
Elizabeth Dvorkin 

(20 minutes requested) 

COURT OF APPEALS 
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. 

  

a 

APPELLANTS’ BRIEF 

  

MICHAEL D. HESS, 

Corporation Counsel of the 

City of New.York, 

Attorney for Defendants-Appellants- 

~~ Cross-Respondents 

100 Church Street, 

New York, New York 10007. 

(212) 788-0412. © : 

JEFFREY D. FRIEDLANDER, 

STEPHEN LOUIS, 

ELIZABETH 

DVORKIN 

of Counsel.  



  

  

August 31, 1998 

TABLE OF CONTENTS 

TABLE OF AUTHORITIES. i. - cto vii wv nid a suinime senna sin 

PRELIMINARY STATEMENT =. . cov c sisia ec vnsmwninias’s av sininis 

QUESTIONS PRESENTED. ©... ..comisivs dinar aie vumaingnis « o 

STATEMENT OF FACTS Fa. es vies» sais vs rnin nialalny ov 23 

OPINION BELOW Bo nl eG YAN FOR i FS a 13 

POINT ONE 

THE HHC ACT AUTHORIZES THE 

SUBLEASE OF CONEY ISLAND HOSPITAL 

TO APRIVATE COMPANY. =... uiuvi vasa sues waine sais 16 

POINT TWO 

ULURP DOES NOT APPLY TO THE 

SUBLEASE OF CONEY ISLAND 

HOSPITAL Lis. ios ve vie via ninis noe nwilgrnls os plmiatn x ens 24 

POINT THREE 

THE MAYOR IS THE SUCCESSOR TO THE 

BOARD OF ESTIMATE'S ROLE IN 

APPROVING DISPOSITIONS OF HHC 3 

PROPERTY UNDER THEHHCACT  ..........cev---- 29 

CONCLUSION ol Sit iiss viaia Tene pss rin » als atin ER 36 

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TABLE OF AUTHORITIES ~*~ 

Statutes: : Page 

New York City Charter 
  

  

EEG LT re HE 32 

8 NLR SV NE TTT © 23,94, 25 

ee ng i Sen IR EC Re Ge © 29,30, 32 

ML TE a as rn PEO nN RE | 30 

Public Health LAW iu cds» oc tae vie eo ianiis ss sin sls gs six sa ann uate 

Tro SE SVR OR ARR 12, 35 

Tl OE TB DI SRS 6 

rT Ds EE Ee ip Se 6 

Ee ATR PRR FO 12, 35 

Unconsolidated Laws (HHC Act) 
  

$7382. 0, Cr i ol Bon JE TR SRR 22, 27 

ron RI TE a BL ER Re 18 

SL... fn Rh RE I Th AE Jet 

Ui a SO 218 

$T385[6) - . + iT hE ED ai 17, 27, 
28, 34, 35 

Mh aE 3 al SL Aen : 18,19 

LTE es ir. a TREE Don gn 19 

«ii~ 

 



  

Cases : ik ll Page 

Bryan v. Koch, 627 F.2d 612 (2d Cir.1980), 

aff’g 492 F. Supp. 212 (SD.N.Y.) «saan sien vans el 23   

Davis v. Dinkins, 206 A.D.2d 365 (2d Dept. 1994), 
1v. app. den., 85 N.Y.2d 804 (1995) . ........--- EL 25   

Dogertown Homeowners Assoc., Inc. v. City of New York, 

235 A.D.2d 538 (2d Dept.), 

lv. app. den., 89 N.Y.2d BOS ISTT) iv vse «vv via wisinals sie 25 

  

Friends of Van Voorhees Park, Inc. v. City of New York, 

Sup. Ct., N.Y. Co., Index No. 134520/93, 

afi’d 216 A D.2d259 (1st Dept. 1995) . . + « «+ + 2 rr va ve vans 28 

  

  

Giuliani v. Hevesi, 90 N.Y.2d 27 (1997) ...... «coco veo v vs 17, 20 

Great Atlantic & Pacific Tea Co., Inc. v. State, 

I NY 207501068), outs es via rs Pinte sx visa wslinie sa ne imivin 25   

Jackson v. HHC, 419 F. Supp. 809 

(SDNY 1976) oi vieisv vpui-Soimiayiesy ~B o vias einiois + aig nga s 23   

Lincoln Cerpac v. HHC, = F.3d _, 

1998 U.S. App. Lexis 12489, aff’ing, | 

977 F. Supp. 2744S.D.N.Y. 1997) oc, + ses #'hinivieia an vie sus 22 

  

Long v. Adirondack Park Agency, 

16 N.Y 2441641990). . » , sos vine sms nin vor wimls end nan. 19   

Mauldin v. NYCTA, 64 A.D.2d 114 

Ca Dept. 1978) . 0. Lae rs sR a ree ea ne 24   

New York Public Interest Research Groups Vv. Dinkins, | 

S3 NY ITT (100) . olson Peis vss tfie nies cn ainii » vis vs wivisin 8 28   

Rowe v. Great Atlantic & Pacific Tea Co.. Inc., Sli 

ENT IACI) wm nm Pan Bryn he 25   

Tribeca Community Assoc., Inc. v. UDC, irri : 

Sup. Ct.,'N.Y. Co., Index No. 29355/92, . «cv vv vec vv ieee 30 

aff’d 200 A.D.2d 536 (1st Dept. 1994), 

lv. app. den. 84 N.Y. 2d 805 (1994) 

  

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: 
B 

  

Waybro Corp. v. Board of Estimate, | TE 

67:-N.Y. 2A 349 (YOBOY ote. + « «vivie vision vais Barina entrain a ss 
  

26 

-1v-     g:\dvorkin\council.a03 

 



ENE SRT ER Sp 

  

COURT OF APPEALS 
STATE OF NEW YORK 

  

CAMPAIGN TO SAVE OUR PUBLIC HOSPTALS - 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 i 

CORPORATION, and NEW YORK CITY ECONOMIC i 

DEVELOPMENT CORPORATION, ’ 

Defendants-Appellants-Cross-Respondents. is 

  

APPELLANTS’ BRIEF   
  

\ 

PRELIMINARY STATEMENT       
~ The New York City Health and Hospitals Corporation (“HHC”) was created thirty years 

ago because the municipal hospitals were in crisis. The Legislature reacted by creating HHC   
and giving it broad powers so that it would not become hidebound like the government agency 

it replaced. Instead, HHC would be able to adapt to changing times, taking the steps that Sis 

~ needed to provide quality health care for all New Yorkers, especially the poor and uninsured. 

In response to the changing economics of health care, in 1996, HHC decided it could best 

serve its patient population by exercising its statutory authority to lease Coney Island Hospital   to a private corporation. HHC determined that the sublease of Coney Island Hospital was a 

g:\dvorkin\council.a03 

    
 



  

privatization that would advance HHC’s mission by improving services for patients and 

increasing the efficiency of the institution, while maintaining access to health care for indigent 

uninsured people. 

The Courts below held that HHC was precluded from taking this stop. The Appellate 

Division, Second Department, found that even if the lease is the only way for HHC pile 

quality medical services to its patient population, HHC did not have the statutory authority to 

lease the hospital. The trial court went further and found that even if the system is “nearly 

drowning in red ink” the operating statute prevented HHC from solving the crisis. These courts 

have read the HHC Act as freezing the City’s health care facilities in the configudtion they had 

during the Lindsay Administration, barring any adaptation to current conditions, the needs of the 

patient population and the state of the health care industry. 

This was wrong. HHC was created with the mandate to respond creatively to changes 

in the field of health care, and was given broad and flexible powers to carry out this mandate. 

Under the literal terms of the HHC Act and consistent with its important purpose, HHC had the 

authority to undertake the carefully considered sublease of Coney Island Hospital to a private 

hospital company. 

By this appeal, defendants ("the City") seek to reverse the order of the Appellate 

Division, Second Department, dated September 8, 1997, Which affirmed the judgment of the 

Supreme Court, Qusens, County (Poser, ].), entered (Pehmmy 5, 1997, insofar as it declared 

that HHC lacks the Ahoy, under its operating statute to enter into the Shaliengsd hospital 

lease. | 

The trial coutt also found that HHC had to comply with the City’s land use review 

process even though HHC is not a City agency and has its own statutory land use review 

g:\dvorkin\council.a03  



   

  

    

procedure. In addition, the trial court found that the City Couricil had to approve HHC leases, 

even ngl the HHC Act does not provide any role for the Council. The Appellate Division 

(dismissed these two claims as unnecessary in light of the Court’s holding that the HHC did not 

have the authority to enter into the lease. This Court granted Gefondonis cross-motion for leave 

to appeal from dismissal of their claims on these two issues. Therefore, in order to present a 

single coherent argument, this brief will address both these points as well. 

