Opinion
CV19-0417
12-30-2019
In the Matter of Padraig POWER, Petitioner, v. OLYMPIC REGIONAL DEVELOPMENT AUTHORITY, and Michael Pratt, in his official capacity as Chief Executive Officer and President of the Olympic Regional Development Authority, Respondents.
Joshpe Mooney & Paltzik LLP (Edward A. Paltzik, Esq., of counsel), New York, New York, for Petitioner. Letitia James, Esq., Attorney General of New York State (Christopher J. Fleury, Esq., Assistant Attorney General, of counsel), for Respondents.
Joshpe Mooney & Paltzik LLP (Edward A. Paltzik, Esq., of counsel), New York, New York, for Petitioner.
Letitia James, Esq., Attorney General of New York State (Christopher J. Fleury, Esq., Assistant Attorney General, of counsel), for Respondents.
Richard B. Meyer, J.
This is a combined CPLR article 78 proceeding and declaratory judgment action seeking a determination that the respondent Olympic Regional Development Authority (ORDA) is obligated to indemnify the petitioner, Padraig Power (Power), for costs and expenses, including attorneys' fees, incurred by him in defending criminal charges and obtaining documents from ORDA necessary for his defense.
The Court has considered the following papers: notice of petition dated August 19, 2019, petition verified by Edward A. Paltzik, Esq. dated August 19, 2019 with exhibits A through S; respondents' answer and return dated October 24, 2019 with exhibits A through I, the latter exhibit being an affidavit of David McKillip, ORDA's Director of Human Resources, sworn to October 22, 2019 with exhibits 1 through 3 thereto, and a letter memorandum of law dated October 24, 2019, all in opposition to the petition; letter memorandum of law dated November 20, 2019 from Edward Paltzik, Esq. in response to the answer and in further support of the petition.
Power is the former director of finance and internal controls at ORDA, a public authority established in 1981 (Public Authorities Law art.8, title 28 ). He served in that position from June 2012 until July 2017 when he was terminated from employment following an investigation by ORDA and the office of the New York State Inspector General (SIG), for allegedly charging improper expenses to ORDA credit cards, primarily for food and alcohol. Power had been served with a written statement of disciplinary charges on April 13, 2017 and suspended without pay pending a hearing to be held on May 12, 2017. The charges detailed a number of credit card charges, some in the hundreds of dollars, during the period of March 3, 2016 through February 7, 2017, and which are summarized below :
Answer and Return exhibit D.
$710.69 — lunch meals and alcoholic beverages
$ 4,647.48 — expenses lacking sufficient documentation
$ 2,564.68 — alcohol purchases
$227.19 — alcohol purchase on 12/22/16 for "Board Meet"
$ 8,150.34
Power served a written answer to the charges denying the allegations and demanding further specification and documents. No disciplinary hearing was held and Power was ultimately terminated from employment in early July 2017, apparently retroactive to April 13, 2017. At or about the same time in July, ORDA modified its policies for, among other things, credit card use, procurement, purchasing, travel and entertainment. These changes reveal that prior to July 2017 ORDA did not have a complete ban on the purchase of alcoholic beverages since it was only at that time that ORDA implemented
"changes [which] expand on ORDA's ban on using ORDA funds to pay for alcohol(unless for an ORDA sanctioned event) and clarified policy on ORDA's alcohol/controlled substance in the workplace policy (that it extends outside of normal working hours where staff are representing ORDA)."
Petition exhibit G, page 2 of McKillip memorandum dated July 12, 2017. ORDA has not provided copies of its policies on credit card use, procurement or purchasing, as those policies existed either prior to or after these changes.
(italics added).
