author: Chief Judge Wachtler. Kaye, J.

text:
    In the Matter of Transit Casualty Company. Alan Digirol, Appellant; Superintendent of Insurance, as Ancillary Receiver of Transit Casualty Company, Respondent.
    Argued November 13, 1991;
    decided January 14, 1992

      POINTS OF COUNSEL

      Norman A. Palmiere for appellant.
    The court below inexcusably ignored Digirol’s right to due process protection for his Transit fire policy which provided for cancellation only upon notice to the insured. (Board of Regents v Roth, 408 US 564; Brock v Roadway Express, 481 US 252; Central States v Old Sec. Life Ins. Co., 600 F2d 671; Matter of Consolidation Mut. Ins. Co., 77 NY2d 144; Matter of Knickerbocker Agency [Holz], 4 NY2d 245.)

      David B. Hamm, William F. Jerome, Herbert Rubin and Linda M. Brown for respondent.
    I. The Missouri court’s orders of liquidation terminated claimant’s policy as a matter of law. The receiver was under no obligation, either statutory or contractual, to give notice of cancellation to claimant in order to make the cancellation effective. (People v Commercial Alliance Life Ins. Co., 154 NY 95; Johnston v Davis, 6 F2d 713; People v Metropolitan Sur. Co., 205 NY 135; Matter of Empire State Sur. Co., 214 NY 553; Carr v Hamilton, 129 US 252; People v Security Life Ins. & Annuity Co., 78 NY 114; Hobbs v Occidental Life Ins. Co., 87 F2d 380, cert denied sub nom. Beck v Occidental Life Ins. Co., 305 US 603; North Riv. Ins. Co. v Walker, 65 F2d 116.) II. Claimant has no constitutionally protective "property right” in the provisions of a policy that was extinguished automatically by operation of law. (Oberlander v Perales, 740 F2d 116; Walentas v Lipper, 636 F Supp 331, 862 F2d 414; Board of Regents v Roth, 408 US 564; Language Dev. Program v Ambach, 96 AD2d 667, 60 NY2d 859; Matter of Empire State Sur. Co., 214 NY 553; Boston Envtl. Sanita

      tion Inspectors Assn. v Boston, 794 F2d 12; Brown v Brienen, 722 F2d 360; Gendalia v Gioffre, 606 F Supp 363; Wiesenfeld v State of New York, 474 F Supp 1141.) III. The receiver’s efforts to give notice here were, in any event, more than sufficient. (Mennonite Bd. of Missions v Adams, 462 US 791; Mullane v Central Hanover Trust Co., 339 US 306; Matter of McCann v Scaduto, 71 NY2d 164; Nassau Ins. Co. v Murray, 46 NY2d 828; Bullock v Hanover Ins. Co., 144 AD2d 416; Strohschein v Northern Assur. Co., 136 AD2d 625; Ramos v DeMond, 127 AD2d 751; Allstate Ins. Co. v Prudential Prop. & Cas. Ins. Co., 117 AD2d 236; Harville v County of Erie, 148 AD2d 954.)
   OPINION OF THE COURT

Chief Judge Wachtler.

Claimant owned a small hotel which was destroyed by fire and which was insured by a company now insolvent and in liquidation by order of a Missouri court. He seeks to share as a creditor in the available assets, but the Superintendent of Insurance has rejected his claim on the ground that the liquidation order canceled all of the company’s policies on a specified date, before the fire occurred. Claimant was not a party to the liquidation proceedings and, as both lower courts held, received no actual or constructive notice of the cancellation order before sustaining the loss. Although the policy provides that it cannot be terminated unless the insured receives prior written notice of cancellation, the courts below upheld the Superintendent’s determination concluding that the claimant’s rights under the policy were extinguished by operation of law when the company was placed in liquidation.

On this appeal claimant urges that the order of the Missouri court did not extinguish vested rights and that he had a vested right to prior notice of any cancellation before the policy could be effectively terminated, which he did not receive. He also contends that he had a due process right to some form of actual notice before the court canceled the policy because it is fundamentally unfair for the State to deprive a person of insurance protection under an existing contract without, at least, giving the insured notice of the cancellation order and a reasonable opportunity to obtain another policy to cover the risk.

We have concluded that there is merit to the claimant’s first argument and, therefore, reverse the order of the Appellate Division without reaching the constitutional issue.

In 1984, the claimant, Alan Digirol, owned the Alton Hotel, located in Sodus, New York. Through a local insurance agent he purchased a multiperil policy, including fire insurance, for the hotel. The policy was issued by the Transit Casualty Co., a foreign corporation, domiciled in Missouri, with its principal place of business in California, but also authorized to do business in New York. The term of the policy was three years, beginning on February 29, 1984, and ending on February 29, 1987. The policy also provided for cancellation before the expiration date "by mailing to the named insured at the mailing address shown in the Declarations, written notice stating when not less than ten days thereafter such cancellation shall be effective.”

On December 4, 1985, a Missouri court found that Transit was insolvent and ordered that it be liquidated. A permanent receiver and deputy special receiver were appointed to administer the liquidation. The liquidation order further provided: "All policies of insurance issued by defendant Transit Casualty Company cancelled effective at midnight on December 20, 1985.” Pursuant to the Uniform Insurers Liquidation Act (Insurance Law § 7410 [a]), the Supreme Court of this State appointed the New York Superintendent of Insurance as ancillary receiver with respect to Transit’s assets and creditors located here.

On December 6 and 10, the deputy receiver had the liquidation order published in the New York Law Journal. Before the effective date of the cancellation order, he also mailed letters to all policyholders notifying them of the cancellation. Included with the letter was a copy of the liquidation order and a memo informing the policyholders that, although the court had specified December 20 as the date of termination, "many states require a longer period from the order of liquidation until the date of policy cancellation” and that some guarantee associations "might afford you some protection” beyond that date. The memo concluded by advising policyholders to consult local counsel if a claim arises after the cancellation date specified in the liquidation order.

This notice was mailed to the claimant on December 15, but was sent to claimant’s old address, although reference to the insurance policy would have revealed claimant’s correct current address under "policy changes.” When the post office returned the letter as undeliverable, the deputy receiver simply placed it in the file and made no further effort to notify claimant.

On February 16, 1986, the Alton Hotel was destroyed by fire. When Digirol attempted to collect on the policy, he learned that Transit was in liquidation and that all claims would have to be submitted to the receiver or ancillary receiver. He then submitted a claim to the Superintendent, but it was disallowed on the ground that the policy had been canceled by order of the Missouri court before the fire occurred. Claimant objected, arguing that he never received notice of the cancellation as required by the policy. The Superintendent reconsidered the claim but again rejected it, noting that the liquidation order canceling the policies did not require notice and by its terms became effective on December 20, 1985. The Superintendent also indicated that notice of the cancellation had been mailed to the claimant, but claimant denied receiving it.

The matter was referred to a Referee, who concluded, after a hearing, that notice was published and mailed as indicated above, but found that the claimant did not actually have notice of the Missouri liquidation proceeding or the court-ordered cancellation prior to sustaining the loss. He recommended that the claim be allowed because publication and mailing to a prior address, when the current address was available, did not constitute prior written notice as required by the policy for an effective cancellation. The Supreme Court confirmed the Referee’s factual findings but disaffirmed the conclusions of law and sustained the Superintendent’s determination. The Appellate Division affirmed.

The courts below held, in essence, that the Missouri order placing Transit in liquidation terminated all of the claimant’s future rights under the policy, including the right to prior written notice of cancellation as well as the right to continued insurance protection for future losses. On this appeal claimant concedes that he had no absolute right to continued insurance coverage, but urges that he had a right to be notified of cancellation before it could be deemed effective. The question is not whether this provision called for future performance on the part of the insurer or its successors, but whether the claimant’s right to notice of cancellation was matured or vested at the time of liquidation. As the Superintendent concedes, the contractual obligation to pay for losses suffered prior to insolvency survives liquidation and the policyholder is entitled to share as creditor in the available assets to the extent of the loss because the obligation to pay was ripe at the time of liquidation (Matter of Empire State Sur. Co., 214 NY 553; see also, 2A Couch, Insurance 2d, § 22:74 [rev ed]). But the obligation to pay is not the only obligation that may be mature at the time of liquidation. For instance, if a policy providing for liability coverage also obligates the company to furnish legal representation to the insured, an order liquidating the insurer for insolvency after an accident has occurred will not terminate the matured obligation to defend the pending suit and the future cost of the defense will be allowed as a claim against the insolvent’s estate (Matter of Empire State Sur. Co., supra; see also, Matter of Consolidated Mut. Ins. Co., 77 NY2d 144 [order terminating an insolvent insurance company’s liabilities did not terminate right of retired employees to lifetime health care benefits when those rights vested pursuant to statute before the company was placed in liquidation]).