Council v. Giuliani has been litigated together with Campaign to Save Our Public 
  

  

  
Hospitals-Oueens Coalition v. Giuliani. The trial court partially consolidated the two actions and 

issued EAI judgments with identical decretal paragraphs and one consolidated opinion. 

The City submitted identical briefs and argued the two cases together before the Appellate 

Division, Second Department. Because both cases raise the same issues and legal claims, the 

City will submit the same appellants’ brief in the two appeals before this Court as well. 

QUESTIONS PRESENTED 

1. The HHC Act authorizes HHC to sell, lease or sublease hospital facilities. Does this 

specific grant of authority apply to HHC’s sublease of Coney Island Hospital to a private hospital 

Sompsay? 

2. The City’s Uniform Land Use Review Procedure does not apply to HHC property and 

HHC was created to free the municipal hospital system from bureaucratic red tape. Should 

ULURP be nonetheless Applied to this sublease of HHC'’s leasehold? 

3. The HHC Act provides that HHC leases must be consented to by the "Board of - 

Estimate." Should the Act be judicially construed to find that the City Council succeeded jointly 

with the Mayor to the Board’s power to consent to real property transactions, when under the 

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New York City Charter the Mayor succeeded to the Board of Estimate in consenting to real 

property dispositions and the Council’s role in land use issues is limited to ULURP. 

STATEMENT OF FACTS 

The health care environment in New York is changing rapidly and the New York City 

Health and Hospitals Corporation ( "HHC") has had to adapt along with it in order to continue 

to provide health care services for poor New Yorkers. This appeal concerns one avenue of 

change proposed by Mayor Giuliani and adopted after considerable review and debate by the 

HHC Board of Directors: the privatization of Coney Island Hospital. | 

The Health Care Revolution and Privatization 

HHC has been severely affected by the massive changes in the health care industry. 

Trends including the cost controls imposed under managed care contracts, reduced governmental 

reimbursement for charity care and the movement toward outpatient services have hurt HHC’s 

ability to provide access to health care serviced for all, regardless of ability to pay. With the 

City facing long term and significant financial constraints, HHC has found it increasingly 

difficult to make necessary physical improvements to antiquated facilities and to provide a full 

range of quality health care services (Co 42-43; Ca 169). 

For the first time, HHC is losing its traditional patient base. With the rise of managed 

care and HMO’s, individuals eligible for Medicaid benefits have become financially attractive 

to private sector health care providers. Poor people who have a choice are turning away from 

HHC hospitals and entering private hospitals (Co 42-43; Ca 169). A study by the Health 

  

  I Citations preceded by “Co” are to the Record on Appeal in the Council case. Citations 

preceded by “Ca” are to the Record on Appeal in the Campaign case.. 

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~~ — 

  

  
Systems Agency of New York City noted that between 1989 and 1992, 92% of new Medicaid 

admissions were to voluntary hospitals (Co 530-31; Ca 527-28). 

In light of the changing dynamics of health care, the Giuliani Administration proposed 

that New York City investiga ite fost of selling or leasing HHC hospitals (Co 42-43; | i 

Ca 161, 169). As part of a City-wide examination of possible asset privatizations undertaken 

by the City’s Economic Development Corporation ("EDC"), the City engaged the firm of J.P. 

Morgan to analyze several HHC hospitals and determine whether privatization was achievable 

in New York City (Co 42-43; Ca 161). 

J.P. Morgan concluded that privatization of three hospitals: Coney Island Hospital, 

Queens Hospital Center and Elmhurst Hospital Center, would improve the quality of health care   for patients and save HHC and the City substantial sums of money. The firm advised that the 

hospitals’ financial and operating performance were inferior to that of surrounding voluntary 

hospitals. For example, Coney Island Hospital had a negative return of 7.33% while private 

hospitals in the same service area generated positive earnings of between 6.44% to 8.27% (Ca 

177-78). In 1994, Coney Island Hospital lost $11,743,000 before interest, depreciation and 

amortization, excluding the City operating subsidy (Ca 180-82). Because of the negative cash 

flow, Coney Island Hospital was unable to fund current capital projects or even fund normal 

maintenance and reconstruction. Queens Hospital Center and Elmhurst Hospitals Center were 

in similar condition (Co 43; Ca 161). 

The strict requirements fo os 

The next step was to see if there was, ‘in fact, a private entity interested in the hospitals. 

An Offering Memorandum was circulated for both Coney Ieland Hospital and Queens Hospital 

Center jointly with Elmhurst Hospital Center ("Queens Health Network"). No proposal 

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concerning the Queens Health Network ever reached the stage of consideration by the HHC 

Board. Accordingly, this brief will describe only the Coney Island Hospital transaction. 

The Offering Memorandum for Coney Island Hospital set rigorous conditions to ensure 

that any private entity that Wa the hospi would advance HHC’s corporate mission. The 

requirements included provisions for indigent and charity care, continuation of all important 

health care services, and a commitment to making a substantial capital investment in the hospital. 

(Co 229-30, 531; Ca 528). 

Regarding the indigent care obligation, the Offering Memorandum for Coney Island 

Hospital explained (Co 107-08; Ca 87-88): 

The City and HHC are committed to preserving and 
improving the ability of all New Yorkers to access 
quality care, including those who may not have the 

financial resources to pay and who are not covered by 
third party reimbursement (Medicare, Medicaid, Blue 
Cross, private insurance, or a managed care plan). The 

City and HHC expect any prospective purchaser of CIH 
will develop and maintain clinics, community-based 

programs, and other means of primary care access to 

care for all residents, including the indigent, at levels 
at least equal to the care already being received. . . . 

Three entities expressed an interest in subleasing Coney Island Hospital but only one, 

Primary Health Systems New York, Inc. ("PHS-NY"),? was willing to meet all the terms of the 

Offering Memorandum (Co 48; Ca 28). PHS agreed to continue indigent care at the hospital 

  

2 PHS-NY was established by two key employees of a private hospital company, Primary Health 
Systems, Inc ("PHS, Inc."). Public Health Law § § 2801-a(4)(e), 2801-a(9)(b) provide that a 

for-profit corporation may be licensed to own and operate a hospital only if all of its 
shareholders are individuals. PHS, Inc. has or may have in the future one or more corporate 
shareholders. Therefore, PHS-NY will be able to apply for State approval to own and operate 

" Coney Island Hospital (Co 396; Ca 399). PHS-NY intends to enter into a management 
agreement with PHS, Inc. for Coney Island opi In this brief, defendants will refer to both 
entities as "PHS". 

g:\dvorkin\council.a03 -6- 

  

    
 



without a City subsidy, to satisfy all outstanding hospital debt and to operate the hospital 

immediately once it received the necessary State approvals. PHS planned to improve Coney 

Island Hospital by recruiting community doctors to increase the pool of physicians who admit 

patients to the hospital, joining local networks, establishing up to five new community outpatient 

facilities and expanding outreach programs in schools and senior centers. PHS also planned to 

rehabilitate the hospital’s physical plant by reducing the number of beds in a room from six to 

a maximum of four and providing a bathroom with shower for each patient room, upgrading the 

heating, ventilation and air conditioning systems, and creating a computerized information system 

that would be accessible throughout the hospital and in the offices of affiliated doctors (Co 536- 

37; Ca 531b-c). 

After months of negotiations, HHC and PHS agreed on the terms of the sublease and it 

was submitted to the HHC Board for approval on October 24, 1996 (Co 393; Ca 396). The 

HHC Board approved the sublease on November 8, 1996 (Co 590; Ca 582). The parties 

anticipated closing on the sublease after all State approvals had been obtained, a labor agreement 

had been reached,® PHS had obtained the necessary financing, and the litigation challenging the 

sublease had been satisfactorily resolved (Co 396-97; Ca 349-400). 

  

3 The unions have brought improper practice petitions against the City and HHC before the New 

York City Board of Collective Bargaining over failure to bargain concerning the decision to 

privatize. DC 37 v. City of New York, Docket No. BBB-1837-96. 
  

4' The Campaign plaintiffs joined with three members of the HHC Board of Directors in Jones 

v. The City of New York, N.Y. Co. Index No. 117768/96 (Gangel-Jacob, J.), to claim that the 

HHC Board had insufficient information before approving the sublease of Coney Island Hospital 

and that the sublease violated the laws and rules governing procurement. A related proceeding, 

Commission on Public’s Health Systems v. HHC, N.Y.Co. Index No.103242/97 (Gangel-Jacob, 

J.), challenging the environmental review of the proposed sublease was filed by various groups 

including the Campaign plaintiffs on February 27, 1997. 