Approximately one year later, Power was charged with the criminal offenses of grand larceny in the third degree ( Penal Law § 155.35 ), a class D felony, and official misconduct ( Penal Law § 195.00[1] ), a class A misdemeanor, in local criminal court . As a result of that criminal action and while it was pending, Power and his defense counsel embarked on a sustained and mostly unsuccessful effort to obtain certain documents from ORDA which they claimed were essential to Power's defense of the criminal charges . This effort included the commencement of a separate proceeding under CPLR article 78 to compel ORDA, the respondent Michael Pratt (Pratt), ORDA's Chief Executive Officer and President, and other ORDA employees and state officials to produce those documents under the Freedom of Information Law (Public Officers Law art. 6 ) (FOIL). This Court was sufficiently concerned about the delays in ORDA's and SIG's compliance with Power's FOIL requests, as well as the insufficiency of ORDA's and SIG's claims of exemption from disclosure under FOIL, that by a decision and order dated March 28, 2019 ORDA and SIG were directed to immediately turn over to Power's counsel certain records and a hearing was scheduled at which ORDA was to produce witnesses. Also, ORDA and SIG were directed to provide, prior to the hearing, for this Court's in camera review all of the remaining documents sought by Power and to which ORDA and SIG claimed an exemption from FOIL.
Petition exhibit H.
Petition exhibit I.
Essex County Clerk Index No. CV19-0045.
Unbeknown to this Court, however, at the time of the foregoing decision was that Power had resolved the criminal prosecution against him on March 21, 2019 by pleading guilty to disorderly conduct ( Penal Law § 240.20 ), a violation. As part of his sentence, Power was required to pay $8,026.53 in restitution to ORDA despite the fact that the accusatory instruments only alleged that he used three ORDA credit cards to make unauthorized purchases totaling $6,338.32 . Additionally, prior to the hearing scheduled by this Court, the parties entered into a stipulation of settlement of the FOIL article 78 proceeding. The stipulation provided, inter alia , for the payment by ORDA to Power's attorney of the sum of $10,000.00 in "reasonable attorneys' fees, costs and disbursements" in exchange for a release by Power "of any and all claims, demands, or causes of actions, known or unknown, for the [article 78 proceeding] relating to the Freedom of Information (‘FOIL’) requests made by [Power] and the costs and expenses associated with the processing of such FOIL requests (the ‘Matter’)." The stipulation also stated that "[n]othing herein shall constitute a release of any claims, demands, or causes of action against any of the parties, named or unnamed, for any other matters excluding the Matter", and that the terms and conditions of the stipulation "shall have no legal precedential value in any other case either between the parties to this case or any other parties."
It is unclear what actions on the part of Power constituted the basis for a plea to disorderly conduct.
Answer and Return exhibit G. The restitution amount is different from the $8,150.34 in expenses alleged in the disciplinary charges to have been improperly charged by Power to an ORDA credit card and which apparently formed the bases for his discharge from employment with ORDA. It is unclear whether there is any correlation between those two amounts.
Petition exhibit H.
Exhibit O to the petition.
On April 4, 2019, Power's attorney sent a letter to Pratt demanding indemnification of Power for expenses, including attorneys' fees, incurred in defending the criminal charges. Power's demand for indemnification is premised upon ORDA's Employee and Directors Liability Policy (the "indemnification policy"), which provides
Petition exhibit R; Answer and Return exhibit F.
"The Authority agrees at its sole cost and expense to indemnify and hold harmless the members, officers and employees of the Authority from all costs and liabilities of every kind and nature as provided in the by-laws. All members, officers and employees of the Authority while acting in behalf of the Authority are entitled to the fullest extent of indemnification permitted by law, included but not limited to, attorneys' fees, disbursements, costs and settlement amounts."
ORDA adopted this policy to comply with the requirement in Public Authorities Law § 2824(1)(e) and (f), applicable to all public authorities, that ORDA's board of directors "establish written policies and procedures on personnel ..." and "adopt a defense and indemnification policy and disclose such plan to any and all prospective board members." Nothing in that statute required ORDA to cover persons other than board members. Nonetheless, ORDA included all "the members, officers and employees of the Authority" in its indemnification policy. In furtherance of the indemnification policy, ORDA procured a claims-made not-for-profit organizations management liability package policy of insurance (management liability coverage) from Allied World Specialty Insurance Company ("AWSIC") which insured not only all board members but all officers and employees as well .