In the case now before us the claimant’s fire insurance policy was subject to cancellation during its term, but only if prior written notice of the cancellation was mailed to the insured. This created a distinct contractual right, which must also be recognized as a valuable property right deserving of protections (see, e.g., Brock v Roadway Express, 481 US 252), in addition to the primary insurance protection. The right to notice of cancellation gave the policyholder the additional assurance that if coverage was discontinued, he would be informed of the fact that his property was again at risk so that he could obtain another policy to insure against the risk. The requirement that the notice precede the cancellation enhanced this right by assuring the policyholder that the opportunity to obtain coverage from another company would be available before there was a lapse in coverage. At the time of liquidation in this case that right matured and what remained to be done was for the company, or its successor, to perform the contractual obligation by informing the insured of the impending cancellation. That obligation to give notice of cancellation could not be satisfied by publication, or mailing notice to the wrong address, when the correct current address was included in the policy (see, Matter of McCann v Scaduto, 71 NY2d 164; cf., Allstate Ins. Co. v Altman, 21 Misc 2d 162; Byard v Royal Indem. Co., 49 NYS2d 60).

The Superintendent contends that recognition of a vested right to notice is inconsistent with the orderly and equitable administration of liquidation proceedings because the rights of all creditors must be fixed and valued as of the date the proceeding commenced. Since the insured had suffered no loss as of that date, the Superintendent urges that he was only entitled to return of the unearned premium and his policy should be valued accordingly.

Statutes providing for the liquidation of insolvent insurance companies are designed to protect creditors, policyholders and the general public by providing a comprehensive and efficient means for collecting the insolvent’s assets and equitably paying the claims of creditors (Matter of Knickerbocker Agency [Holz], 4 NY2d 245; Matter of Empire State Sur. Co., 214 NY 553, supra). The present liquidation procedures and practices are not as inflexible as the Superintendent urges. The traditional rule that creditors’ claims should be valued as of the date of dissolution was intended to insure equal treatment of creditors similarly situated and, as the Superintendent recognizes, now may be changed by court order fixing a different date for making the valuation (Matter of Empire State Sur. Co., supra; see also, Insurance Law § 7405 [b]). In addition, policyholders’ rights to coverage may continue for some time after the entry of the dissolution order when, as here, the court orders that cancellation shall occur at some future date (see also, e.g., Matter of Professional Ins. Co. [Jason — Superintendent of Ins. of State of N. Y.], 67 AD2d 850, affd 49 NY2d 716). This procedure allows, and undoubtedly contemplates, notice to policyholders that their current insurance protection is about to be terminated.

In fact, in this case the receiver utilized this period to send notice to the policyholders of the impending cancellation and, in most instances apparently, the insured received notice prior to the effective date. The problem here is not that the liquidation process foreclosed prior notice of cancellation, but that the receiver sent claimant’s notice to the wrong address. In addition, the receiver knew or should have known that the notice was misdirected when the letter containing the notice was returned by the post office. Nevertheless, despite the fact that the correct current address was listed on a policy document, nothing further was done to notify the insured before the loss occurred nearly two months after the company was placed in liquidation.

What occurred here is analogous to the failure to notify a creditor in a liquidation or bankruptcy proceeding of the time within which claims must be submitted (see, e.g., Insurance Law § 7432 [b]). The orderly administration of such proceedings contemplates that all claims will be submitted within a limited time frame fixed by the court and that claims submitted after that time will be disallowed. However, a creditor’s right will not be extinguished, and an untimely claim must be allowed, when the creditor has not received notice of the order establishing the time limit (New York v New York, New Haven & Hartford R. R. Co., 344 US 293). Similarly, in this case, the court’s order canceling the insurance policies on a fixed date should not extinguish the claimant’s coverage where he received no notice of the impending cancellation, which the State, as successor to the insolvent corporation, was bound to provide. Allowing this claim for loss sustained after the court ordered the cancellation is not inequitable to other policyholders who were informed of the court’s order and thus had an opportunity to continue their coverage by obtaining new policies. As to those policyholders, return of the premium should make them whole.

The conclusion we have reached is not inconsistent with the letter or spirit of the Uniform Insurers Liquidation Act as the dissent contends. The specific goals of the Uniform Act are set forth in a prefatory note identifying particular aspects of State liquidation proceedings which caused unwarranted dissipation of the assets of defunct multistate insurers (13 ULA 322-323 [1986 Master ed]; see also, Murphy Co. v Reserve Ins. Co., 54 NY2d 69, 76-77). The various State laws requiring notice of cancellation to policyholders was not identified as a wasteful procedure needing reform, and nothing in the Act obligates States subscribing to its terms to abandon statutory or decisional law requiring notice of cancellation to be sent to policyholders before an insurance contract is canceled (see, e.g., Dardar v Insurance Guar. Assn., 556 So 2d 272 [La Ct App]). On this and many other aspects of the liquidation process the Uniform Act is silent because it was not intended as a comprehensive scheme displacing all State laws, substantive and procedural, relating to liquidation of insolvent insurance companies. The Uniform Act, for instance, does not require that creditors be notified of the time fixed for submitting claims (Uniform Insurers Liquidation Act §§ 2, 5 [9 ULA 332, 345 (1986 Master ed)]), but it does not follow from this that State laws requiring such notice (see, e.g., Insurance Law § 7405 [a]) are ineffective when the insurance company has been liquidated in another jurisdiction subscribing to the Act.

The over-all purpose of the Uniform Act, like liquidation proceedings generally, is not only to preserve available assets for the benefit of creditors, but to protect the interest of persons who purchased insurance policies from a company which has become insolvent. Requiring State officials liquidating the company to notify policyholders that this or another State has terminated the contract on which they rely is not inconsistent with that goal, particularly when the insured persons have paid for the right to receive such notice so that they may continue insurance protection by obtaining another policy.

Accordingly, the order of the Appellate Division should be reversed, with costs, and claimant’s cross motion to confirm the Referee’s report granted.

Kaye, J.

(dissenting). Transit Casualty Company — domiciled in Missouri, with its principal place of business in California— in December 1985 was declared insolvent and placed in liquidation by order of the Circuit Court of Cole County, Missouri. The order of liquidation made no provision for notice to Transit’s approximately 100,000 policyholders. The court’s order simply recited "All policies of insurance issued by defendant Transit Casualty Company cancelled effective at midnight on December 20, 1985.”

Although not required by the court to do so, the Missouri receiver nonetheless mailed notice to all Transit policyholders; he also arranged for publication of notice of Transit’s liquidation in States where the company had been authorized to do business, including New York. Because the Missouri receiver misaddressed the envelope directed to claimant, however, claimant was unaware that his insurance coverage had been terminated at the time of his loss in February 1986. Claimant seeks to recover his loss from the New York Superintendent of Insurance, Transit’s ancillary receiver (and the New York Property/Casualty Insurance Security Fund), on the theory that he was entitled under his policy to 10 days’ notice before the insurer could cancel his coverage.

This Court now agrees with claimant, holding New York liable for Missouri’s misfeasance. The majority arrives at this result by concluding that the notice provisions contained in claimant’s policy of insurance — and presumably, therefore, the notice provisions contained in every policy issued by foreign insurers licensed in this State — were "vested” at the time of the company’s liquidation, and consequently survive liquidation to bind the New York ancillary receiver. In that this conclusion lacks any basis in law and adds unwarranted uncertainty to liquidation proceedings involving multistate insurers, I must dissent.

As claimant acknowledges, all insurance policies issued by Transit could be canceled by operation of law upon the insurer’s liquidation. In liquidations, creditors with unconditional claims against the insolvent insurer at the time of liquidation —for example, policyholders who had incurred liability to others or had been sued by those making claims against them —of course possess certain, fixed obligations of the insurer (see, Matter of Empire State Sur. Co., 214 NY 553, 565-566; see also, People v Metropolitan Sur. Co., 205 NY 135, 145-147). By the same token, policyholders of a bankrupt insurer are entitled to the return of unearned premiums — again, an unconditional obligation owing at the time of liquidation. In each example, the contractual liability surviving liquidation— the debtor/creditor relationship — is fixed at the time the company ceases its existence, and the claims may be accounted for in facilitating the equitable distribution of the insurer’s assets. No comparable liability is to be found here.

While the Court speaks of a "vested” right to notice, hinting at due process protections attendant on a loss of property rights, its legal analysis is explicitly premised solely on contract law, not constitutional law (majority opn, at 15): "what remained to be done [at liquidation] was for the company, or its successor, to perform the contractual obligation” of giving notice of cancellation (majority opn, at 18). Thus, unlike a due process requirement of "reasonable” notice, the Court’s contract rationale, for this and future cases, binds New York ancillary receivers of foreign insolvents to the actual contract terms found in the insurers’ individual policies with New York residents. Moreover, the Court is imposing an even greater duty on the Superintendent than the contract imposed on the insurer. Rather than notification in the event of cancellation by the insurance company — Transit’s contractual obligation — the Superintendent must give notice upon cancellation by operation of law, an event clearly not covered by the contract provision.

There is no precedent for this novel conclusion; none is cited. The majority at most offers the "analogous” situation of a creditor in a liquidation or bankruptcy proceeding (majority opn, at 19). Any relationship between the two, however, is elusive. That an insured may be a creditor for purposes of a fixed obligation arising prior to liquidation does not support the quite different conclusion that an insured is also a "creditor” for notice purposes. Are all executory contract obligations —or the expectation that the obligation will be fulfilled — now to be considered "vested” at the time of entry of a liquidation order? That would signal a remarkable change in the law.

Although the majority concludes that the "present liquidation procedures and practices are not as inflexible as the Superintendent urges” (majority opn, at 19), a review of the law in this heavily regulated area reveals that the majority’s holding is contrary to the uniform scheme established for liquidation of multistate insurers.

