IN RE: Stephen L. O'BRIEN (2005)

The petitioner was appointed the referee in a mortgage foreclosure action and pursuant to the judgment of foreclosure and sale of the Supreme Court, Suffolk County, conducted a public auction and sold the property in foreclosure.   Thereafter, a federal civil rights action was commenced in the United States District Court for the Eastern District of New York against, among others, the petitioner in his official capacity as referee, to set aside the foreclosure sale, to recover damages, and for injunctive relief.   Eliot Spitzer, as the Attorney-General of the State of New York (hereinafter the Attorney-General), denied the petitioner's request for representation in the underlying action pursuant to Public Officers Law § 17 on the ground that the petitioner, as a court-appointed referee, was an independent contractor excluded from coverage under the statute.   The petitioner commenced this proceeding pursuant to CPLR article 78 to review the determination of the Attorney-General as arbitrary and capricious and to direct the Attorney-General to provide a defense in the underlying federal action.   The Supreme Court granted the petition and directed the Attorney-General to provide representation for the petitioner pursuant to Public Officers Law § 17.   The Attorney-General appeals.

Public Officers Law § 17 directs the State of New York to provide for the defense of an “employee” in any civil action “arising out of any alleged act or omission which occurred or is alleged in the complaint to have occurred while the employee was acting within the scope of his [or her] public employment or duties” (Public Officers Law § 17[2][a] ).  Public Officers Law § 17(1)(a) defines the term “employee” as “any person holding a position by election, appointment or employment in the service of the state ․ but shall not include an independent contractor” (Public Officers Law § 17[1] [a] [emphasis added] ).   The statute provides that the duty to defend and indemnify is conditioned upon, inter alia, delivery to the Attorney-General by the employee of the summons and complaint in the underlying action (see Public Officers Law § 17[4] ).   By implication, this vests the Attorney-General with the authority, in the first instance, to determine whether a person is an “ employee” within the meaning of Public Officers Law § 17 entitled to defense and indemnification by the State.

 Following a denial by the Attorney-General of a request for a defense under Public Officers Law § 17(2), the employee can challenge that determination in a CPLR article 78 proceeding in the Supreme Court (see Frontier Ins. Co. v. State, 239 A.D.2d 92, 665 N.Y.S.2d 451;  Matter of Spitz v. Abrams, 123 Misc.2d 446, 473 N.Y.S.2d 931, affd. 105 A.D.2d 904, 482 N.Y.S.2d 68).   When reviewing such an agency determination, the court must decide if the determination was arbitrary and capricious (see Doerrbecker v. Saunders, 229 A.D.2d 490, 492, 645 N.Y.S.2d 329).  “Arbitrary action is without sound basis in reason and is generally taken without regard to the facts” (Matter of Pell v. Board of Educ., 34 N.Y.2d 222, 231, 356 N.Y.S.2d 833, 313 N.E.2d 321).  “Moreover, judicial review of an administrative determination is limited to the grounds invoked by the agency” (Doerrbecker v. Saunders, supra at 492, 645 N.Y.S.2d 329, citing Matter of Scherbyn v. Wayne-Finger Lakes Bd. of Coop. Educ. Servs., 77 N.Y.2d 753, 758, 570 N.Y.S.2d 474, 573 N.E.2d 562).

 The Supreme Court correctly concluded that the Attorney-General's determination that the petitioner was an independent contractor not entitled to defense and indemnification lacked a rational basis in light of the facts and circumstances presented.   As the Attorney-General explained in an opinion exploring the applicability of Public Officers Law § 17, “an employee works under the supervision and control of an employer who directs the manner in which the employee's work shall be done.   When there is no direct control over the manner in which work is performed, the worker is classified as a consultant or independent contractor” (1998 Ops. Atty. Gen. No. F 98-2 [citation omitted] ).   Courts clearly exercise sufficient control and supervision over the work of a referee appointed in a foreclosure proceeding to qualify that appointee as an “employee” within the meaning of Public Officers Law § 17.

 A referee appointed to conduct a judicial sale is an “agent of the court,” a “mere ministerial officer” who cannot make a sale except in compliance with the terms of the judgment (Mullins v. Franz, 162 App.Div. 316, 317-318, 147 N.Y.S. 418;  see Banque Arabe Et Internationale D'Investissement v. One Times Sq., 223 A.D.2d 384, 636 N.Y.S.2d 299;  Morgan v. Ellenville Sav. Bank, 55 A.D.2d 178, 389 N.Y.S.2d 660;  Long Is. City Sav. & Loan Assn. v. Suggs, 78 Misc.2d 16, 355 N.Y.S.2d 550;  Franklin Natl. Bank v. DeGiacomo, 44 Misc.2d 518, 253 N.Y.S.2d 819).   Any effort on the part of the referee to alter the terms of sale fixed by the judgment of foreclosure is void and the court, in its broad supervision and control over all judicial sales, may reform such a sale to correct “the substantial errors or unauthorized acts of the referee” (Mullins v. Franz, supra at 317, 147 N.Y.S. 418;  see Greenwood Packing Profit Sharing Plan Trust v. Fournier, 181 A.D.2d 861, 581 N.Y.S.2d 413;  Strianese v. Paradiso, 128 A.D.2d 696, 513 N.Y.S.2d 197;  Morgan v. Ellenville Sav. Bank, supra;  Crisona v. Macaluso, 33 A.D.2d 569, 305 N.Y.S.2d 441).

