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Attorneys who challenge state agencies are all too familiar with the phrase “failed to exhaust administrative remedies.” Routinely, that is an agency’s response to litigation, and often it serves to delay a frustrated adversary and reroute the matter from the judiciary to bureaucratic Hades. But now New York state’s Department of Labor is getting a taste of its own medicine. New York Supreme Court Justice Thomas J. Spargo last week invoked the dreaded “failed to exhaust” petard to dismiss Labor Commissioner Linda A. Angello’s suit against the Industrial Board of Appeals, an entity within her own department. Spargo’s you-made-your-own-bed ruling suggests that if Labor Department officials are inconvenienced by regulations promulgated under its auspices, well, welcome to the club. The dispute, Angello v. Industrial Board of Appeals, 699-02, involves National Finance Corp., which was cited by the commissioner for failure to pay wages and benefits when they came due. In November, New York state’s Industrial Board of Appeals partially revoked and partially modified an order of the commissioner regarding National Finance. Angello was displeased. Although the regulations of the Labor Department afford the commissioner an opportunity to seek reconsideration of Industrial Board of Appeals determination, she commenced a lawsuit. Angello insisted that the regulation placed her in a “Catch-22 situation” — namely, that if she pursued the administrative remedy, that would preclude pursuing an Article 78 challenge, which could well be time-barred when the board finally got around to ruling on her application for reconsideration. Justice Spargo, however, was unpersuaded, and not particularly sympathetic. The court said that Angello could have sought reconsideration and lodged an Article 78 if the board dragged its feet. Additionally, he said that if the board did procrastinate, the commissioner could always initiate a mandamus proceeding. In either case, Spargo said, case law suggests that the time limitation period would not begin to accrue until after the board ruled on a request for reconsideration. “The regulation in question was promulgated under the authority of the Department of Labor, the very agency which the commissioner heads,” Spargo wrote. “Surely the apparently available remedy of reconsideration offered by the Department of Labor’s own regulation was not intended solely as a trap for an unwary litigant.” Assistant Attorney General Terri E. Gerstein appeared for Angello. The Industrial Board of Appeals was represented by John G. Binseel of Albany, N.Y. WESTCHESTER COUNTY RULING On the same day last week that he issued the Angello decision, Spargo also released a ruling in which he described as “inane” Westchester County’s assertion that a petitioner “has failed to exhaust its administrative remedies.” In that case, the government made a deal, and then reneged after it dawned on officials that the agreement was ill-advised. Royal Service Station Inc. v. Westchester County Department of Health, 1282-02, involves a gas station and convenience store that has repeatedly been implicated for selling cigarettes to children. After the business was cited for the third time, Westchester County, N.Y., officials brokered a bargain in which Royal would admit to a first-time offender violation and pay a $300 fine. However, after the fine was paid the county decided to adopt a harsher stance, but apparently did not bother to inform Royal until after taking the matter to an administrative judge and getting Royal’s license suspended. When Royal learned of the hearing to which it was not invited and the enhanced penalty, it complained and asked for a rehearing. But the county explained there was no need since a rehearing would only “result in the same action” whether Royal was there or not. It took Royal one day to file a lawsuit. The county moved for dismissal, claiming that Royal was not entitled to relief because it had “unclean hands,” and because it failed to exhaust its administrative remedies. Spargo found the former argument “absurd” and the latter “equally inane.” “[I]f any party to this proceeding has unclean hands, it is the county,” Spargo wrote. “The county prepared and signed a stipulation and then refused to honor it because the county unilaterally decided that the stipulation was a mistake. Rather than offer Royal a new hearing, the county, without notice to Royal, ‘corrected its records’ and directed the state to suspend Royal’s registration.” On the “failed to exhaust” question, Spargo observed that Royal cannot pursue the normal administrative appeal by seeking review from the Commissioner of Health because there is nothing to review. “Since Royal has never been provided with a hearing there is no record for the Commissioner of Health to review,” he wrote. Spargo annulled the suspension and awarded Royal costs on the motion. Appearing were: Sandra F. Gordon of Bond, Schoeneck & King in Albany for Royal; Assistant Attorney General Jeanette Rodriguez-Morick for the state Department of Taxation and Finance; and Richard M. Harris of White Plains, N.Y., for the Westchester County Department of Health.

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