The Uniform Insurers Liquidation Act was adopted in 30 States, including New York, in order to provide "a uniform system for the orderly and equitable administration of the assets and liabilities of defunct multistate insurers.” (Murphy Co. v Reserve Ins. Co., 54 NY2d 69, 77; see, Insurance Law § 7415.) Significantly, the Uniform Act contains no provision for notification to policyholders. It does provide that in a "delinquency proceeding in a reciprocal state [Missouri for example] against an insurer domiciled in that state, claimants residing in this state may file claims either with the ancillary receiver, if any, appointed in this state, or with the domiciliary receiver. All such claims must be filed on or before the last date fixed for the filing of claims in the domiciliary proceeding.” (Insurance Law § 7412 [a].)

It is clear, however, that whatever date is set by the court in the domiciliary State will henceforth have no effect on claims made against the ancillary receiver in New York, although the New York Legislature has seen fit to adopt the Uniform Act and is — or was — a "reciprocal” State. A New York claimant with a "late” claim would certainly file against the ancillary receiver, whose exposure to liability under the policy might be far greater than that of its out-of-State counterpart.

Moreover, liability may extend beyond the assets of the defunct insurance company, as such claims may eventually be allowed against the insurance security fund established pursuant to article 76 of the Insurance Law (see, Matter of Professional Ins. Co. [Jason — Superintendent of Ins. of State of N. Y.], 67 AD2d 850, affd 49 NY2d 716). The majority’s statement that allowing this claim "is not inequitable to other policyholders who were informed of the court’s order and thus had an opportunity to continue their coverage” (majority opn, at 20) misses the point. As the court in Matter of Professional Ins. Co. noted, the prejudice in such a case would arise because "[tjhere exists a potential for dilution of the timely filed claims, and because the security fund is built up with premiums from policyholders of all carriers * * * they will be burdened with additional premiums to replenish the fund earlier than contemplated” (67 AD2d, at 851; see also, Alliance of Am. Insurers v Chu, 77 NY2d 573). What better example of the "unwarranted dissipation” of assets (majority opn, at 20) than the dilution of timely filed claims in ancillary receivership proceedings?

Thus, the majority has effectively undermined the goals of the Uniform Act and injected a new uncertainty into the liquidation process, uncertainty that translates into potentially greater liability for the New York ancillary receiver and security fund. As the present case demonstrates, the New York Superintendent, when acting as ancillary receiver for a foreign insurer, can protect itself against liability, and establish a firm date for filing claims, only by securing the books and records of the company and mailing notice of the liquidation to all New York policyholders. Even then, the ancillary receiver necessarily remains liable for any losses incurred by policyholders during the "window” period. Moreover, the New York Superintendent will also have to inspect each policy to satisfy compliance with contractual notice provisions, since we now declare that the right to the notice specified in each policy "vests” upon the insurer’s liquidation. There is no basis in the law of contracts for the imposition of such an onerous responsibility.

At the very least, the Court’s conclusion points up the need for statutory reform, to provide for notice to policyholders in a way that discourages forum-shopping and assures the objectives of fairness and uniformity that were seemingly secured by adoption of the Uniform Insurers Liquidation Act.

Judges Simons, Alexander and Bellacosa concur with Chief Judge Wachtler; Judge Kaye dissents and votes to affirm in a separate opinion in which Judges Titone and Hancock, Jr., concur.

Order reversed, etc.

      . The majority’s citation to Matter of Consolidated Mut. Ins. Co. (77 NY2d 144; majority opn, at 18) is disturbing. That case involved the obligation to continue retirement benefits provided to the insurer’s employees and turned on the application of settled legal principles developed under the ERISA vesting scheme. The narrow holding of that case, in an area of law with unique policy concerns, should not be used to justify the unsettling of settled law in another heavily regulated area with its own distinct policy considerations. Consolidated Mutual provides no support for the recognition, in a liquidation proceeding, of the executory promise to give notice.

      . The prefatory note to the Uniform Act, in commenting on dissipation of assets, attributes the problem to the fact that domiciliary receivers previously had little authority in nondomiciliary States. The Court’s decision in effect restores that problem. Once again, domiciliary receivers and, most importantly, the cut-off dates set in domiciliary States, will have no impact on the filing of claims in this jurisdiction, undermining the reciprocal rights granted under the Uniform Act (see, 13 ULA 322-323 [1986 Master ed]; see also, Insurance Law § 7412 [a]).


source: Caselaw Access Project

author: Hancock, Jr., J.

license: Public Domain

text:
    Christina Milbrandt, as Administratrix of the Estate of Irving C. Milbrandt, Deceased, Respondent, v A.P. Green Refractories Company, Appellant. Phyllis K. Schmertz, as Administratrix of the Estate of Robert J. Schmertz, Deceased, Respondent, v Presbyterian Hospital in the City of New York, Appellant, et al., Defendant.
    Argued November 14, 1991;
    decided January 14, 1992

      POINTS OF COUNSEL

      Paul F. Jones, Paul Morrison-Taylor, David R. Hayes and Charles H. Fairfax, III, of the Michigan Bar, admitted pro hoc vice, for appellant in the first above-entitled action. I.
    The court erred in not admitting declarations against interest. (Townes v Park Motor Sales, 7 AD2d 109, 7 NY2d 767; Wolfgruber v Upjohn Co., 72 AD2d 59, 52 NY2d 768; Belling v Hough’s Pools, 126 AD2d 958, 70 NY2d 602; Rosemond v Harshaw Chem. Co., 135 AD2d 525; Derdiarian v Felix Contr. Corp., 51 NY2d 308; Matter of Leon RR, 48 NY2d 117; Toll v State of New York, 32 AD2d 47; Jamison v Walker, 48 AD2d 320; Basile v Huntington Utils. Fuel Corp., 60 AD2d 616.) II. There was no duty to warn the product user of a known hazard. (Lancaster Silo & Block Co. v Northern Propane Gas Co., 75 AD2d 55; Landrine v Mego Corp., 95 AD2d 759; Cotroneo v Sabatino, 50 AD2d 1081, 41 NY2d 848; Smith v Hub Mfg., 634 F Supp 1505; Smith v Stark, 67 NY2d 693.) III. Plaintiff’s attorney’s improper conduct requires a new trial. (Diaz v Williams, 22 AD2d 873, 15 NY2d 1029; Romeo v United Traction Co., 214 App Div 337; Paley v Brust, 21 AD2d 758; Kohlmann v City of New York, 8 AD2d 598; Cherry Cr. Natl. Bank v Fidelity & Cas Co., 207 App Div 787; Kinne v International Ry. Co., 100 App Div 5; Caraballo v City of New York, 86 AD2d 580; New York Cent. R. R. Co. v Johnson, 279 US 310; La Russo v Pollack, 88 AD2d 584; Cohen v Covelli, 276 App Div 375, 1011.) IV. A new trial is required to address the issues of damages and interest. (Woodling v Garrett Corp., 813 F2d 543; O'Brien v O'Brien, 66 NY2d 576; Zaninovich v American Airlines, 26 AD2d 155; Greck v New York Cent. R. R. Co., 21 AD2d 776; Esquire Radio & Elecs, v Montgomery Ward & Co., 804 F2d 787; Read v Brooklyn Hgts. R. R. Co., 32 App Div 503.) V. Preverdict interest should not be awarded for postverdict losses. (Soulier v Hughes, 119 AD2d 951; Woodling v Garrett Corp., 813 F2d 543; Shu-Tao Lin v McDonnell Douglas Corp., 742 F2d 45; Parilis v Feinstein, 49 NY2d 984.)

      Paul William Beltz for respondent in the first above-entitled action. I.
    The court below properly construed EPTL 5-4.3 (a). (Soulier v Hughes, 119 AD2d 951; Woodling v Garrett Corp., 813 F2d 543; Shu-Tao Lin v McDonnell Douglas Corp., 742 F2d 45; Pajak v Pajak, 56 NY2d 394; Patrolmen's Benevolent Assn, v City of New York, 41 NY2d 205; Schampier v Office of Gen. Servs., 73 AD2d 1011, 52 NY2d 746.) II. The Ash memo, and the testimony concerning it, were not admissible as