 A referee “may not arbitrarily conduct the sale, schedule or reschedule sale dates, or give public notice in such a manner as to have the effect of limiting the number of prospective bidders, or detrimentally affect the number or amounts of possible bidders” (Long Is. City Sav. & Loan Assn., supra at 18, 355 N.Y.S.2d 550).   A referee's role is “purely ministerial” (Morgan v. Ellenville Sav. Bank, supra at 180, 389 N.Y.S.2d 660) and in selling the property, he or she may not expand (id.) or limit (see Strianese v. Paradiso, supra ) the terms of the sale provided for in the judgment, or “interfere with equities established by the court” (Franklin Natl. Bank v. DeGiacomo, supra at 520, 253 N.Y.S.2d 819).  “At a foreclosure proceeding, the actual sale is made by the referee, as an officer of the court, and the contract is basically between the purchaser and the court” (Jorgensen v. Endicott Trust Co., 100 A.D.2d 647, 648, 473 N.Y.S.2d 275, citing Lane v. Chantilly Corp., 251 N.Y. 435, 437-438, 167 N.E. 578).

In light of the limited discretion a referee in a foreclosure proceeding has in conducting a judicial sale, and the court's absolute right to direct him or her to act in accordance with equity and fairness, it follows that such an appointee in the service of the State should be classified as an “employee” within the meaning of Public Officers Law § 17(1)(a).

 The Attorney-General's finding to the contrary was not entitled to deference.   Courts will defer to an agency's interpretation of a statute it is charged with administering where the application of the statute “involves knowledge and understanding of underlying operational practices or entails an evaluation of factual data and inferences to be drawn therefrom” (Kurcsics v. Merchants Mut. Ins. Co., 49 N.Y.2d 451, 459, 426 N.Y.S.2d 454, 403 N.E.2d 159).  “Where, however, the question is one of pure statutory reading and analysis, dependent only on accurate apprehension of legislative intent, there is little basis to rely on any special competence or expertise of the administrative agency” (id.;   see Lorillard Tobacco Co. v. Roth, 99 N.Y.2d 316, 756 N.Y.S.2d 108, 786 N.E.2d 7;  Dworman v. New York State Div. of Hous. & Community Renewal, 94 N.Y.2d 359, 704 N.Y.S.2d 192, 725 N.E.2d 613;  Matter of Union Indem. Ins. Co. of N.Y., 92 N.Y.2d 107, 677 N.Y.S.2d 228, 699 N.E.2d 852;  Seittelman v. Sabol, 91 N.Y.2d 618, 674 N.Y.S.2d 253, 697 N.E.2d 154;  Matter of Gruber [New York City Dept. of Personnel], 89 N.Y.2d 225, 652 N.Y.S.2d 589, 674 N.E.2d 1354;  Jansen Ct. Homeowners Assn. v. City of New York, 17 A.D.3d 588, 795 N.Y.S.2d 594;  Astoria Gas Turbine Power, LLC v. Tax Commn. of City of N.Y., 14 A.D.3d 553, 788 N.Y.S.2d 417).

Here, distinguishing an “employee” in the service of the State entitled to defense and indemnification from an “independent contractor” exempt from such coverage does not require the specialized knowledge or expertise of the Attorney-General.   These are general statutory terms the meanings of which can be readily understood by consideration of the relevant language, design, and purpose of the statute and by reference to judicial precedent.   As indicated above, the Attorney-General acknowledged that the concept underlying application of Public Officers Law § 17 is that of supervision and control over the manner in which the appointee conducts his or her work (see 1998 Ops. Atty. Gen. No. F 98-2).   This is a concept well-rooted in the common law and frequently used by the courts to distinguish employees from independent contractors in a variety of legal contexts (see e.g. Matter of Hertz Corp. [Commissioner of Labor], 2 N.Y.3d 733, 778 N.Y.S.2d 743, 811 N.E.2d 5 [unemployment insurance context];  Parisi v. Loewen Dev. Corp., 5 A.D.3d 646, 774 N.Y.S.2d 746 [tort context];  Bhanti v. Brookhaven Memorial Hosp. Med. Ctr., 260 A.D.2d 334, 687 N.Y.S.2d 667 [labor law context] ).

