772 F. Supp. 1412 (1991) | Cited 0 times | S.D. New York | September 3, 1991


Defendant Matthew T. Crosson moves for an order enteringjudgment in this case, reversed and remanded to this Court bythe Court of Appeals for the Second Circuit with instructionsto:

(1) enter a declaratory judgment declaring that New York's lag-payroll law violates the contract clause of the United States Constitution; (2) enjoin the continuing effects and application of the lag-payroll law; and (3) enter an appropriate judgment for the plaintiffs which shall include restitution of the lagged wages for all affected employees. Whether or not interest shall be awarded on the restored wages will lie in the equitable discretion of the district court.

Association of Surrogates v. State of New York, 940 F.2d 766,775 (2d Cir. 1991). Defendant Crosson's proposed order woulddirect that the defendant State Comptroller pay the laggedmoneys out of funds appropriated to the Judiciary in its1990-1991 budget and that will lapse and become part of theState's General Funds on September 15, 1991. For the reasonsset forth below, Defendant Crosson's motion is granted.


Section 375 of Chapter 190 of the Laws of New York of 1990,signed into law on May 25, 1990, established a lag payroll fornonjudicial employees of the Unified Court System hired on orafter April 7, 1983. Pursuant to that law, one day's pay waswithheld from each paycheck for ten two-week periods beginningon November 7, 1990, until a total of two weeks' pay had beenwithheld, on March 13, 1991.

Plaintiffs had commenced a declaratory judgment action inOctober 1990, seeking to declare the lag payroll lawunconstitutional and to enjoin defendants to pay plaintiffspursuant to their collective bargaining agreements. By orderand decision dated October 26, 1990, this Court deniedplaintiffs' motions for a preliminary injunction and forsummary judgment and granted defendants' cross-motion forsummary judgment. 749 F. Supp. 97 (S.D.N.Y. 1990).

On plaintiffs' appeal, the Court of Appeals for the SecondCircuit, on July 31, 1991, reversed and remanded, declaring thelag payroll statute unconstitutional and directing restitutionof the lagged wages. Association of Surrogates, 940 F.2d at775.

On August 21, 1991, the Second Circuit denied statedefendants' petition for rehearing and issued the mandate. Asof the date of this opinion, a suggestion for rehearing en bancfiled by defendants has not been acted on.

By order to show cause signed on August 23, 1991, DefendantCrosson moved this Court for immediate issuance of an ordergranting restitution of the lagged wages totalling 9.2 milliondollars, to be paid out of 15.8 million dollars remaining ofthe funds appropriated to the Judiciary for the 1990-1991fiscal year and which are due to lapse on September 15, 1991,at which time such funds will become part of the State'sGeneral Fund under section 40(3) of the State Finance Law.

Argument was heard on August 26, 1991, at which defendantsRegan, Abrams, and State of New York (hereinafter StateDefendants) objected to a judgment directing restitution fromthe funds remaining from appropriations to the Judiciary forthe fiscal year 1990-1991 and to the Court's awardingplaintiffs interest on the lagged payroll funds. DefendantCrosson also opposed an interest award to plaintiffs.Plaintiffs requested an award of interest and supported paymentfrom the funds remaining of the 1990-1991 appropriation to theJudiciary. All parties filed additionalpapers in support of their respective positions on August 28,1991. Because it was necessary that action be taken on August29, 1991 to ensure that payments be computed and made bySeptember 15, 1991, the Court entered judgment on August 29,1991 with this opinion to follow.


1. Court's Power to Order Payment from a Specific Appropriation

It is within the power of this Court to fashion an equitableremedy for the violation of plaintiff's constitutional rightsunder the invalidated lag payroll statute. District courts havebroad discretion in granting equitable remedies forconstitutional violations. See Todaro v. Ward, 565 F.2d 48, 54n. 7 (2d Cir. 1977) ("Appellate tribunals have accordeddistrict courts broad discretion to frame equitable remedies solong as the relief granted is commensurate with the scope ofthe constitutional infraction."). This discretion encompassesthe power to fashion, if necessary, remedies which may encroachon administrative responsibilities normally left in the handsof the state. Cf., e.g., Milliken v. Bradley, 433 U.S. 267,282, 97 S.Ct. 2749, 2758, 53 L.Ed.2d 745 (1977) (specificeducational remedies normally left to discretion of electedschool board deemed necessary to make whole victims ofpervasive segregation in schools); Todaro, 565 F.2d at 53-54(district court permissibly deviated from customary "hands-offattitude" toward daily problems of prison administration whereconstitutional right to adequate medical care was at stake).

