Opinion 2002 - 14


This opinion represents the views of the Office of the State Comptroller at the time it was rendered. The opinion may no longer represent those views if, among other things, there have been subsequent court cases or statutory amendments that bear on the issues discussed in the opinion.

CLAIMS -- Compromise and Settlement (incurrence of reasonable expenses to evaluate appropriateness of settlement)
CONSTITUTIONAL LAW -- Gifts and Loans (work performed on private property in connection with evaluating appropriateness of settlement)

STATE CONSTITUTION, ARTICLE VIII, 1; VILLAGE LAW 1-102(5), 4-400(1)(l), 4-412(3)(3), 5-524: A village may incur reasonable expenses for the primary purpose of conducting an investigation to evaluate the appropriateness of pursuing a settlement of a claim against the village for property damage, even though work performed by the village in connection with such an investigation incidentally may benefit a private party.

This is in reply to your inquiry concerning a village project to reconstruct a certain stream channel. After the project was completed, several village property owners adjacent to the construction site reported that they were experiencing significant water collection in their basements, which, they contended, was the result of the reconstruction work. The property owners filed notices of claims with the village. In order to assist in assessing the merits of the claim and the possibility of settlement, the village is considering the expenditure of village funds to determine whether the water infiltration to these residences may have been caused by the village's construction project. You ask whether such an expenditure would constitute a gift of monies to the property owners under these circumstances.

Article VIII, 1 of the State Constitution prohibits municipalities from giving or loaning their monies or property to or in aid of any individual, or private corporation, association or undertaking. Article VIII, 1 generally prohibits the expenditure of municipal monies for the benefit of private parties unless it is in furtherance of a proper municipal purpose and is undertaken pursuant to a statutory obligation or properly authorized contract under which the municipality receives fair and adequate consideration (see, e.g., Schulz v Warren County, 179 AD2d 118, 581 NYS2d 885 lv den 80 NY2d 754, 587 NYS2d 906; 1990 Opns St Comp No. 90-4, p 9; 1989 Opns St Comp No. 89-50, p 112). An expenditure in furtherance primarily of a proper municipal purpose will not violate article VIII, 1, however, merely because it may confer an incidental benefit on a private party (see, e.g., Murphy v Erie County, 28 NY2d 80, 320 NYS2d 29; see also Opn No. 89-50, supra).

It is well-established that, in appropriate circumstances, villages may settle or compromise claims against the village (see, e.g., Konrad v Village of Valley Stream, 270 AD2d 459, 705 NYS2d 77, mot for lv to appeal dismissed, 95 NY2d 886, 715 NYS2d 377; Village Law 4-412[3][3]; 26 Opns St Comp, 1970, p 46; see also Foster v McCall, 248 AD2d 853, 669 NYS2d 744). Further, the payment of public monies or the performance of work on private property as consideration pursuant to an enforceable agreement settling a contested or disputed claim or action is not prohibited by article VIII, 1 (see, e.g., Ingram v Boone, 91 AD2d 1063, 458 NYS2d 671; Trudeau v O'Rourke, 135 AD2d 150, 524 NYS 856 affd 73 NY2d 736, 535 NYS2d 593; Opn No. 89-50, supra; 1987 Opns St Comp No. 87-1, p 1).

In evaluating the appropriateness of the potential settlement of a claim, it may be necessary to investigate into the facts underlying the claim (see, e.g., 26 Opns St Comp, 1970, p 46, supra; see also Village Law 4-400[1][l]). The incurrence of reasonable expenses to pursue such an investigation would be a proper expenditure in furtherance of the municipality's authority to settle claims (see, e.g., 26 Opns St Comp, 1970, p 46, supra; see also, e.g., Hammond Lane v Village of Potsdam, 176 AD2d 1038, 575 NYS2d 187; Reynolds v Village of Nyack, 258 AD 667, 17 NYS2d 714). In undertaking the necessary investigation, it is possible the municipality might perform work that could provide some benefit to the claimant or other private party.1 There would be no gift in violation of Article VIII, 1, however, so long as the primary purpose of the expenditure is to pursue the investigation necessary to evaluate the appropriateness of a potential settlement, even though there may be an incidental private benefit accruing to a private party.

Accordingly, a village may incur reasonable expenses for the primary purpose of conducting an investigation to evaluate the appropriateness of pursuing a settlement of a claim against the village for property damage, even though work performed by the village in connection with such an investigation incidentally may benefit a private party.

December 9, 2002

David S. Merzig, Esq., Village Attorney
Village of Margaretville

1.  For example, in a case such as the one at issue, the village, with the consent of the property owners, may need to pump water from the property owners' basements in order to better assess the source of the water accumulation.