  

  

(continued...) 

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The terms of the sublease of Coney Island Hospital 

The entire sublease is included in the Record at Co 401-470aa; Ca 404-473aa. The most 

important terms are summarized here for the Courts convenience: 

Charity Care: For the life of the sublease, PHS will offer care without regard. to ability to pay 
  

up to a level 115% greater than the charity care expense currently carried by HHC at Coney 

Island Hospital. Any available third party reimbursements (including reimbursement from the 

State pools) will not be counted towards PHS’ charity care obligation. Further, the base figure 

will be indexed to a medical inflation rate. The charity care obligation will be guaranteed by 

PHS, Inc. If charity care expenses in a given year rise over the 115% level, HHC will 

reimburse PHS for the excess expense for one year.’ After that year and through every 

subsequent year of the sublease, PHS will continue to offer up to 115% of HHC’s charity care 

cost. 

Continuation of Services: PHS will continue to provide in-patient and out-patient programs in 
  

all core service areas offered at Coney Island Hospital as of the day before the closing. The 

core service areas include all services currently provided as a matter of course by a community 

hospital including medicine, general surgery, pediatrics, ob/gyn, rehabilitation, psychiatry and 

emergency medicine. 

  

4 (...continued) 

By order entered September 16, 1997, the Court dismissed Jones and Commission as 

moot in light of the decisions in this case. The plaintiffs in both actions have appealed the 

dismissal. 

  

5 The City has agreed to reimburse HHC for that one year payment (Ca 621). 

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Capital Commitment: PHS will spend at least $25 million in the first five years of the sublease 
  

on capital projects at Coney Island Hospital, in addition to assuming all routine maintenance 

costs (estimated at $5 million per year). 

Assumption of Bond Indebtedness: PHS will pay approximately $49 million for the sublease, 
  

an amount representing the outstanding HHC and City bonds associated with Coney Island 

Hospital, thereby freeing HHC borrowing capacity for other capital projects. 

Assumption of Liability: PHS will assume all liability for using and operating the hospital, 
  

including malpractice liability, a $6 million per year expense to the City. 

Monitoring of Compliance: HHC will have the right to audit PHS’s books and records. 
  

Regarding the obligations for charity care and continuation of services, the parties agree to   
arbitration by a health care expert, a special monitor, specific performance of service obligations   
and, in the event of a default on the charity front obligation, specific performance, damages and 

termination of the lease. In addition, the hospital will have a community advisory board, 

(“CAB”) which will develop a grievance process and PHS will provide public report cards. 

Public briefing 

Senior HHC management officials regularly briefed all interested bodies regarding 

privatization plans and distributed the Offering Memoranda once they were completed. Briefings 

and reports were given to the HHC Board of Directors, representatives of the City Council, the 

office of the Queens and Brooklyn Borough Presidents, and the hospitals’ CAB’s. (Co 44-45; 

Ca 25-26). | | 

Early on in the process, the Queens Hospital Center Community Advisory Board sued   
claiming that HHC was affording it insufficient participation in privatization planning. The claim 

was dismissed and the Appellate Division, First Department, noted that "HHC had, to date, 

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| 4 ey ® To 

undertaken reasonable, appropriate efforts to inform QHCCAB of the status of the privatization 

  planning efforts." Queens Hospital Center Community Advisory Board v. HHC, Index No. 

  12374/95 (Sup. Ct. N.Y. Co.), aff'd 227 A.D.2d 147 (Ist Dept.), lv. app. den., 88 N.Y.2d 814 

(1996). | | 

The briefing process continued after the Offering Memoranda had been completed. At 

virtually every regularly scheduled meeting of the hospitals’ CAB’s, an HHC representative 

provided updates or was available to answer questions on pivatation In November, 1995, 

Mtl Mitchell, then the HHC Chairperson, testified at a fact finding hearing on privatization 

held by the Brooklyn Borough President and the Coney Island Hospital CAB. In February and 

March, 1996, HHC organized focus group sessions to work out proposals for monitoring access 

to health care by the indigent following privatization, with members selected by the hospitals’ 

executive directors, CAB’s and the local Coninninlty Boards (Co 45; Ca 25). 

Once HHC had preliminarily agreed to negotiate a sublease with PHS, the President of 

HHC signed a Letter of Intent with PHS setting out the terms that the sublease would include. 

The Letter of Intent was widely distributed to the public, including the Brooklyn Borough 

President’s Office and the Chair of the affected Community Board (Co 48; Ca 28). 

As required by the HHC Act and New York City Charter § 556(m), HHC and the New 

York City Department of Health held a joint public hearing on the prbpoes sublease of Coney 

Island Hospital at the hospital on October 8, 1996. Before he hearing, an abstract of the terms 

and conditions of the sublease Vai distributed to the public. The sublease was restructured as 

a result of this public hearing to respond to requests for additional aT representation on 

the hospital’s community advisory board. (Co 399; Ca 402). 

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The HHC Board review 

The HHC Board held two public sessions to consider the sublease. The Board discussed 

at length the merits of privatization, the likely impact of the sublease on care for the poor and 

uninsured, whether PHS was an appropriate company to take: over Coney Island Hospital, PHS’ 

financial strength, the quality of medical care at PHS run hospitals in other cities, and how HHC 

oversight of the hospital would work. The Board was briefed on every aspect of the sublease 

including its terms (Co 398; Ca 401), HHC staff site visits to PHS hospitals in Cleveland (Co 

481: Ca 484), the PHS capital program for Coney Island Hospital (Co 537; Ca 536c), and bond 

counsel’s advice regarding the financing of the sublease (Co 510; Ca 510). 

The Board also received a lengthy report on the health care and environmental impacts 

of the sublease (Co 517; Ca 517). The consultants projected that under the sublease the poor 

and uninsured would be more likely to receive health care services at Coney Island Hospital than 

if HHC remained in control of the hospital (Co 565-66; Ca 556-57). The HHC Board approved 

the sublease on November 8, 1996 (Co 589; Ca 582). 

State review of the sublease 

Before PHS can take over Coney Island Hospital, the State must first determine whether 

to approve the establishment of Coney Island Hospital under PHS management and control. This 

application will be reviewed by the Department of Health (“DOH”), the State Hospital Review 

and Planning Council and the Public Health Council ("PHC"). These bodies will review whether 

PHS has offered a "substantially consistent high level of care" at its ‘hospitals in the past, 

whether Coney Island Hospital will have a satisfactory financial plan and the resources to stay 

in operation, whether the principals of PHS have the character and competence to operate a high 

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quality hospital, and such other matters as the PHC deems pertinent. Public Health Law 

§ 2801-a[3]. PHS must also secure an operating certificate from DOH pursuant to Public 

Health La § 2805. PHS will have to show that the hospital care is "fit and Mequste! and that 

it will operate the hospital in accordance with law. Public Health Law § 2805(2)(b). 

The present litigation 

The New York City Council (“Council”) initiated the present action in March 1996 and 

| the Campaign to Save Our Public Hospitals ("Campaign") filed suit in May 1996 (Co 51; Ca 

63). Both plaintiffs sought a declaration that the City’s Uniform Land Use Review Procedure 

("ULURP") applied to leases of HHC property. The Council plaintiffs also sought a declaration 

that the Council and the Mayor jointly sacossded to the Board of Estimate’s role in approving 

leases under the HHC Act. Plaintiffs sought a permanent injunction barring the sublease of the 

hospitals until these steps were complied with. 

The Supreme Court, Queens County (Posner, J.), invited the parties to address whether 

it was ultra vires for HHC to sublease a hospital under any circumstances (Co 599). Plaintiffs 

subsequently amended their complaints to raise this claim as well (Co 605: Ca 830). 

By order and judgment entered February 5, 1997, the trial Court granted plaintiffs 

summary judgment and declared (1) that under the HHC Act, HHC’s sublease of Coney Island 

Hospital was ultra vires; (2) that the Coney Island Hospital lease is subject to ULURP; ad. (3) 

that both the City Council and the Mayor must approve the lease of an HHC hospital under the 

HHC Act. | 

The Appellate Division, Second Department, affirmed that the declaration that HHC did 

not have the authority. under its operating statute to enter into the Coney Island Hospital lease. 

