Campaign Plaintiffs' Final Reply Memorandum of Law in Support of Plaintiffs' Motion for Summary Judgment

    SUPREME COURT OF THE STATE OF NEW YORK 
COUNTY OF QUEENS IAS PART 5 

THE COUNCIL OF THE CITY OF NEW YORK, et al. 

Plaintiffs, INDEX NO. 004897-96 
HON. HERBERT POSNER 

- against - 

RUDOLPH W. GIULIANI, THE MAYOR OF THE 
CITY OF NEW YORK, et al, 

Defendants. 

CAMPAIGN TO SAVE OUR PUBLIC HOSPITALS - 

QUEENS COALITION, an unincorporated 
association, et al., 

Plaintiffs, INDEX NO. 10763/96 
HON. HERBERT POSNER 

- against - 

RUDOLPH W. GIULIANI, THE MAYOR OF THE 
CITY OF NEW YORK, et al., 

Defendants. 

CAMPAIGN PLAINTIFFS’ FINAL REPLY MEMORANDUM OF LAW 
IN SUPPORT OF PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT 
  

KENNETH KIMERLING 
PUERTO RICAN LEGAL DEFENSE & 
EDUCATION FUND, INC. 
99 Hudson St., 14th Floor 
New York, New York 10013 
(212) 219-3360 

ELAINE R. JONES 

Director-Counsel 
NORMAN CHACHKIN 

MARIANNE L. ENGELMAN LADO 
RACHEL D. GODSIL 

NAACP LEGAL DEFENSE & EDUCATIONAL 

FUND, INC. 
99 Hudson St., 16th Floor 
New York, New York 10013 

(212) 219-1900 

BARBARA OLSHANSKY 
CENTER FOR CONSTITUTIONAL RIGHTS 
666 Broadway, 7th Floor 
New York, New York 10012 

(212) 664-6464 

 



  

SUPREME COURT OF THE STATE OF NEW YOR 
COUNTY OF QUEENS IAS Part 5 

THE COUNCIL OF THE CITY OF NEW YORK, et al. 

Plaintiffs, INDEX NO. 004897-96 
Hon. Herbert Posner 

- against - 

RUDOLPH W. GIULIANI, THE MAYOR OF THE 
CITY OF NEW YORK, et al, 

Defendants. 

CAMPAIGN TO SAVE OUR PUBLIC HOSPITALS - 
QUEENS COALITION, an unincorporated 
association, et al., 

Plaintiffs, INDEX NO. 10763/96 
Hon. Herbert Posner 

- against - 

RUDOLPH W. GIULIANI, THE MAYOR OF THE 
CITY OF NEW YORK, et al., 

Defendants. 

CAMPAIGN PLAINTIFFS’ FINAL REPLY MEMORANDUM OF LAW 
IN SUPPORT OF PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT 
  

This reply brief is submitted to make three points. First, 

Defendants’ argument that the Health and Hospitals Corporation 

Act ("HHC Act") grants them authority to transform a public 

hospital into a private, for-profit hospital is based upon a 

tortured reading of the HHC Act and clearly wrong. Second, the 

proposed sublease violates the HHC Act because it empowers a for- 

profit corporation to decide what level and type of services to 

provide to the indigent. Finally, Defendants’ claim that this 

Court may not examine the terms of the transaction to determine 

its legality is utterly disingenuous and contrary to settled case 

law. 

 



  

ARGUMENT 
  

I. The Proposed Sublease of Coney Island Hospital to a For- 
Profit Corporation Violates the HHC Act 

The HHC Act provides that HHC is intended to fulfill an 

expressly public purpose: to restore the municipal health system 

and to protect and promote the health, welfare and safety of New 

York residents. HHC Act § 7382. The dispute underlying 

Plaintiffs’ third claim for relief is whether HHC is authorized 

by the HHC Act to transfer one of its eleven public hospitals to 

a private for-profit corporation both for the for-profit’s 

private use and to fulfill HHC'Ss statutory and the City’s 

constitutional obligation to provide indigent care to the poor. 

It is a long-held principle that public property held for a 

public use may not be diverted to a private body for private use 

without specific legislative authority. Meriwether v. Garrett, 
  

102 U.S. 472, 513, 26 L.Ed. 197 (1880) ("In its streets, wharves, 

cemeteries, hospitals, court houses, and other public buildings, 

the Iwanicioal] 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") (emphasis added); quoted in American Dock 

Co. v. City of New York, 174 Misc. 183, 21:N.Y.5.2d4 943, 957   

(Sup. Ct. N.Y. Co. 1940), aff'd, 261 App.Div. 1063, 26 N.Y.S.2d 

704, aff'd, 286 N.Y. 658, 36 N.E.2AQ 69¢ (1941); see also Lake 
  

George Steamboat v. Blais, 30 N.Y.2d 48,. 330 N.Y.8.2d4 335 (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."); Aldrich v. City of New York, 145   

N.Y.S.2d 732 (Sup. Ct. Queens Co. 1955). 

