New York State Court of Claims

New York State Court of Claims



Case Information

Claimant short name:
Footnote (claimant name) :

Footnote (defendant name) :

Third-party claimant(s):

Third-party defendant(s):

Claim number(s):
Motion number(s):

Cross-motion number(s):

Claimant's attorney:
Defendant's attorney:
BY: Ellen S. Mendelson, Esq. Assistant Attorney General
Third-party defendant's attorney:

Signature date:
March 29, 2002

Official citation:

Appellate results:

See also (multicaptioned case)

This claim alleges eight separate causes of action and seeks damages from the defendant flowing from the alleged release of confidential information to one of Claimant's customers which resulted in the termination of an at will contract (Exhibit 1, ¶ 2). At trial, Claimant advanced its claim on two theories: the alleged tortious interference with prospective business advantage by the defendant and for violation of Civil Rights Law § 73(8).[1]
Claimant alleges the interference resulted in over $900,000.00 in lost profits. The plenary trial of this claim took place in the New York District over the course of seven days.
The Claimant, Hospital Receivable Systems, Inc. (HRS) is a New York corporation engaged in the business of providing collection services to hospitals. HRS was formed in 1986 (T-119) and provided inpatient Code 4[2]
collection services for metropolitan [New York] hospitals. This Claim has its origins in an investigation conducted by the Medicaid Fraud Control Unit, Hospital Division (MFCU) of the Attorney General's office "as part of a general inquiry into vendors of goods and services to hospitals." (Exhibit 28). On or about July, 1987, HRS voluntarily (T-665) agreed to an examination of its records by representatives of the MFCU (Exhibit 28). Subsequent to this examination, Special Assistant Attorney General Francis R. Johnson (Johnson) became involved in an ongoing criminal investigation and reviewed the information obtained pursuant to HRS' voluntary appearance before the MFCU. Thereafter, in a series of conversations with outside counsel for Catholic Medical Center (CMC), an HRS client, regarding conflicts of interest, Johnson interjected HRS' name. It is these conversations which form the basis for this Claim, as it was subsequent to said conversations that CMC discharged HRS as one of its collections agents.
Interference with prospective advantage is closely akin to the tort of interference with contract; however, the former requires proof of more culpable conduct on the part of the defendant (
NBT Bancorp Inc. v Fleet/Norstar Financial Group, Inc., 87 NY2d 614, 641 NYS2d 581, 664 NE2d 492; BGW Development Corp. v Mount Kisco Lodge No. 1552 of Benev. and Protective Order of Elks of the United States of America, Inc., 247 AD2d 565, 669 NYS2d 56; Jurlique, Inc. v Austral Biolab Pty., Ltd., 187 AD2d 637, 590 NYS2d 235).
The elements of interference with prospective advantage are (1) the defendant must have known of the proposed contract between the plaintiff and the other party, (2) the defendant must have intentionally interfered with the proposed contract, (3) the proposed contract would have been entered into but for the defendant's interference, (4) the defendant's interference was done by wrongful means, and (5) the plaintiff suffered damage as a result (
NBT Bancorp Inc. v Fleet/Norstar Financial Group, Inc., 87 NY2d 614, supra; Guard-Life Corp. v S. Parker Hardware Mfg. Corp., 50 NY2d 183; A.S. Rampell, Inc. v Hyster Co., 3 NY2d 369).
Initially, Claimant correctly asserts that a contract terminable at will or a voidable contract may be the subject of an interference with prospective advantage action, provided the interference occurs by wrongful means
(see, A.S. Rampell, Inc. v Hyster Co., 3 NY2d 369, supra; Lawrence-Picaso, Inc. v Cosme, 228 AD2d 392. Contracts which are unenforceable (Pepitone v Sofia, 203 AD2d 981) or violative of the Statute of Frauds (Felicie, Inc. v Leibovitz, 67 AD2d 656) may likewise support an action for interference with prospective advantage provided there is wrongful means, such as fraud, threats, or the violation of a duty owed to plaintiff by virtue of a confidential relationship (see, Miller v Richman, 184 AD2d 191; 72 NY Jur 2d, Interference).
Thus, although a claimant asserting an interference with prospective advantage claim need not prove that a contract existed or prove actual breach, the claimant is required to show that wrongful means were employed by the defendant.
In analyzing this claim, there can be no dispute that Claimant has satisfied the first element of the cause of action; namely, Defendant's knowledge of the business relationship, and the Court so finds. The two highest hurdles for Claimant to clear are whether wrongful means was utilized and the element of causation.