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The Court deleted the declarations concerning whether the lease -was: subject to the ULURP and 

whether it had to be approved by both the City Council and the Mayor under the HHC Act.® 

OPINIONS BELOW 

The Trial Court Opinion 

Justice Posner found that while the HHC Act authorized HHC to sublease its hospiizls 

to a private hospital company, the law could not mean what it says (Co 637; Ca 861): 

HHC, by contracting with PHS-NY by means of a 

99 year sublease, to have PHS-NY take over the 

operation of CIH, is shirking its own statutorily 

imposed responsibility, without the Legislature’s 

approval. Although the HHC Act concededly allows 

for provision of health and medical services “by 

agreement or lease with any person firm or private 

or public corporation or association, through and in 

the health facilities of [HHC] and to make rules and 

regulations governing admissions and health and 

medical services” (McKinney’s Uncons Laws § 7385 

[8]), such allowance may not be construed to permit 

the incongruous result that HHC can delegate or 

shift all of its responsibilities to a non-public entity 

as a means of “furthering its corporate purposes.” 

(McKinney’s Uncons Law § 7385 [8]). Moreover, 

that reading would frustrate the purposes and 

obligations of the HHC to the people of the City.... 

The Court concluded that by subleasing Coney Island Hospital HHC was abandoning its 

mission, rather than ving to fulfill its mission by a creative response to rapid changes in the 

health care environment (Co 639; Ca 863): 

The history of the creation of HHC is instructive. 

HHC was borne out of the City’s need to salvage a 

hospital system that was floundering. If HHC 

likewise is confronted with a system nearly 

  

6 The Court also remanded the matter to the trial court for a determination of two demands in 

the complaint. The parties later stipulated to withdraw those demands and the trial court so 

ordered the stipulation on November 19, 1997. 

g:\dvorkin\council.a03 -13-    



  

drowning in red ink, defendants’ response cannot be 

simply to jump ship. They must go back to the 

Legislature, and seek an amendment or repeal of the 

HHC Act, or devise some other plan for managing 

the crisis. : 

The Court also found that HHC leases are subject to ULURP (Co 634; Ca 858) and 

concluded that the Mayor and the City Council jointly succeeded to the Board of Estimate’s role 

of consenting to HHC leases under the HHC Act. The Coutt reasoned that the Board of 

Estimate might have weighed both the business terms of a lease and its land use effects in 

exercising its HHC Act powers (Co 629; Ca 853). Then, the Court explained, that since the 

Council succeeded to the Board’s land use powers under ULURP, the Council and the Mayor 

jointly succeed to the Board of Estimate’s approval role under the HHC Act (Co 630; Ca 854). 

2. The Appellate Division Opinion | 

In a per curiam opinion, the Appellate Division panel read the HHC Act as barring the 

lease. Citing Ferres v. City of New Rochelle, 68 N.Y.2d 446, 451 (1986), the Court 
  

emphasized that the statutory language must be interpreted in light of the Legislature's intention 

in creating HHC. The Court noted that the HHC Act authorized HHC to lease hospitals, but 

found that HHC had no statutory Wn to combine the lease with the transfer of operational 

control of the hospital (Co 649): . 

The purpose and intent of the NYCHHCA was to 

establish one entity accountable to the public to 

operate the municipal hospitals for the benefit of the 

public. .A construction of 7385(6) of the 

NYCHHCA which would permit the defendants to 

turn of the operation of an entire hospital to a 

- private entity by means of a 99-year sublease would 

be inconsistent with that intent and purpose. 

g:\dvorkin\council.a03 -14- 

 



  

The Court also found that HHC lacked authority to lease the hospital under section 7385(8), 

which authorizes HHC to "provide health and medical services . . . by agreement Or lease with 

any . . . private . . . corporation . . . through and in the health facilities of the corporation..." 

The Court found that the phrase "through and in the health facilities of the corporation" meant 

that HHC could not "transfer its statutory obligation to operate a City hospital to a private 

entity.” (Co 650). | | 

The Court also quoted from legislative history to find that "there is no indication that the 

Legislature intended that HHC, upon being given the authority to operate City hospitals, could 

then transfer such aithnsiy to a private entity.” The Court concluded (Co. 650): 

Based on the statutory language, together with the 

legislative history, we conclude that HHC exceeded 

its statutory authority when it agreed to sublease 

CIH to PHS-NY. The defendants may be correct 

that the sublease of CIH is the only viable means of 

ensuring that quality medical services are provided 

to the community in the future and that necessary 

capital improvements are made to the hospital. It is 

not the function of this Court to consider the merits 

of privatization of the HHC-operated hospitals. The 

defendants’ remedy is to apply to the Legislature to 

amend the statute to confer such authority upon 

HHC, as only the Legislature has the authority to 

create, modify, or dissolve a public benefit 

corporation. 

g:\dvorkin\council.a03 : -15- 

 



  

  

POINT ONE 

THE HHC ACT AUTHORIZES THE 
SUBLEASE OF CONEY ISLAND HOSPITAL 
TO A PRIVATE COMPANY. 

The powers of the Health and Hospitals Corporation are established by the Rew York 

City Health and Hospitals Corporation Act ("HHC Act"), which resid HHC. Unconsolidated 

Laws (“UL”) § 7381 et seq. The Legislature incorporated into the Act its intention that HHC 

should have flexibility to carry out its mission of providing health care to everyone, especially 

the poor and uninsured. To that end, the Legislature gave HHC broad powers to carry out its 

mandate, including explicit authorization to sell, lease or sublease hospitals to carry out HHC's 

corporate purposes. The HHC Board determined that the Coney Island Hospital lease would 

advance HHC’s corporate mission. Accordingly, the lower Court’s declaration that HHC lacked 

the power to lease Coney Island Hospital to PHS is both directly contrary to the language of the 

governing statute and to its spirit. 

The lower Court misconceived the nature of the transaction, assuming that HHC had 

simply sold off a hospital. On the contrary, the hospital will continue to be used to carry out 

HHC’s mission in the community, and HHC retains significant oversight and enforcement 

authority to ensure that this occurs. This is not a simple real estate Eo HHC imposed ° 

substantial conditions regarding health care service delivery and the provision of charity care in 

the hospital, in addition to retaining enforcement powers. Therefore, for all the time Coney 

Island Hospital is leased to PHS, it will continue to be used for the purposes HHC deemed most | 

appropriate to serve the HHC patient population -- to provide high quality health rvieos for | 

those New Yorkers who need them. 

g:\dvorkin\council.a03 -1 6- 

    

 



      m————————— = 

The statutory language that authorizes HHC to take this step is plain and clear. Section 

7385 [6] of the HHC Act provides: 

The corporation shall have the following powers in 

addition to those specifically conferred elsewhere in 

this act: ti aR 

[6] to dispose of by ...lease or sublease, real ... 

property, including but not limited to a health 

facility, or any interest therein for its corporate 

purposes ... 

The transaction between HHC and PHS is a “sublease” of a “health facility.” The term "health 

facility" is defined in section 7383[12] to include "a general hospital,” and encompasses the 

hospital’s "building," "related equipment" and "fixtures."® This definition surely applies to 

Coney Island Hospital. When the plain language of a statute authorizes an action, as the HHC 

Act authorizes HHC to lease hospitals, the words of the statute must be given their due. See, 

e.o., Giuliani v. Hevesi, 90 N.Y.2d 27, 39 (1997); Lloyd v. Grella, 83 N.Y.2d 537, 545-46 
  

  

(1994); Matter of State v Ford Motor Co., 74 N.Y.2d 495, 500 (1989). 
  

  

7 UL § 7385[6] states in its entirety that HHC has the power: = “To acquire, by purchase, gift, 

devise, lease or sublease, and to accept jurisdiction over and to hold and own, and dispose of 

by sale, lease or sublease, real or personal property, including but not limited to a health 

facility, or any interest therein for its corporate purposes; provided, however, that no health 

facility or other real property acquired or constructed by the corporation shall be sold, leased 

or otherwise transferred by the corporation without public hearing by the corporation after 

twenty days public notice and without the consent of the board of estimate of the city;” 

8 "Health facility" shall mean a building, structure or unit or any improvement to real property, 

including all necessary and usual attendant and related equipment, facilities or fixtures, or any 

part or parts thereof, or any combination or combinations thereof, including but no limited to, 

a general hospital, psychiatric hospital, tuberculosis hospital, ambulatory clinic or center, chronic 

disease hospital, nursing home, extended-care facility, dispensary or laboratory or any other 

related facility, or any combination of the foregoing, constructed, acquired or otherwise provided 

by or for the use of the corporation or the city in providing health and medical services to the 

public. 

g:\dvorkin\council.203 -1 7- 

 



  

  

The Appellate Division assumed that the HHC Act did not authorize HHC to lease the 

‘hospital to an entity that would also operate the hospital. The statute contains no such limitation. 