 In deciding whether Public Officers Law § 17 is applicable to a court-appointed referee in a foreclosure proceeding, the courts are fully capable of assessing the degree of supervision and control exercised over such an appointee to determine his or her status.   This is a matter of pure statutory interpretation that does not require specialized knowledge or expertise.   Under such circumstances, the Attorney-General's interpretation is not entitled to deference (see Lorillard Tobacco Co. v. Roth, supra;  Dworman v. New York State Div. of Hous. & Community Renewal, supra;  Matter of Union Indem. Ins. Co. of N.Y., supra;  Seittelman v. Sabol, supra;  Matter of Gruber [New York City Dept. of Personnel], supra;  Jansen Ct. Homeowners Assn. v. City of New York, supra;  Astoria Gas Turbine Power, LLC v. Tax Commn. of City of N.Y., supra ).   In addition, an administrative determination must be accepted by the courts only “if it has warrant in the record and a reasonable basis in the law” (Matter of Howard v. Wyman, 28 N.Y.2d 434, 322 N.Y.S.2d 683, 271 N.E.2d 528, quoting NLRB v. Hearst Publs., 322 U.S. 111, 131, 64 S.Ct. 851, 88 L.Ed. 1170 [internal quotation marks omitted] ). As the above analysis indicates, the Attorney-General's determination that a referee in a foreclosure proceeding is an independent contractor has no reasonable basis in the law.

 Having erroneously determined that the petitioner was an independent contractor, the Attorney-General never reached the issue of whether a defense of the petitioner was authorized.   In this regard, “[t]he Attorney General's role is similar to that of an insurance company which must decide if a defense is owed under its policy” (Mathis v. State of New York, 140 Misc.2d 333, 339, 531 N.Y.S.2d 680;  see Frontier Ins. Co. v. State of New York, 87 N.Y.2d 864, 867, 638 N.Y.S.2d 933, 662 N.E.2d 251;  Matter of Lo Russo v. New York State Off. of Ct. Admin., 229 A.D.2d 995, 645 N.Y.S.2d 209;  Matter of Sharrow v. State of New York, 216 A.D.2d 844, 845, 628 N.Y.S.2d 878).   The Attorney-General must review the complaint to determine if it is alleged that the employee committed a wrongful act while acting within the scope of his or her employment (see Matter of Sharrow v. State of New York, supra ).   If the complaint does not definitively allege that the petitioner was acting within the scope of his or her public employment or duties, the Attorney-General may properly look “behind the pleading to the facts underlying the occurrence” to make that determination (Mathis v. State of New York, supra at 339, 531 N.Y.S.2d 680;  see Matter of Sharrow v. State of New York, supra at 846, 628 N.Y.S.2d 878).  “Like an insurance company, the only time the Attorney-General can deny a defense based upon his determination that the employee was acting outside the scope of employment is when the facts are so clear-cut that reasonable minds could reach no other conclusion” (Mathis v. State of New York, supra at 339, 531 N.Y.S.2d 680, citing Servidone Constr. Corp. v. Security Ins. Co. of Hartford, 64 N.Y.2d 419, 424, 488 N.Y.S.2d 139, 477 N.E.2d 441;  see Frontier Ins. Co. v. State of New York, supra at 867, 638 N.Y.S.2d 933, 662 N.E.2d 251;  Lo Russo v. New York State Off. of Ct. Admin., supra at 995, 645 N.Y.S.2d 209).

 Here, while the first amended complaint in the underlying federal action did not definitively allege that the court-appointed Referee was acting within the scope of his public duties, the complaint clearly stated that the Referee was being sued “as Referee.”   The first amended complaint alleged, inter alia, that the Referee “did not adequately caution the successful bidder and the bidder's assignee and [the mortgagee] to refrain from engaging in ‘self-help’ to access [the foreclosed property] prior to the date the entire purchase price was paid and the referee's deed was tendered.”   The first amended complaint further alleged that Referee did not adequately explain that a codefendant in that action was claiming an interest in the title to the foreclosed property “and that therefore the successful bidder would merely be purchasing the rights to the mortgage rather than a fee interest” in the property.   These are among the acts which allegedly gave rise to violation of the federal plaintiff's civil and contractual rights.

It is clear that these alleged oversights took place within the context of the petitioner's public duties as an appointed official conducting a judicial sale.   As such, the Attorney-General was obligated to provide the petitioner with a defense in the underlying federal civil rights action.   Accordingly, the judgment is affirmed, with costs.

ORDERED that the judgment is affirmed, with costs.

SKELOS, J.

H. MILLER, J.P., COZIER and GOLDSTEIN, JJ., concur.