State Defendants object that this Court would abuse itsdiscretion in ordering the state to pay the money judgment froma specific appropriation and by a specific date. All of thecases cited by state defendants, however, involved relativelydrastic intrusions by federal courts into matters traditionallywithin the state's authority. State Defendants' Memorandum ofLaw in Opposition to Motion for Immediate Issuance of OrderGranting Partial Judgment (hereinafter St.Def.Mem. in Opp.) at5.

Spallone v. United States, 493 U.S. 265, 110 S.Ct. 625, 107L.Ed.2d 644 (1990), cited by State Defendants, is simply not onpoint. There, the Court held that the district court abused itsdiscretion when it imposed "extraordinary" financial sanctionsagainst individual councilmen of the City of Yonkers to securecompliance with the court's remedial orders designed to cureracial segregation in housing. The Supreme Court held that thedistrict court first should have proceeded with contemptsanctions against the city alone, imposing financial sanctionsagainst the individuals only if the former approach failed. Seeid. 110 S.Ct. at 634-35. The Court expressly declined toquestion the validity of the district court's remedial orderitself, which was found to be within the proper bounds ofdiscretion by the Court of Appeals. See id. at 631.

Missouri v. Jenkins, 495 U.S. 33, 110 S.Ct. 1651, 109 L.Ed.2d31 (1990), involved a significant circumvention of stateauthority. There, the Court found that the district courtabused its discretion and violated principles of comity when itengaged in the "extraordinary event" of imposing a tax increaseto raise revenue necessary for implementing a schooldesegregation plan. Id. 110 S.Ct. at 1663. The Court noted thatthe district court, without first assuring itself that nopermissible alternative would suffice, "not only intruded onlocal authority but circumvented it altogether." Id. The Courtadded that respect for the function of local government isparticularly important where "those institutions are ready,willing, and — but for the operation of state law curtailingtheir powers — able to remedy the deprivation ofconstitutional rights themselves." Id.

Similarly, in New York Association for Retarded Children v.Carey, 631 F.2d 162 (2d Cir. 1980), the inappropriate remedyordered by the district court and reversed by the court ofappeals required a state official to expend state funds for apurpose expressly disallowed by the state legislature. Id. at165. In Rhem v. Malcolm, 507 F.2d 333 (2d Cir. 1974), the courtof appeals remanded a proceeding concerning unconstitutionalconditions at a New YorkCity jail to the district court to refashion the equitablerelief. There, the court found, the remedial scheme ordered bythe district court unnecessarily placed the judge "in thedifficult position of trying to enforce a direct order to theCity to raise and allocate large sums of money, stepstraditionally left to appropriate executive and legislativebodies." Id. at 341 (citation omitted).

In keeping with Rhem and New York Association for RetardedChildren, this Court is not attempting to remedy theconstitutional violations caused by the lag payroll statute by"rais[ing] and allocat[ing] large sums of money" through itsown direct order, in contravention of state law. See id.; NewYork Association for Retarded Children, 631 F.2d at 165.Rather, it is simply directing defendants to pay the laggedwages they now admit are owed, St.Def.Mem. in Opp. at 4, frommoneys the state legislature itself appropriated for theJudiciary Budget, Runko Aff. ¶ 3, by September 15, 1991 inorder to comply with section 40 of the State Finance Law.Although State Defendants assert that payment from the1990-1991 Judiciary Funds would be in contravention oftraditional state practice, they provide no legal authority forthe claim that to do so would violate state law. See Green Aff.¶ 4; Scherry Aff. ¶¶ 4-6; Runko Aff. ¶ 5; St. Def.Mem. in 6.