The Appellate Division’s interpretation is also contradicted by a separate power explicitly granted 

to HHC to arrange for a private corporation to run a hospital through a lease. Under section 

7385[8)°, HHC has the authority to enter into leases to provide "health and medical services," 

a term that is broadly defined in the statute. It encompasses every type of health care provided 

through a hospital including "pre-admission, out-patient, in-patient and post-discharge care". 

UL § 7383[13].1° The statute also specifically authorizes HHC to arrange for health and medical 

services by "lease with any person, firm, or private or public corporation ...," a category that 

encompasses PHS. 

The Appellate Division found this section inapplicable on the ground that Coney Island 

Hospital would no longer be, as this portion of the statute requires, a "health facilit[y] of the 

corporation." This is mistaken. Under the PHS lease, HHC remains the sublessor of the 

  

® UL 7385[8] states in its entirety that HHC has the power: "To provide health and medical 

services for the public directly or by agreement or lease with any person, firm or private or 
public corporation or association, through and in the health facilities of the corporation and to 
make rules and regulations governing admissions and health and medical services; and to 
establish and collect fees and other charges, including reimbursement allowances, for the 

provision of such health and medical services; and to provide and maintain continuous resident 
physician and intern medical services; and to sponsor and conduct research, educational and 
training programs." 

10° "Health and medical services" shall mean items or services provided by or under the 
supervision of a physician or other person trained or licensed to render health care necessary for 
the prevention, care, diagnosis, or treatment of human disease, pain, injury, deformity or other 

" physical or mental condition including, but not limited to, pre-admission, out-patient, in-patient 
and post-discharge care, home care, physicians’ care, nursing care, medical care provided by 
interns or residents-in-training and other para-medical care, ambulance service, bed and board, 
drugs, biologicals, supplies, appliances, equipment, laboratory services an dx-ray, radium and 
radio-active-isotope therapy. 

g:\dvorkin\council.a03 -18- 

  

    
 



  

  

hospital, as in any lease that would be entered into under section, 7385[8]. If PHS were to 

violate the terms of the lease, HHC has all remedies as landlord, including the authority to evict 

its tenant. The lease has not altered HHC’s status in relation to the hospital. Coney Island 

Hospital remains HHC jeosd property under the master lease with New York City and PHS is 

no more than a subtenant under lease to HHC. 

Further, the HHC Act assumes that HHC may use its leasing authority to carry out its 

mission. The Act empowers HHC to lease out its hospitals in two very different circumstances. 

HHC is permitted to sell or lease a hospital that “is no longer required for its corporate 

purposes” under UL § 7387[4]. In that case, HHC may dispose of the hospital by sale or lease 

and apply the proceeds © HHC purposes.!! Alternatively, HHC can enter into a hospital lease 

under UL § 7385[6] where the hospital will continue to be used to carry out HHC’s mission. The 

sublease of Coney Island Hospital to PHS falls into this category of HHC’s authorized 

transactions. Reading the HHC Act as a whole and giving meaning to both of these section of 

the HHC Act, e.g. Mitta: of Long v. Adirondack Park Agency, 76 N.Y.2d 416, 420 (1990), 

it is apparent that HHC can lease out a hospital, and the hospital will continue to be an HHC 

facility serving HHC’s mission. 

HHC had ample basis for its decision that the sublease would be the best way of carrying 

out its corporate purpose of providing health care for New Yorkers, especially the poor and 

  

Il UL § 7387[4] provides: "If the corporation determines that the use and occupancy of any 
real property is no longer required for its corporate purposes and powers, then if such real 
property was acquired at the cost and expense of the city, the corporation shall, subject to the 
provisions of section five, paragraph six, have power to surrender its use and occupancy to the °° 
city. The corporation shall, subject to the provisions of section five, paragraph six, have power 
to sell, lease or otherwise dispose of said real property at public or private sale or as part of a 

contract, lease or other agreement entered into under the terms of this act and to use the 

proceeds derived from the sale, lease or other disposition thereof for its corporate purposes." 

g:\dvorkin\council.a03 -19- 

  

  

    

 



  

uninsured. Compare Giuliani v. Hevesi, 90 N.Y.2d 27, 38 (1997) (funding City’s capital needs 
  

is not a corporate purpose of the New York City Water Authority). The sublease will allow 

HHC to guarantee a level and quality of charity care that HHC could not provide on its own. 

HHC approved the sublease of Coney Island Hospital ("CIH") after its health care 

consultant projected that the poor and uninsured would be more likely to receive services at 

Coney Island Hospital under the sublease than if HHC did not lease out the hospital. (Co 565- 

66; Ca 556-57): 

With a limited ability to upgrade and modernize the facility 

through capital investments, CIH is likely to find its base of 

insured patients eroding against the growing competition in the 

marketplace -- particularly for Medicare and Medicaid patients... 

Given the decline in revenues CIH expects to collect in the period 

ending in the year 2000 under HHC management, some 

combination of reductions in the range of services, or the capacity 

to deliver services, or both would be likely to occur. Under these 

circumstances maintaining the level of access for the indigent 

uninsured population would be an ongoing challenge to HHC. 

On the other hand, by entering into the sublease with PHS, HHC arranged a guarantee 

that the uninsured seeking care at Coney Island Hospital would be able to obtain medical services 

valued at up to 115% of HHC’s current charity care costs at the hospital. The 115% figure will 

be calculated met of a medical inflation factor, and net of third party reimbursements. 

Independent consultants who analyzed the sublease for HHC projected that the sublease’s charity 

care obligation would be ample to meet demand well into the foreseeable future, even assuming 

a 21% increase in indigent uninsured patients (Co 553; Ca 562). 

The sublease also contains important provisions relating to the type and quality of care - 

at Coney Island Hospital. Under the lease HHC will decide what medical care programs will 

be available for patients; PHS is obligated to maintain in-patient and out-patient programs in all 

g:\dvorkin\council.a03 -20-    



  

  

  

  

"core service" areas offered at CIH as of the day before the closing on the sublease. The core 

services include all services normally provided by a community hospital including medicine, 

general surgery, pediatrics, ob/gyn, rehabilitation, psychiatry and emergency medicine.” In 

addition, PHS will invest a minimum of $25 million in the hospital’s physical plant. 

HHC retained important oversight powers both explicitly in the sublease and under the 

law as landlord. HHC has the right under the sublease to audit PHS’ performance of its charity 

care and continuation of services obligation. The sublease requires PHS to submit all disputes 

over charity care and core medical services to an arbitrator with expertise in health use, to accept 

a monitor of its charity care and core service obligations and to provide the remedy of specific 

performance in the event of default. Further, if PHS defaults on its charity care obligation, 

HHC may seek termination of the sublease. The sublease also requires PHS to allow 

establishment of a Community Advisory Board, which will develop a grievance procedure and 

act as liaison to HHC. (Co 399-400; Ca 399-400). Through these sublease terms, HHC will 

ensure that Coney Island Hospital continues to provide quality health care for all. 

The sublease also benefits the HHC system as a whole. Because of the sublease, 

approximately $17 million in HHC borrowing capacity will be freed to be used for capital needs 

at other HHC facilities. In addition, HHC will benefit from PHS’ assumption of the hospital’s 

operating costs (eluding malpractice liability), which will free HHC funds to strengthen the rest 

of the system (Co 400; Ca 403). Thus, by arranging the PHS sitleieE. HHC has guaranteed 

a level and amount of services for the poor and A that HHC on its own could never 

; make. 

  

. 12 The sublease permits PHS to change the medical services if there is a radical change in the 
practice of medicine, such as a vaccine that eliminates a disease. (Co 399; Ca 402). 

g:\dvorkin\council.a03 -21- 

- —_ lL PL—— IRR A mea i 

Rr ———— 

        
 



  

  

It is consistent with the purpose of the HHC Act to interpret HHC’s powers as 

| encompassing the sublease of Coney Island Hospital. HHC was created in response to a health 

care crisis. In establishing the New York City Heath and Hospitals Corporation as a public 

benefit corporation in place of a traditional government agency, the Legislature intended that 

HHC would have the flexibility to change as the times demanded. The Legislature intended 

above all that HHC should not be locked into any particular method of health care delivery: 

A system permitting legal, financial and managerial flexibility is 

required for the provision and delivery of high quality, dignified 

and comprehensive care and treatment for the ill and infirm, 

particularly to those who can least afford such services. 