      declarations against interest. (Cover v Cohen, 61 NY2d 261; Casey v Tierno, 127 AD2d 727; Mills v Davis, 113 NY 243; People v Geoghegan, 51 NY2d 45.) III. The Ash memo was not admissible as a business record. (Murray v Donlan, 77 AD2d 337; Balboa Ins. Co. v Alston, 141 AD2d 364; Williams v Alexander, 309 NY 283; Guth Realty v Singold, 34 NY2d 440.) IV. Defendant owed a duty to warn actual users of its product of dangers inherent in its use. (Cohen v St. Regis Paper Co., 99 AD2d 659, 64 NY2d 656; Smith v Stark, 67 NY2d 693; Ziecker v Town of Orchard Park, 75 NY2d 761; Cohen v St. Regis Paper Co., 109 AD2d 1048, 65 NY2d 752; Billsborrow v Dow Chem., 139 Misc 2d 488; Codling v Paglia, 32 NY2d 330; Tucci v Bossert, 53 AD2d 291.) V. The summation of plaintiffs counsel provides no grounds for setting aside the jury’s verdict. (Gutin v Mascali & Sons, 11 NY2d 97; Reehil v Fraas, 197 NY 64; Johnson v Manhattan & Bronx Surface Transp. Auth., 71 NY2d 198; Wood v New York State Elec. & Gas Corp., 257 App Div 172, 281 NY 797; Swint v McEwan Coal Co., 266 App Div 701, 291 NY 748; Bump v Delaware Lackawanna & W. R. R. Co., 157 App Div 102, 215 NY 678; Cohen v Covelli, 276 App Div 375; Riffel v Brumburg, 91 AD2d 842.) VI. The attempted use of the warning label was proper. (Cover v Cohen, 61 NY2d 261.) VII. The trial court’s charge concerning damages for wrongful death was proper. (Guarino v Mine Safety Appliance Co., 25 NY2d 460.) VIII. The trial court gave a proper and sufficient instruction concerning interest. (Lee v Bank of N. Y, 144 AD2d 543; Bond Elec. Corp. v Gold Seal Elec. Co., 271 NY 461; Schunk v Brown, 55 AD2d 831.) IX. The jury properly calculated future damages. (Jeras v East Mfg. Corp., 143 Misc 2d 188.) X. No error was committed in calculating past damages. (Woodling v Garrett Corp., 813 F2d 543; Matter of Temporary State Study Commn. v Greenidge, 40 AD2d 601, 31 NY2d 691; Esquire Radio & Elecs, v Montgomery Ward & Co., 804 F2d 787.)

      Sheila L. Birnbaum, Barbara Wrubel and Douglas W. Dun-ham for appellant in the second above-entitled action. I.
    The court below erred in affirming the trial court’s award of prejudgment interest on the awards for postjudgment losses in this case. (Braschi v Stahl Assocs. Co., 74 NY2d 201; People v Ryan, 274 NY 149; Matter of Long v Adirondack Park Agency, 76 NY2d 416; United States v Furumizo, 381 F2d 965; Woodling v Garrett Corp., 813 F2d 543; In re Air Crash Disaster Near Chicago, 644 F2d 633; Rosenfeld v Isaacs, 79 AD2d 630;
      Zappone v Home Ins. Co., 55 NY2d 131; Matter of Breen v Board of Trustees, 299 NY 8; Shu-Tao Lin v McDonnell Douglas Corp., 742 F2d 45.) II. The court below also erred in affirming the trial court’s lump sum interest award on the prejudgment portion of the loss of parental guidance awards.

      Norman Bard and Thomas A. Moore for respondent in the second above-entitled action. I.
    Defendant’s trial counsel failed to preserve for review in this Court the claimed errors that plaintiffs economist did not discount postjudgment losses to the date of death, and that the trial court did not instruct the jury to discount postjudgment losses to the date of death. (Johnson v Manhattan & Bronx Surface Transp. Auth., 71 NY2d 198; Matter of Brooklyn Union Gas Co. v State Bd. of Equalization & Assessment, 64 NY2d 643; Loughry v Lincoln First Bank, 67 NY2d 369; De Leon v New York City Tr. Auth., 50 NY2d 176; Nallan v Helmsley-Spear, Inc., 50 NY2d 507; Rupert v Sellers, 50 NY2d 881; Sutton v Piasecki Trucking, 59 NY2d 800; De Long v County of Erie, 60 NY2d 296; Burgess v Otis Elevator Co., 69 NY2d 623; Merrill v Albany Med. Center Hosp., 71 NY2d 990.) II. The clear, precise and unambiguous language of EPTL 5-4.3 mandates that interest must be added to the verdict rendered by the jury as of the date of death. There is no discretion or power vested in the trial court to withhold interest to which plaintiff is entitled as a matter of right. (Alfieri v Cabot Corp., 17 AD2d 455, 13 NY2d 1027; Sleeman v Reifenstein, 90 AD2d 996; Matter of State of New York [Abrams] v Ford Motor Co., 74 NY2d 495; Matter of Alonzo M. v New York City Dept. of Probation, 72 NY2d 662; National Org. for Women v Metropolitan Life Ins. Co., 131 AD2d 356; Matter of Thomas v Bethlehem Steel Corp., 95 AD2d 118; Soulier v Hughes, 119 AD2d 951; Jeras v East Mfg. Corp., 143 Misc 2d 188; Shu-Tao Lin v McDonnell Douglas Corp., 742 F2d 45; Woodling v Garrett Corp., 813 F2d 543.)

      Robert R. McMillan, Leslie R. Bennett and James W. Tuffin for Physicians’ Reciprocal Insurers, amicus curiae in the second above-entitled action.
    The court below erred in affirming the trial court’s holding that prejudgment interest on awards for postjudgment losses is required in this case and in all wrongful death cases. (Matter of Budd v Valentine, 283 NY 508; Matter of Kritzer, 146 Misc 2d 1050; Matter of Lower Manhattan Loft Tenants v New York City Loft Bd., 66 NY2d 298.)
   OPINION OF THE COURT

Hancock, Jr., J.

EPTL 5-4.3 specifies that the measure of damages awarded in a wrongful death action should be the "fair and just compensation for the pecuniary injuries resulting from the decedent’s death to the persons for whose benefit the action is brought”. The section also provides that "[i]nterest upon the principal sum recovered by the plaintiff from the date of the decedent’s death shall be added to and be a part of the total sum awarded”.

In these appeals, defendants raise two issues of first impression pertaining to the addition of interest to the amounts awarded in wrongful death actions:

(1) whether EPTL 5-4.3 requires that preverdict interest (i.e., from the date of death to the date of the award) should be added to an award for pecuniary losses to be incurred in the future, when the award for such future losses is not discounted back to a time earlier than the time of the award; and
(2) whether preverdict interest under EPTL 5-4.3 should be calculated on the entire sum awarded for past accrued pecuniary losses from the date of death, or by calculating interest either on each item of damage from the date it was incurred or on all of such damages from some reasonable intermediate date, as prescribed in CPLR 5001 (b).

For reasons to be explained, we hold: (1) that no preverdict interest should be added to an award for postverdict losses if the award has not been discounted to a time prior to the award; and (2) that preverdict interest on an award for past losses that have accrued from the date of death to the date of the verdict should be calculated under the method in CPLR 5001 (b). Thus, in each appeal there should be a reversal and a recalculation of the interest added to the judgment pursuant to EPTL 5-4.3, in accordance with this opinion.

I.

In these wrongful death actions, plaintiffs have recovered damages in jury trials both for past losses from the dates of decedents’ deaths to the dates of the verdicts and for future losses to be incurred subsequent to the dates of the verdicts.

(A) Milbrandt v Green Refractories Co. arises out of an industrial accident which occurred on January 19,1974. Plaintiffs decedent, a millwright, was killed instantly when a furnace on which he was working exploded. The lawsuit was brought by his administratrix in 1975 against various parties including defendant, an insulation manufacturer. In the first trial, held in October 1985, the jury could not agree and a mistrial resulted. The second trial ended on October 24, 1988 in a verdict of $619,000, comprised of two separate awards: (1) $432,000 for past pecuniary losses, including the portion of decedent’s earnings he would have applied to the care and support of his wife and children from his death on January 19, 1974 to the date of the verdict; and (2) $187,000 for what decedent would, in the future, have contributed to the care and support of his family considering, inter alia, his age and work expectancy and the number of years until his children reached their majority.

With respect to the postverdict losses, the court instructed the jury to discount the damages by reducing the award to its cash value on the day of the verdict by applying an interest rate equal to the rate of return to be expected from reasonably safe investments. Defendant took no exception to this instruction. The court denied defendant’s request that the court discount the award pursuant to CPLR 4111 (f) rather than instructing the jury to do it.

Supreme Court entered judgment for plaintiff, including $677,270 in interest on the $619,000 principal award computed from the date of death. Defendant objected, inter alia, to the attachment of preverdict interest to the future damages and the computation of preverdict interest on the total past damages from the date of death. The Appellate Division unanimously affirmed the judgment (167 AD2d 991). The court held that EPTL 5-4.3 provides for interest on the "principal sum recovered” without "distinguishing between prejudgment and postjudgment losses of future income (Soulier v Hughes, 119 AD2d 951, 954)” (Milbrandt v Green Refractories Co., 167 AD2d 845, 845-846). Although acknowledging the merit of the contrary holding of the Second Circuit in Woodling v Garrett Corp. (813 F2d 543 [2d Cir 1987]), the Appellate Division expressly declined to follow that decision. It concluded that any inequity which might result from its interpretation of EPTL 5-4.3 was "a matter for the Legislature and not for the courts” (167 AD2d, at 846). Defendant has appealed by our leave from the Appellate Division order.

(B) In Schmertz v Presbyterian Hosp., plaintiff administratrix commenced an action in 1977 against defendant hospital, a physician, and a nurse to recover damages for the wrongful death of her husband on July 23, 1975. The case came on for trial before a jury in January 1990. After the complaint against the nurse had been dismissed, the jury rendered a verdict on February 7, 1990 against the hospital and the doctor in the total amount of $5,050,000. The verdict consisted of a $4,000,000 award for loss of inheritance and awards of $500,000 to two of decedent’s children and $50,000 to a third child, for loss of parental guidance.