Exhibit E to Answer and Return, endorsement No. 13, page 2, paragraph 4. "Employee" is defined as a "person who was, now is, or shall be come a full-time, part-time, seasonal, temporary employee or intern of [ORDA], including any staff or faculty member (salaried or non-salaried) but only while that person is acting in their capacity as such".
Power's attorney sent follow-up emails to Pratt and to ORDA's attorneys on June 3, 4, 11 and 18, 2019 and a letter to one of ORDA's attorneys on July 11, 2019. By letter dated July 12, 2019, ORDA's chief counsel responded to Power's attorney, not by denying Power's right to indemnification under ORDA's indemnification policy but instead by advising that the indemnification demand had been forwarded to ORDA's insurance carrier and that ORDA had made no determination on Power's demand for indemnification.
When no answer was received by mid-August, Power commenced this joint proceeding and action on August 19, 2019 seeking a judgment pursuant to CPLR article 78 or, alternatively, a declaratory judgment under CPLR § 3001, determining that by reason of the indemnification policy ORDA is legally obligated to indemnify him for his attorneys' fees and expenses incurred in his defense of the dismissed criminal charges. On October 17, 2019, while this combined proceeding and action was pending, ORDA's chief counsel sent a letter to Power's attorney stating that "ORDA is denying Mr. Power's demand for indemnification based on the October 2019 denial of coverage by its insurer" and "disput[ing] that it has any duty to provide Mr. Power with indemnification" "outside of the scope of insurance [and] apart from any relevant legal obligations that may exist under Public Officers Law Article 2 ..."
Exhibit H to Answer and Return.
ORDA and Pratt correctly assert that the provisions of the Public Officers Law § 17, § 18 and § 19 do not apply to Power's claim. Although the protections afforded by § 17 are available to ORDA employees by virtue of Public Authorities Law § 2623(2), those protections apply only to "the defense of the employee in any civil action or proceeding in any state or federal court ..." ( Public Officers Law § 17[2] ), and do not apply to indemnification for attorneys' fees incurred by a state employee in the successful defense of criminal charges ( Wassef v. State , 98 Misc 2d 505, 414 N.Y.S.2d 262 [Ct. Cl., 1979], aff'd Naim Wassef v. State , 73 AD2d 848, 422 N.Y.S.2d 550 [2d Dept., 1979] ). Defense and indemnification under § 19 have not been extended to ORDA employees by Public Authorities Law § 2623 and are not specifically included within the definition of the term "employee" as used in that statute. There is also no evidence or claim that Power timely filed a proper request for defense or indemnification as required by § 17 or § 19. However, § 17 and § 19 each go on to provide that "the provisions of this section shall not be construed in any way to impair, alter, limit, modify, abrogate or restrict ... any right to defense and/or indemnification provided for any governmental officer or employee by, in accordance with, or by reason of, any other provision of state or federal statutory or common law." ( Public Officers Law § 17[9], § 19[4] ). Thus, the rights of defense and indemnification under both of those statutes are not exclusive.
As to Public Officers Law § 18, ORDA has not adopted a local law, bylaw, resolution, rule or regulation specifically conferring the benefits of that section upon its employees and agreeing to be held liable for the costs incurred under that section" (see, Public Officers Law § 18[2][a] ). This is not dispositive of Power's claims because it is only by the proper adoption of such a local law, bylaw, resolution, rule or regulation those benefits and liabilities would "be in lieu of and take the place of defense or indemnification protections accorded the same employees by another enactment ..." ( Public Officers Law § 18[12] ).