Here, New York City owns the property and has leased it to 

HHC to fulfill the public purpose of providing health care to New 

York City residents, and particularly, the indigent. HHC, as 

lessee of the property, is governed by the long-held principle; 

HHC may not divert Coney Island Hospital to PHS-NY to be operated 

as a for-profit hospital without specific legislative sanction. 

New York Courts have held that, because a municipality 

holding land in trust for public use possesses only those rights 

to land derived from the State legislature, the legislative 

authority permitting the transference of public land to private 

actors must be "clear and certain," Lake George Steamboat £0... 
  

330: N.Y.8.24 at 339, or "plainly conferred." Aldrich, 145 

N.Y.S.2d at 741; see also American Dock Co., 174 Misc. 813, 824,   

21 N.Y.S.2d 943, 965 (legislative authority must be "special"). 

Indeed, New York Courts have held that "When there is a fair, 

reasonable, and substantial doubt concerning the existence of an 

alleged power in a municipality, the power should be denied." 

Aldrich, 145 N.Y.S.2d at 741 citing Matter OF City of N.Y. (Piers 
  

Old Nog, 8-11), 228 N.Y. 140, i152, 126 N.E. 809, 812,   

In this case, the HHC Act governs the use of the public 

hospitals. Defendants have found nothing in the HHC Act to 

justify the transformation of Coney Island Hospital from a public  



to a private, for-profit hospital. Section 7385(8), 

unpersuasively relied on by Defendants, does not provide such 

sanction; it authorizes HHC to provide health and medical 

services through affiliation and other agreements or leases with 

"any person, firm or private or public corporation or 

association." HHC Act § 7385(8). In other words, HHC can, 

within its state mandate, permissibly contract with a for-profit 

corporation for a discrete set of services. The authority 

granted in § 7385(8) is clearly limited, however, to instances in 

which HHC establishes the parameters of the provision of health 

services with HHC’s public purpose underlying its decisions. 

This transaction is markedly different; it is the sublease of an 

entire heath facility to be operated and managed by the for- 

profit corporation. 

Section 7385(6) also does not provide legislative 

authorization for such a transformation. Under this section, HHC 

is empowered to acquire and to dispose of real property, 

including health facilities, "for its corporate purpose," 

provided that it holds a public hearing and obtains the consent 

of the board of estimate. HHC Act § 7385(6). By limiting 

dispositions to HHC's corporate purpose -- which is expressly 

public -- § 7385(6) precludes the transfer of Coney Island 

Hospital to a for-profit corporation which by law is required to 

operate the hospital for a private purpose: the profit of its  



shareholders. 

American Dock Society provides an example in which specific   

legislative authority existed for the transfer of public property 

to a private actor. In that case, the Court considered whether 

the City was empowered to lease or divert certain sections of the 

waterfront to private use. The Court rejected the notion that 

the general grant of authority to the City to control and 

administer the waterfront provided sufficient legislative 

authority for the City to transfer the operating authority to a 

private entity. However, the Court held that under another 

section of the Administrative Code, section B29, the City had 

authority to authorize private operation of the waterfront if 

certain express conditions were met. Section B29 was entitled 

"Private Operation" and provided for private operation of 

terminal facilities: 

if the board of estimate shall determine that municipal 
operation of any terminal facilities is inexpedient, it 
shall advertise for proposals for the privilege of . .. . {1) 
constructing, equipping and operating the same, or (2) for 
equipping and operating after construction by the city, or 
(3) for operating after construction and equipment by the 
City. 

American Dock Society, 21 N.Y.S.2d at 959 quoting N.Y.C.   

  

' Campaign Plaintiffs also agree with the Council plaintiffs 
that the dismantling and privatization of the public hospitals in 
general and the sublease of Coney Island Hospital in particular are 
inconsistent with HHC'’s corporate purpose and thus violate § 
7385(6). Section 7385(6) is a provision intended to enable HHC to 
both acquire health facilities and other real property it needs to 
fulfill its corporate purposes and to dispose of them and use the 
proceeds for its corporate purposes. See HHC ACL, 8.738744). Itc 
clearly does not address the procurement of services through the 
disposition of health facilities. 