2. When Liability Was Incurred

Defendant Crosson argues that the lagged wages should be paidfrom 1990-91 funds appropriated to the Judiciary, which willlapse on September 15, 1991 and become part of the State'sGeneral Funds, and which must therefore be paid by that date.He also asserts that the lagged wages represent liabilitiesincurred during the 1990-1991 fiscal year and thus may be paidunder section 40 of the State Finance Law.1

The State Defendants admit that there is 15.8 million dollarsremaining of funds appropriated to the Judiciary for fiscalyear 1990-1991, Runko Aff. ¶ 3, but argue that the liabilityfor lagged payroll will only be incurred when this Court entersjudgment. The New York State Court of Appeals has held that, byits 1988 ratification of the 1989-1991 collective bargainingagreements at issue, the Legislature "gave `approval' . . . tothe entire three-year obligation expressed in the contract" andthus created liability for wages each year of the agreement asthose wages became due. See Association of Surrogates v. Stateof New York, 78 N.Y.2d 143, 155-56, 573 N.Y.S.2d 19, 25,577 N.E.2d 10, 15-16 (1991). Were it not for the lag payrolllegislation, now declared unconstitutional, the lagged moneyswould have been paid in the 1990-1991 fiscal year. The circuitcourt's declaration of the unconstitutionality of the lagpayroll statute rendered that statute void, see Papasan v.Allain, 478 U.S. 265, 276, 106 S.Ct. 2932, 2939, 92 L.Ed.2d 209(1986) (citing Ex parte Young, 209 U.S. 123, 28 S.Ct. 441, 52L.Ed. 714 (1908)); Green v. Mansour, 474 U.S. 64, 68, 106 S.Ct.423, 425-26, 88 L.Ed.2d 371 (1985); Eng v. Coughlin,858 F.2d 889, 896 (2d Cir. 1988), thereby establishing that the laggedwages should in fact have been paid in 1990-1991; thus, iteffectively reinstated the previously incurred liability.

State Defendants rely on Matter of Anthony W., 74 Misc.2d 380,344 N.Y.S.2d 682 (N.Y. Fam. Ct. 1973), in which JudgeOtten of the Family Court ordered the New York Commissioner ofEducation to certify his approval for partial payment of thetuitioncosts incurred in a prior fiscal year by the City of New Yorkfor a physically handicapped child at a special school. TheCommissioner had taken the position that the fiscal year hadalready lapsed for the year of attendance for which the tuitionreimbursement was sought and that under section 40(3) of theState Finance Law payment could not be made unless a liabilityhad been incurred prior to the end of the fiscal year thatended on March 31, 1972.

In its decision of May 29, 1973, the court ordered theCommissioner to certify his approval so as to require that thestate reimburse. The court stated, "In these proceedings noliability of the state will have incurred until the orders aremade and entered by this Court. It is the year when theliability is fixed, not when the incident occurred, thatdetermines what appropriation is used." Id. at 381, 344N YS.2d at 684. In Matter of Anthony W., no state liabilitywas incurred under sections 4403 and 4407 of the StateEducation Law until the Commissioner approved thereimbursement, as the court ordered. The holding or dicta ofthat court is not precedent for a claim that payment for wagesdue from the state, deferred by legislation declaredunconstitutional and thus void, is not a liability when thosewages were earned.

Furthermore, the result of an order permitting payment fromthe Judiciary Budget funds for fiscal year 1991-1992, asproposed by State Defendants, would have an effect notconsonant with the instruction of the circuit court to "enjointhe continuing effects and application of the lag-payroll law."That statute applied to nonjudicial employees of the UnifiedCourt System hired on or after April 7, 1983. St.Def.Mem. inOpp. at 2. If the lagged moneys are taken from the 1991-1992budget, the Unified Court System will be required to implementadditional layoffs and court closings due to the Judiciary's1991-1992 budgetary shortfall. Crosson Aff. ¶¶ 7-8. Asrelatively recent employees of the Unified Court System, thoseemployees previously affected by the lag payroll statute arelikely to be the same employees subject to layoffs resultingfrom budgetary cutbacks caused by payment out of the JudiciaryBudget for 1991-1992 as proposed by the State Defendants.2

Thus, if this Court were not to order the lagged moneys to bepaid from the 1990-1991 appropriation, State Defendants wouldachieve essentially the same result — causing the affectedemployees of the Unified Court System to finance thecourt-ordered relief to these affected employees — that itwould have if the lag payroll statute had been upheld. Infashioning an equitable remedy for the constitutionalviolations suffered by plaintiffs, the Court cannot ignore thisinevitable consequence of the State Defendants' position.Payment out of the 1990-1991 appropriation will soften theimpact of the expenditure for restitution since, by reducingthe amount becoming General Funds of the state, it willdisperse the burden of making restitution to all affectedemployees among all of the potential beneficiaries of theGeneral Fund and not place that burden in large part on theaffected employees themselves. Therefore, defendants have beenordered to make restitution of the lagged wages to plaintiffsfrom the 1990-1991 appropriation.