Instead, Power's right to indemnification for the attorneys' fees incurred in successfully defending the criminal charges rests upon ORDA's indemnification policy. "Private contractual rights are created by municipal resolution only where the language of the resolution and the attendant circumstances clearly manifest the intent to create such rights (see Matter of Weaver v. Town of N. Castle , 153 AD3d at 534, 60 N.Y.S.3d 236 ; Matter of Handy v. County of Schoharie , 244 AD2d at 843, 665 N.Y.S.2d 708 ; see also Matter of Lippman v. Board of Educ. of Sewanhaka Cent. High School Dist. , 66 NY2d 313, 319, 496 N.Y.S.2d 987, 487 N.E.2d 897 [1985] )." ( Bruckman v. New York State Thruway Auth. , 159 AD3d 1177, 1178-1179, 73 N.Y.S.3d 625, 627 [3d Dept., 2018] ). Although ORDA obtained insurance coverage, the language of ORDA's indemnification policy does not limit its obligation to defend and indemnify to the available insurance coverage. Under the circumstances here, ORDA's indemnification policy is not rendered inapplicable to Power's claims merely because AWSIC denied coverage under the management liability policy. There is no assertion by ORDA, or any evidence, that ORDA's indemnification policy has been modified or rescinded.
"A contract is of course interpreted so as to effectuate the intention of the parties as expressed in the unequivocal language used. In particular, ‘[w]hen a party is under no legal duty to indemnify, a contract assuming that obligation must be strictly construed to avoid reading into it a duty which the parties did not intend to be assumed" ( Hooper Assocs. v. AGS Computers , 74 NY2d 487, 492, 549 N.Y.S.2d 365, 548 N.E.2d 903, citing Levine v. Shell Oil Co. , 28 NY2d 205, 211, 321 N.Y.S.2d 81, 269 N.E.2d 799 ; Kurek v. Port Chester Hous. Auth. , 18 NY2d 450, 456, 276 N.Y.S.2d 612, 223 N.E.2d 25 )." ( Weissman v. Sinorm Deli, Inc. , 88 NY2d 437, 446, 646 N.Y.S.2d 308, 312, 669 N.E.2d 242, 246 [1996] ). Here, the express language of ORDA's policy could not be broader as it commits ORDA to indemnify "[a]ll members, officers and employees of the Authority while acting in behalf of the Authority ... to the fullest extent of indemnification permitted by law, included but not limited to, attorneys' fees, disbursements, costs and settlement amounts ." (italics added). ORDA's indemnification obligation is thus proscribed by that which is illegal or violates public policy.
The rule in Rosado v. Proctor & Schwartz, Inc. , 66 NY2d 21, 24-25, 494 N.Y.S.2d 851, 854, 484 N.E.2d 1354, 1356-1357 (1985) that, "[a] party who has settled and seeks what it characterizes as indemnification thus must show that it may not be held responsible in any degree", does not apply here. This rule is applicable only in cases of implied indemnity, not contractual indemnity (see, Gibbs-Alfano v. Burton , 281 F.3d 12, 19-20 [2d Cir., 2002] ).
"The State likewise has an undisputed compelling interest in ensuring that criminals do not profit from their crimes. Like most if not all States, New York has long recognized the ‘fundamental equitable principle,’ Children of Bedford v. Petromelis , 77 NY2d, at 727, 570 N.Y.S.2d, at 460, 573 N.E.2d, at 548, that ‘[n]o one shall be permitted to profit by his own fraud, or to take advantage of his own wrong, or to found any claim upon his own iniquity, or to acquire property by his own crime." Riggs v. Palmer , 115 NY 506, 511—512, 22 N.E. 188, 190 (1889). The force of this interest is evidenced by the State's statutory provisions for the forfeiture of the proceeds and instrumentalities of crime. See N.Y.Civ.Prac.Law §§ 1310 — 1352 (McKinney Supp.1991 )." ( Simon & Schuster, Inc. v. Members of New York State Crime Victims Bd. , 502 U.S. 105, 119, 112 S. Ct. 501, 510, 116 L. Ed. 2d 476 [1991] ).
