New York City Health and Hospitals Corp. v. McBarnette

In July 1989, Lorna McBarnette (defendant), the executive deputy commissioner of social services, issued a directive that reduced how much New York would reimburse hospitals for certain patients. The Hospital Association of New York State (association) brought a timely action pursuant to Civil Practice Law and Rules (CPLR) Article 78 challenging the directive. The New York City Health and Hospitals Corporation (HHC) (plaintiff), which operated hospitals, was a member of the association and was aware of the association’s Article 78 proceeding, but the HHC did not intervene in it or bring its own litigation at the time. The association won its suit, which resulted in an order requiring the state agencies (defendants) that administered Medicaid to pay the association and its members the money that the agencies wrongfully did not pay due to the invalidated directive. In October 1991, the HHC applied for a refund. However, the state agencies refused the HHC’s request, leading the HHC to sue the state agencies for a declaratory judgment that the HHC was entitled to the requested refunds. Among other things, HHC alleged that the directive was unlawful and arbitrary and capricious. The supreme court granted summary judgment to Barnette and the state agencies, ruling that the HHC’s claim was time-barred under the four-month statute of limitations for Article 78 proceedings because the HHC could have asserted its claim via Article 78. The appellate division reversed, ruling that the HHC’s claim was governed by the three-year statute of limitations for claims arising under a statute. Barnette and the state agencies appealed, contending that Article 78’s statute of limitations applied. The HHC responded that it could not have brought an Article 78 case because it challenged a state agency’s quasi-legislative decision and Article 78 could not be used to review such decisions.