  

5  



  

Administrative Code, § B29-9.0. That section went on to provide 

that the proposals shall "undertake to equip such facilities, 

unless equipment has been provided by the city, and to maintain 

and operate such terminal facilities for a period not exceeding 

twenty-five years." I4d.2 

The legislative authorization found in American Dock Society 
  

for the transfer of operating authority from the City to a 

private entity was very clear. Under a provision of the 

Administrative Code called "Private Operations," a transfer from 

municipal operation of the waterfront to private operation of the 

waterfront for a term of up to 25 years if certain other 

conditions were met was expressly authorized. In this case, 

defendants fail to point to such express authorization. Instead, 

Defendants merely make the rhetorical claim that it is "crystal 

clear" under the HHC Act that HHC may transfer an entire HHC 

facility to a for-profit corporation to be operated for a profit. 

The only section of the HHC Act that allows for a full 

transference of operating authority is § 7385(20) which provides 

that HHC may "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). Section 

7385(20) also provides that "no such subsidiary corporation shall 

be established for the purpose of operating a health facility or 

  

? The Court in that case found that the operating contract at 
issue failed to meet the express conditions set forth in B29. 
American Dock Society, 21 N.Y.S.2d at 959.   

6 

 



  

the delivery of direct patient care without the prior approval of 

Lhe mayor." HHC Act, $:7385(20). Thus, this section grants a 

wholly-owned subsidiary public benefit corporation the authority 

to operate and control entire facilities and to decide which 

health services are to be provided in lieu of HHC making such 

decisions but requires approval by the mayor. Consistent with 

the purpose of the HHC Act, this section limits the exercise of 

HHC’s purposes, powers, duties, functions and activities to a 

public benefit corporation which by law has the same public 

purpose as HHC itself. It is notable that § 7385 (20) requires 

mayoral approval while § 7385(8) has no such requirement. It is 

inconceivable that the HHC Act would set up an approval process 

for a subsidiary public benefit corporation to operate a health 

facility, but not "any person, firm or private or public 

corporation or association." HHC ACt, § 7385(8). 

Lacking specific authorization for this transaction in the 

HHC Act, Defendants may not transfer Coney Island Hospital to a 

private corporation. The proposed transfer is ultra vires. 

II. The Proposed Sublease Violates the HHC Act Because It 
Empowers a For-Profit Corporation to Decide What Level and 
Type of Services to Provide to the Indigent 

Defendants argue that "while HHC provides care to the 

indigent, it has no statutory or constitutional obligation to 

provide a particular level of care or particular types of 

services to a particular number of indigent patients at any 

particular facility -- including [Coney Island Hospital] ." 

Defendants’ Supplemental Reply Memorandum at 4. Defendants’ 

 



  

callousness to the health care needs of the indigent aside, this 

argument is an attempt to evade Campaign Plaintiffs’ point in itn 

opening Memorandum: While HHC clearly has authority to determine 

the manner of care and services to provide to fulfill ics 

corporate purposes, HHC does not have authority to transfer to 

PHS-NY -- a for-profit corporation -- the authority to make those 

decisions.’ Campaign Plaintiffs’ Supplemental Reply Memorandum   

aL 9-10. 

Not only do the cases Defendants cite fail to support their 

proposition that under the HHC Act, HHC can transfer total 

decision-making authority for the care of tens of thousands of 

South Brooklyn residents to a for-profit corporation for a term 

of up to 198 years, none even address claims for hospital care 

under the HHC Act. See Jackson Vv. HHC, 419 F, Supp. 809   

(S.D.N.Y. 1976) (Court held that it lacked jurisdiction over 

state claims since it had dismissed the federal claims); Love v. 

Koch, 161 A.D.2d 209 (1st Dep’t 1990) (Court dismissed claim for 

residential care for mentally ill holding that only necessary 

hospital care is guaranteed by Article XVII § 4 of the New York 

  

® Defendants’ argument that the right conferred upon PHS-NY 
to "manage access to care" is tantamount to the difficult decisions 
that HHC must make in attempting to fulfill its constitutional and 
statutory obligation to provide care to the poor 1s wrong. 
Defendants’ Supplemental Reply Memorandum at 4. The Affidavit of 
Judith Wessler, M.P.H., notes that the proposed sublease grants 
PHS-NY the right to "manage access to care" once PHS-NY has spent 
115% of Coney Island Hospital’s current outlay on the indigent. In 
other words, PHS-NY legally can refuse care to the indigent. While 
HHC must of course make difficult decisions about how to provide 
care within its budget, as a public hospital it can never turn 
people away because they lack the funds to pay for their care. 

8 

 



  

State Constitution); Klosterman Vv. cuomo,. 126 Misc.2d4.247, 251   

(Sup. Ct. N.Y. Co. 1934) (same) . 