"Indemnification agreements are unenforceable as violative of public policy only to the extent that they purport to indemnify a party for damages flowing from the intentional causation of injury ( Public Serv. Mut. Ins. Co. v. Goldfarb , 53 NY2d 392, 400, 442 N.Y.S.2d 422, 425 N.E.2d 810 )." ( Austro v. Niagara Mohawk Power Corp. , 66 NY2d 674, 676, 496 N.Y.S.2d 410, 410, 487 N.E.2d 267, 267 [1985] ) because "to allow such indemnity would be to violate the ‘fundamental principle that no one shall be permitted to take advantage of his own wrong’. ( Messersmith v. American Fid. Co. , 232 NY 161, 165, 133 N.E. 432, supra . )." ( Pub. Serv. Mut. Ins. Co. v. Goldfarb , 53 NY2d 392, 400, 442 N.Y.S.2d 422, 427, 425 N.E.2d 810, 814-815 [1981] ). Indemnification for punitive damages also violates public policy and is prohibited (see, Biondi v. Beekman Hill House Apartment Corp. , 94 NY2d 659, 663, 709 N.Y.S.2d 861, 863, 731 N.E.2d 577, 579 [2000] ).
Conversely, and as relevant here, it is clear that indemnification for attorneys' fees incurred in successfully defending criminal charges does not violate public policy. Public Officers Law § 19, specifically imposes a duty upon the state "to pay reasonable attorneys' fees and litigation expenses incurred by or on behalf of an employee in his or her defense of a criminal proceeding in a state or federal court arising out of any act which occurred while such employee was acting within the scope of his public employment or duties upon his acquittal or upon the dismissal of the criminal charges against him ..." (italics added) ( Public Officers Law § 19[2][a] ). Power was not convicted of a crime — disorderly conduct is neither a crime ( Penal Law § 10.00[6] ; § 240.20 ) nor a lesser included offense of either grand larceny or official misconduct — and there is no evidence before this Court establishing that the restitution paid by Power represented his own personal gain or intentional malfeasance.
Power claims that all of the alleged improper expenses charged to ORDA credit cards were not only authorized, directed and/or approved by his ORDA superiors but also incurred solely for ORDA purposes. Power, as the "internal control officer", reported to the head of the authority" ( Public Authorities Law § 2931[4] ), presumably either the chairman of ORDA's board of directors or the chief executive officer and president. The allegations in the petition that all of the disputed credit card charges were made pursuant to the authorization and direction of ORDA's chief executive officer and president and in the ordinary course of ORDA's business operations, and that Power did not personally benefit therefrom, though denied by ORDA in its answer and return, are unrefuted. "The respondent shall also serve and submit with the answer affidavits or other written proof showing such evidentiary facts as shall entitle him to a trial of any issue of fact." ( CPLR § 7804[e] ). Despite possessing all of the documentation relating to the disputed charges, including approvals, if any, by ORDA's president and chief executive officer, chairman of the board, audit committee and/or board of directors, none have been included in the respondents' return.
The board members of all public authorities are required to "execute direct oversight of the authority's chief executive and other management in the effective and ethical management of the authority" ( Public Authorities Law § 2824[1][a] ). ORDA's bylaws, as amended and effective on and after August 28, 2012, required its board to establish an audit committee comprised of three members to audit the authority's finances and contracts and report to the entire board at each of its quarterly meetings (Art. 3, Sec. 3), places the responsibility for the properties and affairs of ORDA on its board members, and requires them to not only "ensure that its operations are carried out in a prudent and responsible manner that is accountable to the public" but also "provide oversight and control to AUTHORITY financial operations ..." (Art. 1, Sec. 5).