The $4,000,000 award compensated plaintiff for the loss of the increase in the decedent’s estate due to his premature death in 1975 — i.e., the additional amount that his wife and children could expect to receive in inheritance upon decedent’s death in the year 2003 assuming that he continued to live for his full life expectancy. The $4,000,000 was thus compensation for a loss to be sustained 13 years in the future. The $50,000 parental guidance award to decedent’s daughter, Nancy — who was to reach her majority two years after decedent’s death — was entirely for a preverdict loss. The $500,000 separate awards to decedent’s other children, Ronnie and Jane, however, represented both past and future losses: from decedent’s death on July 23, 1975 to the date of the verdict on February 9, 1990; and, from that date until the end of decedent’s expected life in 2003.

The jury was presented with the opinion of plaintiff’s expert, an economist, who discounted the future damages to the date of the verdict. The trial court, however, did not instruct the jury to discount the future damage awards or to make any adjustments in those awards to reflect the effect of interest. Thus, it is clear that the jury awards, if discounted at all, were discounted only to the date of the verdict, and not earlier.

In its postverdict, prejudgment motion, defendant hospital objected to the inclusion of any preverdict interest on the loss of inheritance award and on so much of the loss of parental guidance awards as represented future losses. It also objected to the calculation of the interest added to the past parental guidance awards as being computed on the total amount of such awards from the date of decedent’s death. The trial court denied defendant hospital’s motion in all respects. Judgment was entered containing interest of $5,714,075, as computed by the clerk, on total damages of $5,050,000 from the date of decedent’s death, July 23, 1975, to the date of the verdict on February 9, 1990. The Appellate Division unanimously affirmed, citing the decision of the Appellate Division in Milbrandt v Green Refractories Co. (supra), and specifically rejecting the opposite view of the Second Circuit Court of Appeals in Woodling v Garrett Corp. (supra). Defendant hospital has appealed by leave of the Appellate Division.

II.

Defendants in both Milbrandt and Schmertz contend that adding preverdict interest to an award for postverdict damages is contrary to the express purpose of wrongful death damages under EPTL 5-4.3: i.e., to provide "fair and just compensation for the pecuniary injuries resulting from the decedent’s death to the persons for whose benefit the action is brought” (id. [emphasis added]). Defendants point out that when an amount intended to compensate for a future loss is discounted back to a particular time, the discounted amount represents the sum which, if invested at that time at reasonable rates of return, would theoretically produce the intended amount at the future time when the loss is incurred. When, as with the awards in the cases before us, an intended amount is not discounted to the date of death, but only to the date of the verdict, the award includes the return that would be earned on the principal from the date of death to the date of the verdict. The effect of adding interest to such an award pursuant to EPTL 5-4.3 is to pay again to the plaintiff the return which is already included in the award. This double recovery of interest, according to defendants, cannot constitute "fair and just compensation for the pecuniary injuries” (EPTL 5-4.3 [a]), and, indeed, the addition of such interest would not be compensation at all but a windfall for plaintiff and a punitive sanction on defendant, in conflict with the statute’s intent. We agree with defendants that the statutory purpose of EPTL 5-4.3 prohibits the addition of preverdict interest on postverdict damages not discounted to the date of death.

Our construction of the statute excluding double recovery of interest is consistent with the settled doctrine that the goal of damages in a wrongful death action is to compensate the decedent’s distributees for no more than their pecuniary loss (see, Parilis v Feinstein, 49 NY2d 984, 985; Rosenfeld v Isaacs, 79 AD2d 630, 630-631; Shu-Tao Lin v McDonnell Douglas Corp., 742 F2d 45, 51-52 [2d Cir 1984]). The inclusion of such unearned windfall interest is, of course, the antithesis of compensation (see, Esquire Radio & Elecs, v Montgomery Ward & Co., 804 F2d 787, 796 [2d Cir 1986]; see also, Hartford Acc. & Indem. Co. v Village of Hempstead, 48 NY2d 218, 226).

Plaintiffs, however, observe that EPTL 5-4.3, on its face, does not distinguish between interest calculated upon preverdict damages and postverdict damages and requires that "[i]nterest upon the principal sum recovered by the plaintiff * * * shall be added to and be a part of the total sum awarded” (emphasis added). They argue that this statutory language should be given a literal construction and that the statute thus requires that preverdict interest be added, regardless of whether the award is discounted to the date of the verdict or to the date of decedent’s death. But adopting this construction would permit awards under the statute to depend entirely upon caprice — i.e., whether the court happened to discount the future damages to the date of the award or back to the date of death. If the former, the plaintiff would get a double recovery of interest; if the latter, one recovery.

It is an accepted doctrine that a literal reading of a statute should, where possible, be avoided if it produces an absurd or unjust result (see, Zappone v Home Ins. Co., 55 NY2d 131, 137). Here, the section can easily be construed to circumvent the unfair and arbitrary effects that could result from the adoption of plaintiffs’ construction (see, Matter of Long Is. Pine Barrens Socy. v Planning Bd., 78 NY2d 608): i.e., by reading the direction for the addition of interest in its context with the rest of EPTL 5-4.3 and giving that direction its intended effect, so that the total of the principal and the added interest provides "fair and just compensation for the pecuniary injuries resulting from the decedent’s death” (EPTL 5-4.3 [a]). The statutory term "principal sum”, if given its natural meaning consistent with the sense of the statute, is simply the discounted sum without any included interest — i.e., discounted to the date of death. If, as in the cases before us, the damages are discounted only to the date of verdict, then that award already includes interest on the principal sum from the date of death to the date of verdict, and additional interest is a windfall. Our construction of "principal sum” avoids this anomaly and furthers the basic policy underlying EPTL 5-4.3.

Our conclusion that no preverdict interest should be added to an award for future damages when the award is only discounted back to the date of the verdict is consistent with the decisions of the Second Circuit Court of Appeals in Woodling v Garrett Corp. (supra) and Shu-Tao Lin v McDonnell Douglas Corp. (supra).

Accordingly, in Milbrandt v Green Refractories Co. no preverdict interest should be added to the future loss award. Similarly, in Schmertz v Presbyterian Hosp.: (1) preverdict interest on the loss of inheritance award should be eliminated; and (2) interest on the loss of parental guidance awards to Ronnie and Jane Schmertz should be prorated between preverdict and postverdict portions and interest on that part of those awards reflecting postverdict losses should be eliminated.

Ill

Defendants argue that the addition of interest calculated on the total amount of the preverdict awards from the date of decedent’s death is also contrary to the express intent of EPTL 5-4.3 that wrongful death awards should "be fair and just compensation for the pecuniary injuries resulting from the decedent’s death”. Again, we agree.

When losses are ongoing and spread over the period from the date of decedent’s death to the date of the verdict, the damages may be viewed as resulting from a series of discrete losses occurring after decedent’s death. If interest is computed as though the losses all occurred simultaneously at the time of decedent’s death — interest is necessarily included for damages which have not yet been sustained. These amounts obviously do not represent interest earned on compensation for losses actually incurred and, if added, are a pure windfall. Their inclusion, just as with the inclusion of preverdict interest on nondiscounted future damages, subverts the underlying rationale for damages in EPTL 5-4.3 (see, Parilis v Feinstein, supra, at 985).

As with an award for future losses, EPTL 5.4-3 should be construed, if possible, so as to avoid the unfair imposition of a windfall, contrary to the legislative intent (see, Matter of Long Is. Pine Barrens Socy. v Planning Bd., supra; Zappone v Home Ins. Co., supra; and discussion, part II, supra, at 36). To avoid such a construction, we conclude that, with respect to a past loss, "[i]nterest upon the principal sum recovered” means interest computed from the time that the particular loss is sustained upon which the interest becomes due.

We agree with the Second Circuit Court of Appeals in Woodling (supra, at 561) that the procedure to be followed in computing preverdict interest on past losses incurred at discrete times from the date of death until the date of the verdict should be that in CPLR 5001 (b) — i.e., by calculating the interest "upon each item from the date it was incurred or upon all of the damages from a single reasonable intermediate date” (id.). Thus, the interest on the preverdict losses in Milbrandt and on the award for preverdict portions of the parental guidance awards in Schmertz should be recalculated in accordance with CPLR 5001 (b).

IV

Defendant in Milbrandt also contends — in its appeal addressed to the merits of the lawsuit — that the complaint should be dismissed, as a matter of law, upon the ground that defendant had no duty to warn plaintiff of the dangers of using the insulation. Failing that, defendant argues that there should be a reversal and a new trial because of trial errors including the court’s refusal to admit certain evidence and improper conduct by plaintiff’s counsel. We find no basis for reversal of the judgment in these or other arguments advanced.

Accordingly, in each action, the order should be reversed, with costs, and the case remitted to Supreme Court for further proceedings in accordance with this opinion. In Schmertz, the certified question should not be answered as unnecessary.

Chief Judge Wachtler and Judges Simons, Kaye, Alexander, Titone and Bellacosa concur.

In Milbrandt v Green Refractories Co.: Order reversed, with costs, and case remitted to Supreme Court, Erie County for further proceedings in accordance with the opinion herein.

In Schmertz v Presbyterian Hosp. in City of N. Y.: Order reversed, with costs, and case remitted to Supreme Court, New York County, for further proceedings in accordance with the opinion herein. Certified question not answered as unnecessary.

