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ALBANY — New York City cannot be held liable under its Human Rights Law for punitive damages in a sexual harassment lawsuit, the Court of Appeals ruled yesterday.

By unanimous vote, the Court said that absent a clear, expressed and specific waiver of sovereign immunity, a plaintiff may not recover punitive damages from the city via the anti-discrimination statute.

It remains unclear whether even a clear, expressed and specific waiver would have been constitutional. The Court declined to reach a question of whether the city, had it executed such a waiver, could expose itself to punitive damages without violating the state Constitution’s ban on gifts of public funds.

What is clear is that New York City taxpayers yesterday saved $1 million in a case involving a civilian employee of the police department.

Krohn v. New York City Police Department, 22, involves a woman who sued over sexual harassment in the early 1990s. A federal jury awarded the plaintiff, Alli Katt, $400,000 in compensatory damages against her former supervisor, Lt. Anthony DiPalma, and the city. It also awarded $1 million in punitive damages against the city itself.

After Southern District Judge Gerard E. Lynch rejected the punitive damage award, the U.S. Court of Appeals for the Second Circuit asked New York’s high court to decide whether such awards are authorized.

Judge Carmen Beauchamp Ciparick, writing for the Court, noted that the city’s Human Rights Law specifically authorizes punitive damages. But it does not, she said, specifically authorize punitive damages against the municipality.

“The absence of any specific reference to the municipality in the provision itself supports the interpretation that there is neither a waiver of sovereign immunity nor express legislative authorization for punitive damages liability,” Judge Ciparick wrote.

Local government lobbying groups supported the city and urged the Court to abide by its historic disdain for the imposition of punitive damages against a municipal entity. Amici for the plaintiff countered that the threat of punitive damages is a necessary deterrent to sexual harassment in the government workplace, and that the City Council intended to provide that deterrent when it enacted the Human Rights Law.

The Court has long cast a skeptical eye on permitting the recovery of punitive damages against a municipality. It has reasoned that one of the major goals of a punitive award — deterrence — is not met by imposing such a penalty on taxpayers rather than the individuals responsible for the egregious conduct.

Yesterday the Court may have implied that if a municipality wants to divest itself of its cloak of immunity, the judiciary will not stand in its way if it “clearly, expressly and specifically” waives that protection. But that is not certain.

The Court did not say the city could or could not waive immunity. All it said was that in this case the city had not done so.

Attorneys were divided on the meaning of the decision.

David A. Kotler of Princeton, N.J., counsel for the plaintiff, said the ruling seems to provide a “road map to the New York City Council or any other New York legislative body who wishes to take the kind of necessary steps to prevent the type of discrimination that the jury here found Ms. Katt suffered.” In Mr. Kotler’s view, it seems implicit if not explicit that if the city wants to waive immunity, it can.

Assistant Corporation Counsel Scott Shorr, the city’s attorney, disagreed. He noted that the Court specifically said it was not necessary to address his argument that it would be unconstitutional for the City Council to pass a law allowing the city to make a “gift” of punitive damages to plaintiffs.

Effect on Plaintiffs

Regardless, Mr. Shorr said, an adverse ruling could have exposed the city to enormous punitive liability.

If the Court had ruled for the plaintiff, he said, “People alleging discrimination against the City of New York would probably be focusing on the New York City Human Rights Law as their main source of relief, because only the Human Rights Law would have provided for punitive damages against the City. Those would not have been available under federal law or state law.”

Craig Gurian, executive director of the Anti-Defamation Center of Metro New York, which appeared as amicus in the case, contended that the Human Rights Law should be construed independently of federal and state law. He maintains the City Council did allow for punitive damages and dismissed the Bloomberg administration’s “doomsday theories of liability” as groundless.

Mr. Gurian said his organization will now try to persuade the City Council to make crystal clear what the center claims was at least strongly implied in the legislation — that punitives are indeed available against the municipality.

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