The Court will begin with the element of causation. Claimant relies on the case of
Concert House, Inc. v Brandt, 36 AD2d 172 for the proposition that the applicable standard is whether "the Court may reasonably infer that the disclosure was a substantial factor in causing the termination" (Claimant's Post-Trial Brief, p. 33 [emphasis added]). The Court does not agree. Concert House involved a dispute among the recording artist Jay and the Americans and past and present members of its management team. In reversing a grant of summary judgment, the Appellate Division held that for liability to be found the defendant must cause interference with contract; "[i]t is not enough that he merely has reaped the advantages of the broken contract after the contracting party has withdrawn from it of his own motion" (Concert House, Inc. v Brandt, 36 AD2d 172, 173, supra). This holding does not suggest the substitution of a substantial factor test for the long accepted 'but for' test (see, Bryce v Wilde, 39 AD2d 291, 293, affd 31 NY2d 882). Further support for this conclusion is found in the thorough analysis of the issue in Mina Investment Holdings Ltd. v Lefkowitz, 184 F.R.D. 245 where the District Court examined New York and Second Circuit cases at length and concluded the cases "do not support the conclusion that 'but for' causation is no longer a viable requirement under New York law" (Id., at 252).
The record evidence establishes that CMC's Rinaldi made the business decision to terminate HRS based upon "a number of events" (Exhibit D, p. 25) including a newspaper article regarding HRS's La Sala's guilty plea (Id., at p.26). Rinaldi downplayed the effect the conflict of interest disclosure had on his business decision. Notwithstanding the apparent convenience of Rinaldi's testimony, the Court credits that testimony. Neither the testimony of CMC's outside counsel (
see, Court Exhibits 3 and 3A ), nor the testimony of Joseph Cianciotto, an administrator at CMC (T - 393), casts any doubt on Rinaldi's testimony.
When the Court applies the "but for" standard to the facts as found, the Court finds that Claimant has not sustained its burden of proof and established by a preponderance of the credible evidence that, assuming
arguendo, Defendant's conduct constituted wrongful means, but for such conduct CMC would not have terminated its business relationship with HRS.
Claimant's remaining cause of action is premised on Claimant's argument that the information gained about HRS, was acquired pursuant to MFCU acting pursuant to Executive Law §63(8) and its subsequent release by Johnson was in violation of Civil Rights Law §73(8). This requires the Court to determine in the first instance whether a Claimant may assert a private right of action under Civil Rights Law §73(8).

The test of whether a private right of action may be implied involves three factors:

"(1) whether the plaintiff is one of the class for whose particular benefit the statute was enacted; (2) whether recognition of a private right of action would promote the legislative purpose; and (3) whether creation of such a right would be consistent with the legislative scheme". (Carrier v Salvation Army, 88 NY2d 298, 302.) Claimant, as the one seeking to pursue the private right of action, bears the burden of meeting that test (Gomariz v Foote, Cone & Belding Communications, Inc., 228 AD2d 316). To be certain, a private right of action will generally be found not to exist where the Legislature has otherwise provided for public enforcement of the law (see, e.g., Carrier v Salvation Army, supra; see also, McDonald v Cook, 252
AD2d 302; Larson v Albany Medical Center, 252 AD2d 936).
In this case, there is little question that Claimant satisfies the first two elements - HRS was clearly within the class of people for whose particular benefit the code was created and an argument could be made that recognizing a private right of action would promote the legislative purpose. However, claimant cannot overcome the third factor, which is the "most critical" (
Brian Hoxie's Painting Co. v Cato-Meridian Cent. School Dist, 76 NY2d 207, 212). As to the third factor, it is settled law that a private cause of action should not be implied from a statute if such a remedy would be incompatible with the enforcement mechanism chosen by the Legislature, for "the Legislature has both the right and the authority to select the methods to be used in effectuating its goals" (Sheehy v Big Flats Community Day, 73 NY2d 629, 634).
In this Court's view, the Legislature's specific inclusion of only the criminal sanction within subdivision eight is not the silence from which the Court may imply a private right of action. Rather, it is an express election by the legislature of the method to be used in enforcing the section (
see, Yanicki v State, 174 Misc 2d 149 [presence of criminal sanction does not suggest civil remedy]; Stoganovic v Dinolfo, 92 AD2d 729, affd 61 NY2d 812 [logical inference from this omission is that the legislature did not intend a civil action]); see also, Larson v Albany Medical Center Hospital, 252 AD2d 936 supra, [public policy, coupled with the failure to give expression either in Civil Rights Law § 79- i[3] or in the legislative commentary attendant on its passage to the inclusion of a private cause of action supported determination of no private right of action]). Moreover, the Legislative history cited by claimant, indicates that the purpose of the statute was to protect the integrity of government and the investigatory process and to provide within the hearing process a procedure for witnesses to reply (accord, Gomariz v Foote, Cone & Belding Communications, 228 AD2d 316 [ purpose was to provide for the adequate functioning of the jury system and not to compensate employees terminated for fulfilling jury duty]). Just as the Court in Yanick concluded, the statutory scheme of §73 does not imply the existence of a private remedy for breach of its confidentiality provision (see also, Lawrence v State of New York, 180 Misc 2d 337, 341 [not every wrong gives rise to a private civil remedy, denying such action under personal privacy protection law]).
Accordingly, and for the foregoing reasons, the Court does not imply a private right of action arising from Civil Rights Law §73(8).

arguendo the Court were to find a private right of action, Claimant has failed to sustain its burden of proof that the information gained, and released, was acquired pursuant to 63(8) and therefore protected by Civil Rights Law §73(8). Civil Rights Law § 73 (8), prohibits release of certain information "by said agency, its counsel or employees without the approval of the head of the agency." The word agency, as pertinent in this claim, is defined as "the attorney general acting pursuant to subdivision eight of section sixty-three of the executive law" (Civil Rights Law §73[1][a]). Simply put, and notwithstanding Claimant's arguments to the contrary, the Court does not find that Claimant sustained its burden of proof in establishing that Johnson's actions were taken under the authority of §63(8). The uncontradicted testimony from Johnson (T-635-636) and supported by William Shields, Johnson's supervisor, was that the MFCU and Johnson acted only as a criminal investigatory unit pursuant to Executive Law § 63(3) (T-588-589)[4]. As such, Claimant has failed to establish, by a preponderance of credible evidence, that HRS was damaged as a result of the wrongful conduct on the part of the State and the Claim is therefore dismissed.
The Court has reviewed the parties proposed Findings of Fact and Conclusions of Law and has incorporated into this decision those Findings of Fact and Conclusions of Law it deems essential to this decision in compliance with CPLR 4213(b).
All motions not heretofore ruled upon are hereby denied.[5]

March 29, 2002
Albany, New York

Judge of the Court of Claims

[1] Claimant at trial and in its post-trial submissions has distilled its causes of action to 1) tortious interference with advantageous business relation and 2) breach of statutory duty (see, T-2, et seq; Claimant's Post trial Reply Brief, p 2). In the alternative, claimant urges the Court to find a state constitutional tort (T-12; Claimant's Post-trial Brief). The Court has previously rejected Claimant's assertion of a state constitutional tort in this claim (Decision and Order, M-57932, Read, J. 12/30/98).
[2] Code 4 collection services refers to Medicaid eligibility and the paperwork necessary to establish and collect payment on a claim.
[3] Civil Rights Law §79-i expressly provided that a violation of said statute was a misdemeanor.
[4] Joan Wellstead, an auditor/investigator in the MFCU, also confirmed the nature of the work performed (T-555, 557).
[5] With specific regard to Claimant's motion to renew/ conform the pleadings to the proof to allege a state constitutional tort, this court finds no basis to disturb the earlier ruling in this case of Presiding Judge Read denying such relief, see footnote 1. In Martinez v City of Schenectady, 97 NY2d 78 the Court of Appeals reaffirmed such cause of action is a narrow remedy.