There has never been an adjudication that Power was not acting within the scope of his employment and/or violated any ORDA policy. ORDA has policies for procurement, purchasing and the use of ORDA credit cards , but ORDA has never claimed that Power violated those policies, nor have those policies been submitted to this Court for consideration. Amendments made to those policies at or about the same time as Power's termination appear to indicate that ORDA's policies at the time of the subject credit card charges were not violated. His termination from employment was premised upon his alleged violation of ORDA's travel and entertainment policy which prohibits reimbursement for alcoholic beverages but allows it for entertainment expenses "when they are reasonable and necessary * * * [and] fully explained as to the purpose, client, and rationale." Power contends that the expenses charged to the ORDA credit cared issued to him, and which formed the basis for the criminal charges against him, were not "reimbursed" and are no different from similar expenses authorized and paid for by ORDA after his suspension and termination.
See last two pages of exhibit G consisting of a July 12, 2017 two page memorandum from McKillip to all ORDA management confidential employees regarding changes to various policies, including those for credit cards, purchasing and procurement.
McKillip affidavit exhibit 3, page 5.
The evidence establishes that ORDA does allow for the direct payment of entertainment expenses for the service and consumption of alcoholic beverages and food. As examples, Power alleges that he paid with ORDA credit cards for expenses incurred by ORDA's Events and Marketing departments for a "bar crawl" during the 2014 Eastern College Athletic Conference hockey playoffs, a 2014 appearance by some of the 1980 Olympic Hockey Team, and a 2016 new ORDA employee happy hour, all of which were authorized and approved by the then president and chief executive officer of ORDA. Notably, in their answer, the respondents do not specifically deny these allegations and only deny knowledge or information sufficient to form a belief as to their truth, a curious response considering that ORDA and Pratt have all of the documentation relating to these expenditures and events.
Petition paragraph 36.
The documentary evidence provided by Power as part of his petition establishes that ORDA continued to pay for alcoholic beverages and, on at least one other occasion, for the services of one or more bartenders serving alcohol to attendees of a memorial service event sponsored or co-sponsored by ORDA . For instance, in June 2017 ORDA paid the Hilton Salt Lake City Center for beer, wine and food served in ORDA's hospitality room , and in September 2017 ORDA hosted the Lake Placid Brewfest and paid thousands of dollars to various beer purveyors whose beverages were sold and served at that event held in ORDA facilities . ORDA admits in its answer that it did purchase alcoholic beverages and food for consumption by ticket holders to its 2018 "Miracle on Ice" Fantasy Camp . While ORDA alleges in its answer that the June 2017 event "was billed by the conference center to sponsor a happy hour event for conference attendees", and that ORDA sold tickets to the Brewfest and Fantasy Camp where all alcohol and food were sold by concessionaires, there is nothing to show that the entire costs incurred and paid by ORDA for the alcohol and food were totally covered by the income from ticket sales or otherwise reimbursed by a third-party.
Petition exhibit C includes documentation of a billing to ORDA for hosting a reception on May 11, 2017, the payment of which was approved by Pratt, in the amount of $4,317.08 which included an expense of $1,000 for a "Hosted Bar" where beer and wine were sold to attendees at retail pricing. Although ORDA did not directly pay for the alcoholic beverages served to attendees, it authorized and provided the means for such sale by paying for one or more bartenders.
Petition exhibit D.
Petition exhibit E.
Answer and Return, page 4. This was the fourth annual hosting of the event.
The respondents have failed to prove that an issue of fact exists, that Power personally benefitted from his use of the ORDA credit card, that his use of the credit card was not within the scope of his employment, or that he used the credit card without the direction and approval his superiors and in violation of ORDA policies on credit card use, procurement and purchasing. As a result, and due to the extremely broad nature of ORDA's indemnification policy , Power is entitled to be indemnified to the fullest extent allowed by law for attorneys' fees, costs and expenses incurred by him in successfully defending the criminal charges which were dismissed. Decision is reserved on the amount for which Power is to be indemnified and any other relief sought in the petition. Within thirty (30) days hereof, Power's attorney shall submit an unredacted itemized billing statement containing a description of the services rendered each date, with proof of service of a copy thereof upon respondents' counsel. Respondents' counsel shall have twenty (20) days thereafter to submit papers in response.
Petition exhibit R; Answer and Return exhibit F.
It is so ordered .