      . Because the action was commenced in 1975, prior to the effective date of CPLR 4111 (f) (L 1986, ch 682, § 7, eff July 30, 1986 and applicable to actions commenced on or after such date [ch 682, § 12]), that section is inapplicable. Inasmuch as a trial of the action was commenced in 1985, the subsequent amendment giving retroactive operation to rule 4111 (f) so as to apply to actions commenced prior to 1986 is of no effect (see, L 1988, ch 184, § 20; see generally, McKinney’s Cons Laws of NY, Book 1, Statutes § 51).
      Defendant challenges the court’s jury charge on the ground that it inadequately instructed the jury to omit from its future loss award any amounts representing what the decedent would use for his personal consumption. The contention lacks merit. The court instructed the jury that in calculating future pecuniary losses, they were to include only amounts that would be used to support decedent’s wife and children.
      The defendant also complains that the court erred in admitting expert testimony on the addition of an "investment factor” which could have caused the jury to inflate the award. We find no basis for reversal in this contention. No mention was made of the addition of such "investment factor” in either the charge to the jury or in summations, and the court’s charge to the jury on discounting the future award effectively cured any possible confusion.

      . In its charge to the jury, the trial court noted that ordinarily, no claim for loss of parental guidance can be made once a child reaches the age of 21. Ronnie and Jane Schmertz, however, were exceptions to this rule because of their mental and physical disabilities and were entitled to parental guidance for the 13 years remaining of their father’s expected life.

      . EPTL 5-4.3 (a) in pertinent part provides:
      "The damages awarded to the plaintiff may be such sum as the jury or, where issues of fact are tried without a jury, the court or referee deems to be fair and just compensation for the pecuniary injuries resulting from the decedent’s death to the persons for whose benefit the action is brought * * * Interest upon the principal sum recovered by the plaintiff from the date of the decedent’s death shall be added to and be a part of the total sum awarded.”

      . As part of its alternative relief requested in its March 26, 1990 letter to Justice Gammerman, defendant requested that the interest be prorated between the pretrial and posttrial losses.

        . The financial expectancies constituting the basis of recovery in wrongful death actions are property rights inuring to the survivors of the decedent (see, Dibble v Whipple, 281 NY 247; Sider v General Elec. Co., 238 NY 64; Matter of Gary, 79 Misc 2d 419). Thus, the use of the CPLR 5001 (b) procedure, which expressly covers actions for interference with property rights (see, CPLR 5001 [a]), is appropriate in calculating interest in wrongful death actions (see, Woodling v Garrett Corp., 813 F2d 543, 561; Siegel, 1967 Supp Practice Commentaries, McKinney’s Cons Laws of NY, Book 7B, CPLR 5001,1992 Supp Pamph, at 517).


author: Simons, J.

text:
    Association of Surrogates and Supreme Court Reporters Within the City of New York, by Mary O'Leary, President, et al., Respondents, v State of New York et al., Appellants. Joseph E. McDermott, as President of the Civil Service Employees Association, Inc., Local 1000, AFSCME (AFL-CIO), et al., Respondents, v State of New York et al., Appellants.
    Argued January 7, 1992;
    decided January 16, 1992

      POINTS OF COUNSEL

      Robert Abrams, Attorney-General (Judith A. Gordon, Jerry Boone, Howard L. Zwickel and John J. Sullivan of counsel), for the State of New York and another, appellants, I.
    State Finance Law § 200 (2-b) does not affect contract rights. (Marcus Assocs. v Town of Huntington, 45 NY2d 501; Finger Lakes Racing Assn, v New York State Racing & Wagering Bd., 45 NY2d 471; Matter of Erie County Agrie. Socy. v Cluchey, 40 NY2d 194; Matter of Board of Trustees [Maplewood Teachers’ Assn.], 57 NY2d 1025; Dodge v Board of Educ., 302 US 74; United States Trust Co. v New Jersey, 431 US 1; Indiana ex rel. Anderson v Brand, 303 US 95; Ansonia Brass & Copper Co. v New Lamp-chimney Co., 53 NY 123, 91 US 656; People v Mobil Oil Corp., 48 NY2d 192.) II. Any contract impairment resulting from State Finance Law § 200 (2-b) is constitutional. (Home Bldg. & Loan Assn, v Blaisdell, 290 US 398; El Paso v Simmons, 379 US 497; Stephenson v Binford, 287 US 251; Kirschner v United States, 603 F2d 234, 442 US 909; Koch v Yunich, 533 F2d 80; Alliance of Am. Insurers v Chu, 77 NY2d 573; Andre v Pomeroy, 35 NY2d 361; Capelin Assocs. v Globe Mfg. Corp., 34 NY2d 338; Energy Reserves Group v Kansas Power & Light, 459 US 400; United States Trust Co. v New Jersey, 431 US 1.) III. Even if State Finance Law § 200 (2-b) is unconstitutional because it impairs contract rights of represented employees, it continues to apply to unrepresented employees. (People ex rel. Alpha Portland Cement Co. v Knapp, 230 NY 48, 256 US 702; People v Liberta, 64 NY2d 152, 471 US 1020; Matter of Westinghouse Elec. Corp. v Tully, 63 NY2d 191; People v Mancuso, 255 NY 463; Matter of Shattenkirk v Finnerty, 62 NY2d 949; Matter of New York State Superfund Coalition v New York State Dept. of Envtl. Conservation, 75 NY2d 88.)

      Kenneth Falk and Michael Colodner for Matthew T. Crosson, appellant.
    If the lag payroll law is held invalid, its invalidity applies to both represented employees and unrepresented court employees. (People ex rel. Alpha Portland Cement Co. v Knapp, 230 NY 48, 256 US 702; Matter of New York State Superfund Coalition v New York State Dept. of Envtl.

      Conservation, 75 NY2d 88; Matter of Westinghouse Elec. Corp. v Tully, 63 NY2d 191; People v Liberta, 64 NY2d 152; Matter of Racquel Marie X., 76 NY2d 387; Matter of Burrows v Board of Assessors, 64 NY2d 33; Loew v McNeill, 170 Misc 647, 279 NY 806; Rockland County Bldrs. Assn. v McAlevey, 55 Misc 2d 695, 29 AD2d 975; Motor Vehicle Mfrs. Assn. v Abrams, 720 F Supp 284; Doyle v Suffolk County, 786 F2d 523.)

      David Schlachter and Joel Giller for Association of Surrogates and Supreme Court Reporters within the City of New York and others, respondents. I.
    Plaintiffs-respondents have rights protected by United States Constitution, article I, § 10. (Association of Surrogates & Supreme Ct. Reporters within City of N. Y. v State of New York, 78 NY2d 143.) II. The rights impaired by the lag payroll law are substantial and are entitled to protection under United States Constitution, article I, § 10. (Association of Surrogates & Supreme Ct. Reporters Within City of N. Y. v State of New York, 940 F2d 766; Davis v Mills, 194 US 451; Faitoute Co. v Asbury Park, 316 US 502; El Paso v Simmons, 379 US 497; Allied Structural Steel Co. v Spannaus, 438 US 234; United States Trust Co. v New Jersey, 431 US 1.) III. The impairment violates United States Constitution, article I, § 10. (United States Trust Co. v New Jersey, 431 US 1; Association of Surrogates & Supreme Ct. Reporters Within City of N. Y. v State of New York, 940 F2d 766; Alliance of Am. Insurers v Chu, 77 NY2d 573.)

      Jerome Lefkowitz, Nancy E. Hoffman and Marilyn S. Dymond for Civil Service Employees Association, Inc., respondent. I.
    The provisions of New York Civil Service Law § 209-a (1) (e) became part of the parties’ contract under the existing law doctrine. (Home Bldg. & Loan Assn. v Blaisdell, 290 US 398; Matter of County of Niagara v Newman, 104 AD2d 1.) II. The impairment of plaintiffs-respondents’ contract rights is substantial. III. Defendant-appellant’s unilateral imposition of a lag payroll is not justified by the Governor’s assertion of a fiscal crisis. (Matter of Board of Educ. v Yonkers Fedn. of Teachers, 40 NY2d 268; United States Trust Co. v New Jersey, 431 US 1; Matter of Pell v Board of Educ., 34 NY2d 222; Alliance of Am. Insurers v Chu, 77 NY2d 573.) IV. Defendant-appellant’s attempt to distinguish this case from "Association of Surrogates I” is in error. (Schwartz v Public Adm’r of County of Bronx, 24 NY2d 65.) V. The decisions in Subway, Kirschner and Cassidy are distinguishable.