UL § 7382. The Legislature was concerned that a rigid adherence to particular forms of 

delivering health care would end up hurting patients: "A myriad of complex and often 

deleterious constraints and restrictions place a harmful burden on the delivery of such care and 

treatment." UL § 7382. Therefore, it instructed HHC to be flexible in pursuit of efficient 

methods of providing health care: "Procedures inherent in the administration of health and 

medical services as heretofore established obstruct and impair efficient operation of health and 

medical services." Id. Thus, by entering into the ‘sublease of Coney Island Hospital, HHC is 

doing precisely what the Legislature intended it should do: taking the steps necessary to provide 

better health care for New Yorkers, particularly the most vulnerable. 

The Coney Island Hospital sublease is a legitimate way for HHC to further its mission 

in the years to come. HHC does not have an unlimited budget to provide seuioe on demand at 

E> all of its facilities. To allocate its resources, HHC has adjusted staffing levels, shifted the 

availability of services from one facility to another, modified hours of service and indeed, where 

  appropriate, closed entire programs or facilities. See, e.g., Lincoln Cerpac v. HHC, F3d   
22. 

 



1998 U.S. App. Lexis 12489, aff’ing, 977 F. Supp. 274 (S.D.N.Y. 1997) (HHC may close 

specialized health care facility); Bryan v. Koch. 627 F.2d 612 (2d Cir. 1980), aff’g 492 F. 
  

  Supp. 212 (S.D.N.Y.) (HHC may close Sydenham Hospital); Jackson v. HHC, 419 F. Supp. 

809 (S.D.N.Y. 1976) (HHC may close Morrisania Hospital). The sublease ensures that these 

drastic steps will be unnecessary in the future, no matter what budgetary constralts HHC has 

to operate under. 

In holding that HHC is powerless to make the changes necessary to ensure continuity of 

medical services for the poor if those changes include subleasing hospitals to a private company, 

the lower Court fundamentally misconceived HHC’s responsibilities and misread the HHC Act. 

Recognizing that red tape and rigidity would result in the collapse of the City’s hospital system, 

the Legislature endowed HHC with broad and flexible powers, requiring simply that HHC use 

its authority to make sure that New Yorkers, especially the poor, receive high quality health 

care. The HHC Act grants HHC the right and imposes the responsibility to innovate, even to 

enter into carefully considered experiments, in Shoring its mission. The lower Court’s 

declaration that the sublease of Coney Island Hospital to PHS is beyond HHC’s powers is, thus, 

contrary to both the language and purpose of the HHC Act. 

23 

  

  

  
 



    

  

  ——— . 7 

POINT TWO 

ULURP DOES NOT APPLY TO THE 

SUBLEASE OF CONEY ISLAND HOSPITAL. 

The New York City Charter establishes a lengthy review process that the City must 

follow when it wants to make changes in certain categories of land use: the Uniform Land Use 

Review Process ("ULURP"), Charter § 197-c. ULURP is inapplicable to the case at bar because 

HHC’s sublease of Coney Island Hospital does not fall within the scope of the statute and 

because the Legislature intended that HHC would act without being enmeshed in City red tape. 

The sublease does not fall under ULURP because HHC’s lease is not City property 

ULURP does not create a general law applicable to all changes in land use. Instead, it 

is of limited scope and only applies to the instances defined in the statute’s first subsection. 

Mauldin v. New York City Transit Authority, 64 A.D.2d 114, 117 (2d Dept. 1978): "[T]he 
  

applicability of [Charter § 197-c] is necessarily limited to the 11 paragraphs of subdivision a 

thereof." 

The subdivision that the trial Court found relevant in the case at bar is only applicable 

to the sale, lease or exchange of City property. The provision applies ULURP to: 

- Sale, lease (other than the lease of office space), 

exchange or other disposition of the real property of ik 

the city... , | | 

N.Y.C. Charter § 197-c [2](10). Thus, when a claim is made under this section of ULURP, the 

    first question must be whether the "real property of the City" has been sold, leased or 

exchanged.   24.   
 



  

Coney Island Hospital was once the real property of the City. But when HHC was 

created, the City split the property into two legal parts. The City retained ownership of the fee 

and gave HCH a long term lease on the former City hospital (Co 135; Ca 119). Therefore, 

today there are two separate legally cognizable real propeny holdings at Coney Island Hospi, 

One, the fee, is held by the City and the other, the jehsehiold, is held by HHC. 

The sublease of Coney Island Hospital to PHS is a transfer of HHC’s property -- the 

HHC leasehold -- to PHS. The sublease does not concern the City’s property at Coney Island 

: Hospital -- the fee. The fee will not be sold, leased, exchanged or affected in any way. 

Therefore, by its own terms ULURP does not apply to the transaction. 

The trial Court declared without explanation that the sublease of Coney Island Hospital 

is a transfer of the City’s property (Co 634; Ca 858). If the Court had applied property law to 

the transaction, it would not have confused the physical piece of land (i.e. the buildings and 

grounds of Coney Island Hospital) with the estate in property law that is being subleased. 

It is well settled that ULURP’s use of real property terms should be interpreted by 

applying the law of real property. Indeed, the Courts have regularly turned to traditional 

property law to determine whether a type of property interest acquired or disposed of by the City 

is one that is covered by ULURP. Compare Matter of Davis v. Dinkins, 206 A.D.2d 365, 366-   

67 (2d Dept. 1994), lv. app. den. 85 N.Y.2d 804 (1995) (applying real properey law to find 

traditionally essential terms of a lease not present) with Matter of Dodgertown Hennes 
  

  

  

Assoc., Inc. v. City of New York, 235 A.D.2d 538 (2d Dept), Iv. app. ders 89 N.Y. 2d 809 

(1977) (applying real property law to find lease where parties agreed on "surrender of absolute 

possession and control of property to another party for an agreed-upon rental").       

       



A leasehold interest is real property in and of itself, alienable apart from the fee. See, 

  

e.c., Rowe v. Great Atlantic & Pacific Tea Co., Inc., 46 N.Y.2d 62, 69 (1978) (law disfavors 

limits on right to sublease as restriction on alienation of property); Great Atlantic & Pacific Tea 
  

Co., Inc. v. State, 22 N.Y.2d 75, 84 (1968) (leasehold is subject to condemnation award apart 
  

from the fee); Restatement, Second, Property (Landlord and Tenant) § 15.1 (tenant's Tiered: in 

property is freely transferable).' | 

Thus, as a matter of real property law, the sublease of Coney Island Hospital is a 

disposition of HHC’s property. This interpretation is consistent with the reasons for ULURP 

| review. ULURP applies to dispositions of “property of the City” in order to bring all relevant 

issues concerning the sale or lease by the City of its property to the attention of the City decision 

makers. The City made its land use decision in the 1970’s, when it leased the hospitals to HHC. 

The sublease will not alter the City’s decision to lease the hospital property. To the contrary, 

the sublease explicitly permits no use of the Wiopeiy exept as a health facility (Co 464: Ca 

467). When the City is not making the decision to enter into a sublease, and the City’s property 

rights are not being transferred, there is no land use decision to consider and ULURP review 

would serve no purpose. Therefore, Charter § 197-c [a] (10), which regulates only dispositions 

of the "property of the City", is inapplicable to the transaction. 

  

13 The HHC Act requires that the City approve the leasing transaction, an approval that may 

be analogized to the right commonly reserved by a landlord to consent to a sublease. Such 

rights of approval by the landlord do not change the fact that the tenant has a property interest, 

separate from the fee, in the property. See generally Restatement Second, Property § 15.2 

(lease may require landlord’s approval to sublet). The City’s approval of the sublease is 

exercised by the Mayor, consistent with the provisions of New York City Charter § 384. See 

Point Three, infra. = 

he    



  

  

The HHC Act preempts application of ULURP to HHC properties 

Even if the literal terms of ULURP were applicable to the sublease, however, it would 

be inconsistent with the State law that created HHC to subject HHC leasing transactions to the 

ULURP process. As this Court has held, ULURP does not govern transactions within the scope 

of Charter section 197-c [a], if an overriding state interest requires ignoring its strictures. 

Matter of Waybro Corp. v. Board of Estimate, 67 N.Y.2d 349 (1986). 
  

