July 12, 2021

Failure to exhaust administrative remedies fatal to Petitioner's challenge to a final administrative determination

This litigation concerns payments that a school district [Respondent] is required to make to a charter school [Petitioner] with respect to students with disabilities in accordance with §2856[1][b] of the Education Law and addresses the fallout of an audit by the New York State Comptroller's Office in which it was determined that Respondent had overpaid the Petitioner for certain expenses.

Respondent learned that it had overpaid Plaintiff for those expenses for a period of approximately 12 years, ending in 2018, it informed the Petitioner that it would recoup the overpayment by deducting the amount of the overpayment from the next four scheduled payments to Petitioner.

Petitioner initiated this CPLR Article 78 proceeding, seeking, among other relief, a court order prohibiting Respondent from making such deductions, alleging that such recoupment was arbitrary and capricious. 

Supreme Court granted Respondent's motion to dismiss the Article 78 action contending that Petitioner failed to exhaust its administrative remedies. Petitioner appealed Supreme Court's action, claiming that it was not required to exhaust its administrative remedies because the case presents a pure question of law which the Appellate Division may decide without regard to the alleged failure to exhaust its administrative remedy.

The Appellate Division rejected Petitioner's argument, explaining that Petitioner's "contention is not properly before us inasmuch as it [was] raised for the first time on appeal' and thus it has 'no discretionary authority' to review it in this CPLR Article 78 proceeding."

The court then opined that assuming, arguendo, that the general rule requiring exhaustion of administrative remedies does not apply where the issue raised involves a pure question of law, this case does not present a pure question of law, noting that the relevant Department of Education regulation states that, "[i]n the event of the failure of a school district to fulfill the financial obligation required by section § 2856 [1] [b] of the Education Law equal to the amounts calculated pursuant to this section, upon notification by the charter school, the commissioner shall certify the amounts of the unpaid obligations to the comptroller to be deducted from State aid due the school district and paid to the applicable charter schools."

Noting that the statute provides that "[a]mounts payable under this subdivision shall be determined by the Commissioner of Education" and, citing citing Matter of Davis v Mills, 98 NY2d 120, the Appellate Division further explained that "[i]t is for the Commissioner [of Education] in the first instance, and not for the courts, to establish and apply criteria" regarding the propriety and administration of recoupment of alleged funding overpayments.

Holding that Supreme Court properly granted Respondent's motion and dismissed the petition based on Petitioner's failure to exhaust its administrative remedies and, after considering Petitioner's remaining contentions and concluding that they did not require modification or reversal of the Supreme Court's judgment in chief, dismissed Petitioner's appeal.

The Appellate Division's decision is posted on the Internet HERE.

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