      Richard R. Rowley, David C. Rowley and Kevin S. Casey for

      New York State Inspection, Security and Law Enforcement Employees, District Council 82, AFSCME, AFL-CIO, amicus curiae. I. Civil Service Law § 209-a (1) (e) continues contractual rights. (Association of Surrogates & Supreme Ct. Reporters within City of N. Y. v State of New York, 78 NY2d 143; Rankin v Shanker, 23 NY2d 111; United States Trust Co. v New Jersey, 431 US 1; Matter of County of Niagara v Newman, 104 AD2d 1; Matter of Cobleskill Cent. School Dist. v Newman, 105 AD2d 564.) II. The contract impairment resulting from State Finance Law § 200 (2-b) is not minimal. (Energy Reserves Group v Kansas Power & Light, 459 US 400; Association of Surrogates & Supreme Ct. Reporters Within City of N. Y. v State of New York, 940 F2d 766.) III. The appellants’ impairment of its own contractual obligations is not necessary to achieve an important public purpose. (Matter of Subway-Surface Supervisors Assn. v New York City Tr. Auth., 44 NY2d 101; Association of Surrogates & Supreme Ct. Reporters Within City of N. Y. v State of New York, 940 F2d 766.) IV. The lag payroll is not a reasonable method to help remedy the State’s current fiscal situation. (Treigle v Acme Homestead Assn., 297 US 189, 728; Matter of Subway-Surface Supervisors Assn. v New York City Tr. Auth., 44 NY2d 101.)
   OPINION OF THE COURT

Simons, J.

This appeal involves the State’s attempt, by legislative amendments to the State Finance Law, to offset anticipated State budget shortfalls for the fiscal year 1991-1992 by effecting a five-day lag payroll upon both represented and unrepresented nonjudicial employees of the Unified Court System (State Finance Law § 200 [2-b]). The savings are to be realized by paying employees for nine days, rather than 10, in each biweekly salary check over five payroll periods. The wages deferred are to be paid in lump sums when the employees’ service is terminated, either by retirement or death, at the basic annual salary in effect at that time. The value of the deferred payroll is allegedly $10.7 million, with $1.1 million of that amount attributable to unrepresented employees not protected by any collective bargaining agreement.

A prior statute imposing a lag payroll upon similarly situated employees for the fiscal year 1990-1991, has been declared void by the Federal Court of Appeals as violating the Contract Clause of the United States Constitution (US Const, art I, § 10, cl [1]; see, Association of Surrogates & Supreme Ct. Reporters Within City of N. Y. v State of New York, 940 F2d 766 [Association of Surrogates I]; see also, Association of Surrogates & Supreme Ct. Reporters within City of N. Y. v State of New York, 78 NY2d 143 [answering certified question]). Indeed, in the only other cases cited to us in which lag payroll legislation was considered, the courts have deemed it invalid (see, Matter of Quirk v Regan, 148 Misc 2d 300; Matter of McDermott v Unified Ct. Sys., Sup Ct, Albany County, June 21, 1991).

The courts below granted plaintiffs summary judgment, declared the statute unconstitutional and permanently enjoined its enforcement. The matter is before us on expedited appeal by leave of the Appellate Division.

The threshold issue is whether a valid and subsisting contract existed between the parties. Defendants maintain that the State could postpone the employees’ pay because the contracts with the respective plaintiff unions had expired on March 31, 1991, before the statute was enacted. In response to plaintiffs’ contention that the contract remained in effect because of the continuing benefits provision of Civil Service Law § 209-a (1) (e), defendants assert that the provision conferred no more than statutory rights to the employees which were subject to repeal by the later enactment. The courts below concluded that although the stated term of the contracts had been completed, the contracts continued thereafter pursuant to Civil Service Law § 209-a (1) (e). We agree.

When the contracts were negotiated, the existing statutes, specifically the continuation-of-benefits clause, were incorporated into them and continued as part of the agreement until new agreements were executed. It was unnecessary, therefore, that a similar clause be included in the agreement because the obligation of the contracts included "not only the express terms but also the contemporaneous state law pertaining to [their] interpretation and enforcement” (United States Trust Co. v New Jersey, 431 US 1, 19-20, n 17; see also, Association of Surrogates I, 940 F2d 766, 774, supra).

The question then is whether the Legislature, in passing section 209-a (1) (e), intended "to create private rights of a contractual nature enforceable against the State” (United States Trust Co. v New Jersey, supra, at 17, n 14 [emphasis supplied]). Significantly, the section provides, not that the terms and conditions of employment shall continue, but that the terms of the "expired agreement” shall continue. We conclude that the provision extended the contract, thereby affording plaintiffs protection under the Contract Clause of the Federal Constitution (cf., Indiana ex rel. Anderson v Brand, 303 US 95). To hold otherwise would mean that the State would be bound by the terms of an expired collective bargaining agreement only so long as it wished to be bound.

Our construction of section 209-a (1) (e) is consistent with the underlying purposes of the Taylor Law (Civil Service Law art 14), to promote employer-employee harmony and uninterrupted service in the public sector by avoiding destructive self-help remedies (see, Association of Surrogates & Supreme Ct. Reporters within City of N. Y. v State of New York, 78 NY2d 143, 153, supra [citing Civil Service Law § 200]). Thus, the statute denies employees the right to strike, balances that loss with a continuation of benefits provision binding on the employer after the existing contract expires, and mandates that the parties bargain in good faith to achieve a new agreement.

Nor do we accept defendants’ contention that the Legislature repealed section 209-a by enacting the deferred payroll statute. Section 200 (2-b) contains no express repeal, its terms do not conflict with those of section 209-a (1) (e) and it contains no other language from which an intent to repeal may be inferred (see generally, Alweis v Evans, 69 NY2d 199). Indeed, defendants’ cause would not be advanced were we to hold that the section was intended to repeal section 209-a (1) (e); the repealer would still impair the employees’ contract rights. Having concluded that the contracts continued after the expiration of their stated term, we turn to the question of whether section 200 (2-b) of the State Finance Law violates the Federal Constitution.

The Contract Clause of the United States Constitution prohibits a State from passing any law impairing the obligation of contracts (US Const, art I, § 10, cl [1]). Notwithstanding its categorical language, not all impairments of contract are unconstitutional (see, United States Trust Co. v New Jersey, 431 US 1, 21, supra). The "more difficult question”, the Supreme Court has stated, is whether the impairment is permitted under the Constitution (United States Trust Co. v New Jersey, supra, at 21). The answer is found by balancing the contract rights of the individual against "the 'essential attributes of sovereign power’ * * * necessarily reserved by the States to safeguard the welfare of their citizens” (United States Trust Co. v New Jersey, supra, at 21 [quoting from Home Bldg. & Loan Assn. v Blaisdell, 290 US 398, 435]). The court, having found an impairment, must test it to determine if it is substantial, rather than theoretical (see, Allied Structural Steel Co. v Spannaus, 438 US 234, 244; Association of Surrogates I, 940 F2d 766, 771, supra; see also, Davis v Mills, 194 US 451, 456). If the impairment is substantial, it must be examined in light of the nature and purpose of the State legislation, and will be upheld if it is reasonable and necessary to accomplish a legitimate public purpose. In the case of private contracts, courts generally defer to legislative judgment as to necessity and reasonableness (United States Trust Co. v New Jersey, supra, at 22-23). However, when the State impairs its own contracts, a more searching analysis is required because of the self-serving nature of the legislation (United States Trust Co. v New Jersey, supra, at 25-26; see generally, 2 Rotunda, Nowak and Young, Constitutional Law: Substance and Procedure § 15.8, at 103-104).

The impairment of contract created by the lag payroll is substantial and the statute, like the prior statute deferring pay for fiscal year 1990-1991, is not sustainable as reasonable and necessary to achieve an important public purpose (see, Association of Surrogates I, 940 F2d 766, 772-774, supra). The burden it imposes is essentially the same as that in Association of Surrogates I (supra). It results in withholding 10% of an employee’s expected wages each week over a period of 10 weeks: salary which will not be paid until the employee leaves State service, which may be years in the future. That is not an insubstantial impairment to one confronted with monthly debt payments and daily expenses for food and the other necessities of life.

Nor is lagging reasonable and necessary to accomplish the State’s purposes. The choice of which revenue-raising or revenue-saving devices should be used is for others, not the courts, but the menu of alternatives does not include impairing contract rights to obtain forced loans to the State from its employees. In Association of Surrogates I (supra), the Federal court found it significant that the lag funds were intended to fund various court initiatives. At the very least, it held, the State could eliminate those programs rather than impair the employees’ contracts. This aspect distinguishes Surrogates I from this case, but we do not find the distinction dispositive. Elimination of the initiatives was one of several available options. Although that precise alternative is not available here, others are.

The Subway-Surface case does not require a different result (Matter of Subway-Surface Supervisors Assn. v New York City Tr. Auth., 44 NY2d 101). The Court in that case dealt with State legislation enacted to meet a declared financial emergency in New York City. The statute was challenged because it eliminated a prospective salary increase. Unlike this case where earned salaries may be deferred for indefinite periods of perhaps 25, 30 or 40 years, until the employee leaves State service, the Financial Emergency Act considered in Subway-Surface was a temporary measure, adopted after formal findings of necessity, to avoid the perceived emergency created by New York City’s imminent bankruptcy. It postponed a future benefit to employees for one year only or until the emergency was declared over (cf., Home Bldg. & Loan Assn. v Blaisdell, 290 US 398, supra).

Finally, the State contends that if section 200 (2-b) of the State Finance Law unconstitutionally impairs the contracts of the represented employees it should nevertheless be applied to lag the pay of the unrepresented employees. The standard for determining severability was stated in People ex rel. Alpha Portland Cement Co. v Knapp (230 NY 48, 60 [Cardozo, J.]):

"The question is in every case whether the legislature, if partial invalidity had been foreseen, would have wished the statute to be enforced with the invalid part exscinded, or rejected altogether. The answer must be reached pragmatically, by the exercise of good sense and sound judgment, by considering how the statutory rule will function if the knife is laid to the branch instead of at the roots.”