In Waybro, the City transferred its property to the Urban Development Corporation 

("UDC") as part of the 42nd Street Redevelopment Project. This Court found that in creating 

UDC, the Legislature intended to preempt ULURP, which the Court characterized as an 

"impenetrable layer of red tape." Id. at 350. Therefore, even though the City’s decision to 

transfer property to UDC fell within the terms of ULURP and the 42nd Street Redevelopment 

Project indisputably is an important land use project, this Court held that the City should not 

follow the ULURP process before it disposed of its property. | 

Similarly, when the Legislature created HHC, it preempted local land use review 

processes by incorporating its own land use review process for HHC into the HHC Act. UL 

§ 7385[6] establishes an abbreviated land use review governing only a limited class of property 

dispositions by HHC, including the Coney Island Hospital PY Instead of a process 

spanning months of public reviews and hearings by Community Boards, Borough Presidents, the 

City Planning Commission and the City Council, the HHC Act requires that when HHC plans 

to enter into the sale or boise of a hospital, it must first hold one public fasting and the 

Sisposition must be approved by the Board of Estimate (now the Mayor, see Point Three, Infra) 

The City may not subject HHC decision making to more public hearings and a significantly 

longer review process without State authorization. 

Wis ig 0 

      
  

 



While the HHC Act could not directly address the question of whether HHC should be 

  

subject to ULURP because ULURP did not exist when the Act was written, the Legislature did 

have a great deal to say about its mention that HHC should be freed from the City laws and 

regulations that had made it difficult for HHC’s predecessor, the Department of flospiats, to act 

decisively. The Legislature stated in the Act’s Declaration of Purpose that it was creating HHC 

to free hospitals from City laws and regulations, which the Legislature characterized as a 

"myriad of complex and often deleterious constraints and restrictions [that] place a harmful 

burden on the delivery of . . . care and treatment.” UL § 7382. The Legislature found that City 

procedures "obstruct and impair efficient operation of health and medical resources.” It created 

HHC as a public benefit corporation of the State, rather than a City agency, so that HHC could 

be "a system permitting legal, financial and managerial flexibility." UL § 7382. It would be 

directly contrary to this clearly stated legislative intent to find that HHC, having been granted 

the power to sublease its facilities, is nevertheless subject to the City’s complex and time 

consuming land use review procedures. 

28. 

  

  

  

  

  

    
 



    

  

POINT THREE 

THE MAYOR IS THE SUCCESSOR TO THE 
BOARD OF ESTIMATE’S ROLE IN 
APPROVING . DISPOSITIONS OF HHC 
PROPERTY UNDER THE HHC ACT. 

The HHC Act requires that the "Board of Estimate" consent to HHC dispositions of real 

property. UL § 7385(6).'* The Board of Estimate was declared unconstitutional in Morris v. 

Board of Estimate, 489 U.S. 688 (1989), but the State has not yet amended many of its laws, 
  

including the HHC Act, to eliminate references to the Board of Estimate’s consent power. 

However, the trial Court held that the reference to the Board of Estimate in the HHC Act should 

be interpreted to require that the City consent to HHC’s dispositions of property (Co 628; Ca 

852). See New York Public Interest Research Group v. Dinkins, 83 N.Y.2d 377, 385 (1994)   

(statutory repeals by implication are "not favored in the law"); Friends of Van Voorhees Park, 
  

Inc. v. City of New York, Sup. Ct., N.Y. Co., Index No. 134520/93 (Huff, J.), aff'd, 216 
  

A.D.2d 259 (1st Dept. 1995) (upholding Mayor's exercise of approval power for disposition of 

park land that State law conferred on the Board of Estimate). 

The City body that succeeded to the Board of Estimate’s role in consenting to HHC 

property dispositions is the Mayor. It is inconsistent with both the Council’s role under New 

York City Charter and the nature of the HHC Act to find that the City Council has assumed any 

part of the Board of Estimate’s consent authority over HHC leases. The Charter explicitly 

transferred general consent authority over real property transactions from the Board of Estimate 

  

4 The relevant portion of the law provides: "no health facility or other real property . . . shall be sold, leased or otherwise transferred by the corporation without public hearing by the corporation after twenty days public notice and without the consent of the board of estimate of the city" 

  

    
  

   



  

  

to the Mayor, not to the Mayor jointly with the Council. The Council has succeeded to a portion 

of the Board of Estimate’s role in reviewing land use decision ikihe. but only to the decision 

making that falls under ULURP. The Charter allocates to the Mayor all decision making: 

concerning property that takes place outside of ULURP. Further, the HHC Act was intended 

to streamline HHC decision making, an intention that would be thwarted by requiring Mayoral 

and Council consent to HHC real property dispositions when the HHC Act provides for City 

consent by only one, not two, bodies or officers of City government. 

In allocating the authority to consent to HHC real property transactions to the Board of 

Estimate, the State Legislature followed the City Charter’s allocation to the Board of the 

analogous authority to consent to the City’s own real property transactions. Charter § 384(a), 

in effect at the time the HHC Act was adopted, provided: 

Disposal of property of the city. a. No property of 

the city may be sold, leased, exchanged or otherwise 

disposed of except with the approval of the board of 

estimate and as may be provided by law unless such 

power is expressly vested by law in another agency. 

  

(emphasis added). 

The Mayor has succeeded to this authority to consent to real property transactions. When 

the Charter was revised in 1989 to eliminate the Board of Estimate, the office of Mayor was 

substituted for the office of the Board of Estimate in Charter § 384(a): 

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 and as 

may be provided by law unless such power is expressly 

vested by law in another agency. 
| 

  

(emphasis added). Thus, in reviewing HHC leasing transactions, the Mayor would perform the   identical function he or she performs in regard to the disposition of City property.   -30- 

 



  

  

  

Of course Charter § 384(a) does not directly govern HHC’s sublease of Coney Island 

Hospital because it applies only to the disposition of City owned property and the sublease is the 

disposition of HHC’s property. Instead, it is relevant because in construing legislation that has 

not been amended to eliminate references to the Board of Estimate, the Charter instructs that the 

body or officer who exercises comparable power under the Charter itself should exercise the 

Board’s former role. 

Charter § 1152(e), adopted by the voters in 1989, provides that: 

the powers and responsibilities of the board of estimate, 
set forth in any state or local law, that are not otherwise 
devolved by the terms of such law, upon another body, 

agency or officer shall devolve upon the body, agency or 

officer of the city charged with comparable and related 
powers and responsibilities under this charter . . . . 

Application of this devolution provision is straightforward in the case at bar. Since the 

Legislature gave the consent authority to the Board of Estimate when the Board had that power 

under Charter § 384(a), and since the Mayor has succeeded to the consent authority under the 

revised Charter § 384(a), the consent authority in HHC Act § 7385(6) devolves upon the Mayor. 

  

See Tribeca Community Assoc., Inc. v. UDC, Sup. Ct,. N.Y. Co., Index No. 29355/92 

(Lippman, J.) at page 31 (" [T]he City Council does not have authority to approve the terms and 

conditions of sales, leases or other dispositions . . . ."), aff'd, 200 A.D.2d 536 (1st Dept. 1994), 

lv. app. den. 84 N.Y.2d 805 (1994). 
  

The trial Court nevertheless held that the Council has the authority to review the Coney 

Island Hospital sublease because HHC lease transactions are subject to land use review under 

ULURP. This was mistaken because ULURP does not apply to HHC. See Point Two, supra. 

Indeed, in the one instance when the Board of Estimate exercised its HHC Act consent authority 

31- 

  

    
 



  

 _ "@ 

after ULURP was enacted, it was careful to distinguish its ULURP- authority. In 1985 HHC 

subleased a portion of Bellevue Hospital to Enzo Biochem, Inc., a biotechnology firm. In order 

to allow Enzo Biochem to run a meovttuing business on the site oo Board of Estimate 

actions were necessary: first, the area had to be ean second, the Board had to consent to 

the HHC sublease of the property to Enzo Biochem. The rezoning involved a change by the 

City in its zoning text and was for that reason subject to ULURP (Co 360-63; Ca 357-60). The 

Board of Estimate approved the rezoning, exercising its ULURP powers.” Months later, the 

10 Board approved the terms of the HHC sublease, stating that it was acting under the HHC Ac 

The ULURP process —- which included review by community boards and the City Planning 

  

15 The Board of Estimate resolution regarding the zoning change stated (Co 372; Ca 369): 

"Resolved, By the Board of Estimate, pursuant to the provisions of Section 200 of the New York 

City Charter, that the resolution of the City Planning Commission . .. reading as follows: 

Resolved, By the City Planning Commission, pursuant to Section 197-c and 200 

of the New York City Charter that the Zoning Resolution of the City of New 

York, . . . is further amended . . . by establishing within an existing R8 District, 

a C2-5 District. . . . 

be and hereby is approved. 