3. Prejudgment Interest

Defendant Crosson and State Defendants argue that plaintiffsare not entitled to interest on the restored wages. Theycontend that a balancing of the equitable considerations weighsstrongly against an award of prejudgment interest in light ofthe "overwhelming fiscal crisis" currently engulfing theUnified Court System. Memorandum of Law in Support of ProposedOrder of Defendant Crosson (hereinafter "Def.Crosson Mem. inSupp.") at 14. Further, they assert that defendants acted ingood faith in enacting and implementing the lag payrollstatute. Thus, they contend, an award of interest is notjustified.

"Whether to award prejudgment interest [is] placed in thesound discretion of the district courts." Lodges 743 and 1746v. United Aircraft, 534 F.2d 422, 446 (2d Cir. 1975), cert.denied, 429 U.S. 825, 97 S.Ct. 79, 50 L.Ed.2d 87 (1976). Inexercising this discretion, the court must weigh the relativeequities between the beneficiaries and those upon whom theobligation is imposed "`in accordance with the historicjudicial principle'" that employees suffering from another'sbreach of a financial obligation should be made whole. E.E.O.C.v. County of Erie, 751 F.2d 79, 81 (2d Cir. 1984) (quotingRodgers v. United States, 332 U.S. 371, 373, 68 S.Ct. 5, 7, 92L.Ed. 3 (1947)); see also United Aircraft, 534 F.2d at 447 ("avital ingredient in the determination whether to awardprejudgment interest is a desire to make whole the partyinjured by the breach"). While the good faith of the employermay be taken into account by the district court in decidingwhether interest should be awarded, the existence of good faithdoes not automatically render an award of interest improper.E.E.O.C., 751 F.2d at 81. Wages are for most personsfundamental requirements for the purchase of basic necessities.Thus, an employee from whom wages are wrongfully withheld iscustomarily entitled not only to the amount of those wages,"but also to compensation for the delay in receiving thosewages." Id. at 82.

Plaintiffs have been denied the use of money that should havebeen paid to them beginning in early November of 1990. "Inthese days in which all of us feel the effects of inflation, itis almost unnecessary to reiterate that only if such interestis awarded will a person wrongfully deprived of his money bemade whole for the loss." Waterside Ocean Navigation Co. v.International Navigation Ltd., 737 F.2d 150, 152 (2d Cir.1984). Accordingly, this Court has awarded interest to be paid,based on an annual rate of interest of nine percent, from March13, 1991 to the date the lagged wages are paid. The ninepercent rate of interest reflects that currently paid by theUnited States Treasury Department on tax refunds.

For ease of calculation, the Court has ordered the interestto be computed from March 13, 1991, the last date on whichchecks reflecting the withholding of lagged moneys werereceived. This obviates the need to engage in the complexcalculations required to determine separate amounts of interestbased on each paycheck received in the relevant twenty-weekperiod, and instead allows computation of interest for theentire sum of lagged wages for each employee. The percentage ofinterest awarded, which is higher than that currently paid bymoney market funds or savings accounts, sufficientlycompensates plaintiffs for the fact that they have beendeprived of wages beginning in November 7, 1990.


1. The question of when the liability was incurred directlyaffects whether the lagged wages may be paid from the 1990-1991appropriation:

[Every] appropriation made at a regular session of the legislature shall . . . cease to have force and effect, except as to liabilities already incurred thereunder, at the close of such fiscal year. . . . Every appropriation for whatever purpose which at the close of a fiscal year shall cease to have force and effect except as to liabilities already incurred thereunder shall as to such liabilities continue in force and effect until the next succeeding fifteenth day of September, on which date such appropriation shall lapse and no money shall thereafter be paid out of the state treasury or any of its funds or any of the funds under its management pursuant to such appropriation.

N Y State Fin. Law § 40(2)(a), (3) (McKinney 1989) (emphasisadded).

2. The Court notes from Plaintiffs' Memorandum of Law,Exhibit A, that the State Defendants are also seeking toimplement lag payroll legislation for fiscal year1991-1992.

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