III. This Court Has Authority to Examine the Terms of the 
Proposed Sublease to Determine if it Complies with the HHC 
Act 

  

Campaign Plaintiffs contended in their Supplemental Reply 

Memorandum that (1) the proposed sublease of Coney Island 

Hospital to PHS-NY is illegal under the HHC Act; and (2) the 

terms of the proposed sublease fail to guarantee access to care 

for the poor in violation of the HHC Act. Inexplicably, 

Defendants claim that these contentions "deal with the wisdom, 

rather than the lawfulness of the transaction, and are thus 

irrelevant to this proceeding." Defendants’ Supplemental 

Memorandum of Law at 6. Quite obviously, Campaign Plaintiffs’ 

arguments go to the legality of the proposed sublease under the HHC 

Act, and not to the wisdom of the proposed sublease. 

Campaign Plaintiffs’ challenge the "choice" of PHS-NY as a   

sublessee by comparing the purpose for which HHC was formed with 

the purpose for which PHS-NY was formed. See New York State 

Constitution, Article XVII, 85.3 & 4; HHC Act § 7382; HHC Lease, 

Article II, 8.2.1; HHC By-Laws, Article II (B); Alpert v. 28 
  

William Street Corp., 124 Misc.2d 512, 478 N.Y.8.24 443, 449   

(N.Y. Co. 1983); see algo 1 J.D. Cox et al., Corporations § 1.2   

(1995) (defining business corporation as an association of 

persons "in a business enterprise with the object of economic 

gain"). The disjuncture between the purposes for which a public 

benefit corporation such as HHC was formed and the purposes for 

9 

 



  

which a for-profit, shareholder owned corporation such as PHS-NY 

was formed is the legal basis upon which Campaign Plaintiffs 

challenge the "choice" of PHS-NY as a sublessee. 

Even outside of the "for-profit" corporation issue, the 

proposed sublease between HHC and PHS-NY is ultra vires under the HHC 

Act because it jeopardizes the provision of care bo the poor in 

Brooklyn and thus fails to fulfill the purpose for which HHC was 

created. In order for this issue to be resolved, the Court must 

examine the terms of the proposed sublease.* Contrary to the 

inapposite cases cited by Defendants, such an examination is not 

outside of the purview of the Court since a contract that 

violates the HHC Act is outside of HHC'’s corporate purposes. 

Leider v. Beth Israel Hospital, 33 Misc.2d 3,6 (Sup. Ct.   

N.Y.Co.) ("courts may not interfere in the internal management of 

corporations in the absence of fraud or bad faith, if kept within 

corporate powers .") (emphasis added), aff’d, 13 A.D.2d 746 (1st 

Dep't), aff'd, 11 N.Y.24 205 (1962); see, e.qg., American Dock 
  

  

4 Defendants also misconstrue Campaign plaintiffs’ 
contentions that the proposed sublease violates the HHC Act for 
failing to insure adequate health care for the indigent. First, 
while the proposed sublease requires PHS-NY to pay for charity care 
at 115% of Coney Island Hospital’s current costs, that number is 
not related to services provided or patients cared for. As noted 
in the Affidavit of Judith B. Wessler, M.P.H., "PHS-NY could 
inflate the reported costs of indigent care by outsourcing 
services, thereby more easily meeting the ‘trigger point’ while 
treating fewer indigent patients." Wessler Aff. at 9. Second, as 
stated in the Wessler Affidavit, the requirement that PHS-NY is 
obligated to maintain all "core services" is meaningless because 
the list of "core" services contained in the proposed sublease 
specifies the categories by department, not service. Wessler Aff. 
at 14-15. 

  

10 

 



» » 
Society, 21 N.¥.S5.2d at 959 (finding that the operating contract 

  

for the private operation of the waterfront is invalid because 

its terms violate Administrative Code § B29.) 

CONCLUSION 
  

For the foregoing reasons, it is respectfully requested that 

Defendants’ motion for summary judgment be denied, and 

Plaintiffs’ cross-motion for summary judgment be granted, 

together with such other and further relief as the Court shall 

deem just and proper. 

Dated: New York, New York 

January 3, 1998 

RESPECTFULLY SUBMITTED, 

KENNETH KIMERLING 

PUERTO RICAN LEGAL DEFENSE & 
EDUCATION FUND, INC. 

99 Hudson St., 14th Floor 
New York, New York 10013 

(212) 219-3360 

ELAINE R. JONES 
Director-Counsel 
NORMAN CHACHKIN 
MARIANNE L. ENGELMAN LADO 
RACHEL D. GODSIL 

NAACP LEGAL DEFENSE & EDUCATIONAL 
FUND, INC. 

99 Hudson St., 16th Floor 
New York, New York 10013 

(212) 219-1900 

BARBARA OLSHANSKY 
CENTER FOR CONSTITUTIONAL RIGHTS 
666 Broadway, 7th Floor 
New York, New York 10012 

’ (212) 664-6464 

ATTORNEYS FOR PLAINTIFFS 

11