16 The Board of Estimate resolution approving the HHC sublease stated (Co 310; Ca 342): 

“Resolved, that the Board of Estimate, pursuant to McKin. Unconsolidated Laws, Section 

7385.6 concurs in the determination [by HHC] to enter into a lease agreement with Enzo 

Biochem. ... oF: 

Plaintiffs have argued that the Board of Estimate heard testimony regarding potential land use 

impacts of the Enzo Biochem transaction while it debated the exercise of its HHC Act consent 

authority (Co 323-34; Ca 710-826). The Board could have considered such matters pursuant to 

its Charter § 384(a) consent authority or pursuant to its non-ULURP authority over land use" 

matters in general. The Board’s ultimate approval of the sublease, however, was expressly 

based on the HHC Act and not on ULURP.  



    

  

  

.-— 9 

Commission -- in addition to the Board of Estimate, was not followed in connection with the 

approval of HHC’s lease. 

If the HHC Act consent authority were to be analogized to a general land use review 

authority, it would not be exercised by the Council. The Charter specifically provides that the 

Council may only exercise its land use powers by following the process laid out in ULURP 

itself. See Charter §§ 28[a]; 384[b][5], except as specifically provided elsewhere in the Charter 

in limited circumstances.” The Charter gives the Council no role in non-ULURP land use 

decision making. 

The general owes to exercise judgment and discretion with respect to real property 

outside the scope of ULURP resides in the Mayor. The Charter provides that all residual, i.e. 

unallocated, powers of the City reside in the Mayor: "The Mayor, subject to this charter, shall 

exercise all the powers vested in the City, except as otherwise provided by law." . Charter 

§ 8. Thus, to the extent that the HHC consent authority is different than the power to consent 

to property dispositions under Charter § 384[a], as a non-ULURP based authority concerning 

the disposition of property, the exercise of "consent" under HHC Act falls to the Mayor by 

reason of Charter § 8. 

Moreover, the sublease of Coney Island Hospital does not gale land use concerns; the 

use of the site as a hospital will not change. Plaintiffs’ objections to the sublease have nothing 

to do with land use; rather their arguments concern whether HHC should privatize, whether PHS 

will do a good job in running Coney Island Hospital ad whether the poor and uninsured will & 

  

17 Charter § 195 (acquisition of office space); § 1301(2)(f) (lease of wharf property for 

waterfront commerce or navigation). 

334 

 



   

    

    

————— >. 
— 

i» 
| 

be harmed by the sublease. These are important questions regarding health care policy. They 

do not concern land use planning. : 

Recognizing this, plaintiffs argued below that Council approval should be read into the 

HHC Act in order to “balance” the Mayor’s authority over HHC decision making. The City 

“Council has made the same argument to the Legislature over the years by proposing several bills 

to amend the HHC Act to give it greater authority over HHC, including the authority to consent 

to HHC real property dispositions under the HHC Act. The State Legislature has not seen fit 

to act upon oe proposals.'® Having failed to convince the State lawmakers to rewrite the 

HHC Act, plaintiffs now seek to amend the statute through this litigation instead. 

The State Legislature gave the Mayor the responsibility to take the lead in setting hospital 

health care policy. The HHC Act recognizes the primacy of the Mayor in the oversight of 

HHC, by, among other things, requiring HHC to "deliver health and medical service to the 

  

18 A 11048 was introduced on behalf of the Council in June 1996 and A. 8896 was introduced 

in February 1996. Relevant parts of the bills and memorandum in support are in the Record at 

(Co 312-21; Ca 344-55). Similarly, the Mayor and the Council at one time engaged in 

negotiations over the terms of a bill that would reallocate the powers referred to the Board of 

Estimate under a number of State laws. As part of the negotiations, the Mayor agreed to a 

proposed bill giving the Council a role in approving HHC property transactions under the HHC 

Act. The negotiations collapsed and the Legislature never enacted the proposed bill into law (Co 

326, 362; Ca 359). 

34. 

 



  

  

public in accordance with policies and plans" of Mayoral appointees’ -- not those of the Board 

of Estimate or City Council which, after all, existed at the time of the Act’s adoption. 

The State Legislature did expressly give the Council a role in HHC policy making. The 

: Council must designate five of the fifteen Mayoral appointees to the HHC Board. UL 

§ 7384(1).%° The lower Court erred in second guessing the Legislature to find that the Council 

should have additional powers in overseeing HHC because it has land use powers under 

ULURP. 

The sublease of Coney Island Hospital to PHS has been the subject of extensive 

discussion, review and public hearings, as required by law. The sublease has been debated by 

members of the public at public hearing, pursuant to UL § 7385[6] and the New York City 

Charter § 556(m). It has been studied by the HHC Board pursuant to the State Environmental 

Quality Review Act. The members of the HHC Board of Directors exercised their 

responsibilities under the HHC Act by thoroughly exploring the medical, financial, and legal 

issues related to PHS in a series of public sessions. The Mayor too will review the sublease and 

  

19 UL § 7386(7) provides that HHC "shall exercise its powers to provide and deliver health and 

medical services to the public in accordance with policies and plans of the administration with 

respect to the provision and delivery of such services . . . ." 

The term "administration" as defined, in section 7383(2), is "the health services administration 

of the city of New York." The agency was abolished by Local Law No. 25 of 1977, which 

established the Department of Health and the Department of Mental Health, Mental Retardation 

and Alcoholism Services to exercise its functions. Each of those agencies is headed by a 

commissioner appointed by the Mayor. en : 
\ 

20 The HHC Act provides that the Council designates and the Mayor appoints five Board 

members, the Mayor designates and appoints five Board members, five Board members are ex 

officio City officials, and the Chief Executive Officer is chosen by the fifteen other Board 

- members. UL § 7384 [1]. 

-35- 

 



    

  

  

make an independent determination pursua to UL § 7385[6] regarding whether to approve its 

terms. Finally, pursuant to Public Health Law § § 2801, 2805, the State Department of Health 

and the Public Health Council will perform an independent analysis of the application by PHS 

for permission to manage Coney Island Hospital. | 

State law provides that a serious decision such as the sublease of Coney Island Hospital 

be thoroughly aired before the public and studied by many governmental agencies. But not 

every body of government has jurisdiction over every action taken by government. HHC is a 

State-created entity, and the State has not (despite continued importuning by the Council) granted 

the Council authority to review an HHC determination to sublease one of its hospitals, beyond 

the Council’s role in designating five of the sixteen members of the HHC Board. The trial 

Court erred in expanding the Council’s role beyond that provided by State law. 

CONCLUSION 

HHC serves a role of vital importance for New Yorkers but it must be permitted to use 

all of its statutory powers lest it become so inflexible that it cannot provide health care for those 

in need. HHC cannot remain static and successfully carry out its mission. The Legislature 

intended that HHC would have the necessary powers to survive changing demands and 

circumstances. The lower Court decision imposes inflexibility, forbids careful experimentation 

and stymies HHC’s efforts to respond to rapid changes in the field of health care. These 

donvieaints are found nowhere in the HHC Act itself. The Legislature granted HHC the broad 

powers it would need to adapt to future changes in health care, and those powers encompass the 

sublease of Coney Island Hospital. 

-36- 

 



   

Dated: 

  

——— ° 

THE ORDER AND JUDGMENT APPEALED FROM SHOULD 
BE REVERSED AND SUMMARY JUDGMENT SHOULD BE 
GRANTED DEFENDANTS. 

New York, New York 

August 31, 1998 

MICHAEL D. HESS 

Corporation Counsel of the City of New York 

Attorney for Defendants-Cross-Respondents 
100 Church Street 

New York, New York 10007 

(212) 788-0412 

  

By: ELIZABETH DVORKIN 

JEFFREY D. FRIEDLANDER, 
STEPHEN LOUIS, 
ELIZABETH DVORKIN, 
of Counsel 

37- 

 



  

PROPERTY 

ASE NO: 96CA006707 PROPERTY SEQ NO: 001 

PROPERTY: 273 E 1104TJ ST BOROUGH: BRONX 

BLOCK NUM: 002432 LOT NUM: 000001 . al 

OWNER NAME: ARDSKY MGMT CORP 

LIEN TYPE: LIEN AMOUNT: 303,750.00+ 

.- DISPOSITION---- 
ASE NO: 96CA006707 DATE: 08/20/98 DISPOS: SETTLED 

CALENDAR NO: DISP AMOUNT: 17,598.00+ 
STAFF: JOSEPH BAVUSO STAFF TYPE: 
UNIT: CERTIORARI COMPTROLLER REP: 
APPL AMOUNT: .00+ APPL STAFF: 
POST-AP AMOUNT: .00+ 

** END OF INQUIRY **