(See also, Matter of New York State Superfund Coalition v New York State Dept. of Envtl. Conservation, 75 NY2d 88, 94; Matter of Westinghouse Elec. Corp. v Tully, 63 NY2d 191, 196.)

In a general way, severance could preserve the purpose of the payroll lag statute because at least some savings might be realized by continuing the lag against unrepresented employees. However, only 10% of the employees intended to be affected by the statute would remain subject to the lag. There is little reason to believe the Legislature would conclude that this burden should be imposed on only a small segment of the employees of the Unified Court System where the intended effect of the statute has been so severely undercut. The effect would be to "invalidate the dog, while preserving the tail” (see, Association of Surrogates I, 778 F Supp 210, 213). Significantly, section 200 (2-b) contains no severability clause and it does not differentiate between represented and unrepresented employees. Moreover, the Legislature has enacted lag payrolls on two prior occasions in the recent past and in neither of them did it apply the legislation to only a limited segment of the employee pool, or provide for severability if the statute was invalid as to some of those affected (see, L 1982, ch 353, § 5; L 1990, ch 190, § 375). It is not reasonable to believe it would choose to do so now.

Accordingly, the order of the Appellate Division should be affirmed, with costs.

Judges Kaye, Alexander, Titone, Hancock, Jr., and Bellacosa concur; Chief Judge Wachtler taking no part.

Order affirmed, with costs.

      . State Finance Law § 200 (2-b) provides:
      "2-b. (a) For nonjudicial officers and employees of the unified court system: commencing with the earliest administratively feasible payroll period (and corresponding payment date) subsequent to the date this subdivision becomes a law, payment on the payment date of the five payroll periods commencing thereon shall be for nine-tenths of that amount paid each payroll period until a total of five-tenths of salary for one payroll period that would be paid but for this provision has been withheld. For nonjudicial officers and employees hired after the date this subdivision becomes a law, the withholding of five days of salary shall be accomplished in the same manner described above, provided, however, such withholding shall be made on the first five payment dates in which such new officers or employees would otherwise have received their salary.”

        "(b) Where salary has been withheld pursuant to this subdivision, in lieu of such salary, an officer or employee who retires or otherwise separates from service, or the beneficiary of an employee who dies, shall be entitled to a lump sum payment equal to the salary so withheld at the rate of basic annual salary in effect at the time of death, retirement, or other separation from service for each day or part thereof for which salary was withheld pursuant to this section.”

      . Civil Service Law § 209-a (1) (e) provides that it is an improper employer practice: "to refuse to continue all the terms of an expired agreement until a new agreement is negotiated”.


author: Chief Judge Wachtler.

text:
    In the Matter of Charles DeBellis et al., Respondents, v Property Clerk of the City of New York et al., Appellants.
    Argued November 21, 1991;
    decided January 16, 1992

      POINTS OF COUNSEL

      Victor A. Kovner, Corporation Counsel (William J. Thom and Stephen J. McGrath of counsel), for appellants.
    Having failed to file a timely demand or a District Attorney’s release, petitioners cannot maintain this action. (Moreno v City of New York, 69 NY2d 432; McClendon v Rosetti, 369 F Supp 1391; People v Cates, 104 AD2d 895.)

      Samuel Hirsch for respondents. I.
    The property clerk had an affirmative duty to raise any question as to lawful entitlement to seized property by instituting timely forfeiture proceedings under McClendon, and the affirmative defense that claimant is an "unlawful claimant” must fail. (McClendon v Rosetti, 460 F2d 111, 369 F Supp 1391; Moreno v City of New York, 69 NY2d 432; Lynch v Household Fin. Corp., 405 US 538; Fuentes v Shevin, 407 US 67; Matter of Caggiano v Frank, 78 Misc 2d 187, 44 AD2d 828; Chrysler Credit Corp. v Shaw, 139 Misc 2d 154; Stuyvesant Ins. Co. v Department of Treasury, 378 F Supp 7; Property Clerk v Madden, 138 Misc 2d 1023; United States v Wilson, 540 F2d 1100; Property Clerk v Covell, 139 Misc 2d 707.) II. Contentions as to the breach of an agreement should have been raised in a timely forfeiture proceeding, not as a counterclaim, and in any event, the plea agreement was not breached and cannot bar the return of claimants’ seized property. (McClendon v Rosetti, 460 F2d 111, 369 F Supp 1391; Schirano v Paggioli, 99 AD2d 802; Besunder v Coughlin, 102 Misc 2d 41; Matter of Baum, 86 Misc 2d 409; Reeves v Manufacturers Hanover Trust Co., 88 AD2d 972; Matter of Ruiz v City of New York, 98 AD2d 645; Matter of Benjamin S., 55 NY2d 116; People v Schaefer, 71 NY2d 973.)
   OPINION OF THE COURT

Chief Judge Wachtler.

This appeal presents two issues regarding the petitioners’ request for the return of property owned by them and held by respondent property clerk: whether, under the expedited procedure for the return of such property set forth in the unpublished order in McClendon v Rosetti (US Dist Ct, SD NY, July 15, 1974, Lasker, J., 70 Civ 3851) petitioners’ demand was (1) timely, and (2) sufficient. Although petitioners did not comply with all procedural steps that a strict reading of the McClendon order would seem to require, for the reasons that follow we conclude that petitioners’ demand should have been honored.

The McClendon procedure stems from a 1972 decision of the United States Court of Appeals for the Second Circuit (McClendon v Rosetti, 460 F2d 111), which held that former section 435-4.0 (now § 14-140) of the Administrative Code of the City of New York establishing the office of property clerk violated due process in certain respects concerning the handling and disposition of property by that official. The challenged section provided (and still provides) that property seized by the police is to be placed in the custody of the property clerk, who is authorized to dispose of such property if it remains in his custody for three months "without a lawful claimant entitled thereto”. Moneys are to be deposited into the Police Pension Fund. Other property is sold at public auction and the proceeds are deposited in the Police Pension Fund. Under the Administrative Code, a claimant seeking return of property in any action or proceeding against the property clerk bears the burden of establishing lawful title and that the property or money was held and used in a lawful manner.

The Second Circuit held that this scheme violated due process "as applied to persons from whose possession money or property, other than contraband, has been taken or obtained, though such money or property was not related to any criminal proceeding, or, if it was so related, such criminal proceedings had been terminated, or if the money or property had been needed as evidence in a criminal proceeding, it was no longer needed for that purpose” (460 F2d, at 116). In particular, the court condemned the notion that the government could seize noncontraband property and require, as a condition of its return, that the person from whom it was seized be able to prove lawful title in a civil action (see, id., at 115-116). The court remanded the case to the District Court to formulate appropriate injunctive relief to avoid perpetuation of the unconstitutional practices and procedures authorized by the Administrative Code.

On remand, the District Court construed the Second Circuit’s decision as requiring that in the circumstances described in that decision (i.e., where the property is unrelated to a criminal proceeding, the criminal proceeding is terminated, or the property is not needed), the property clerk must initiate a forfeiture or other proceeding to justify the continued detention of the property (McClendon v Rosetti, 369 F Supp 1391 [SD NY]). The District Court’s decision resulted in an order, submitted by the plaintiffs in that case, setting forth the procedure to be followed in the future — the procedure at issue in the present appeal.

The McClendon order requires that when money or property is taken from an arrested person a voucher will be issued listing the seized items together with a notice that to obtain the return of the items, the person must submit the voucher, identification and a District Attorney’s release to the property clerk. The notice is to further state that the property clerk may dispose of the money or property as provided by law if a claimant does not demand the property within 90 days after the termination of criminal proceedings or within 90 days after the issuance of a District Attorney’s release, whichever is sooner. The order further provides that the property clerk must return the property to the claimant if a timely demand is made and the claimant submits the voucher and a District Attorney’s release unless, within 10 days thereafter, the property clerk initiates a forfeiture or similar proceeding in which the State bears the burden of proving that it is legally justified in continuing to detain the money or property. A demand is timely if made within the 90-day period set forth in the notice.

The question in the present case is whether the property clerk should have honored a demand made without a District Attorney’s release and more than seven months after the 90-day period expired. In the circumstances of this case, we conclude that the property clerk should have returned the property notwithstanding these procedural irregularities. Those circumstances are as follows.

Petitioners were arrested in July 1985 and charged with possession of stolen property. A number of valuable items were seized from petitioners’ place of business pursuant to a search warrant, including jewelry, silver bars, silver coins and currency. Two walkie-talkies had been seized by police several days earlier. The items were vouchered and placed in the custody of the property clerk. During the pendency of the criminal proceeding, petitioners’ attorney made several requests for the return of various business documents and any property not considered to be stolen, including a request to the Assistant District Attorney in charge of the case and a motion addressed to the criminal court. These efforts were unavailing.

On August 17, 1987, petitioner Lopes pleaded guilty to one count of criminal possession of stolen property in the third degree. On September 14, 1987, petitioner DeBellis entered an identical plea. It is undisputed and the plea colloquies indicate that the guilty pleas related to possession of the walkie-talkies only and were in satisfaction of all charges then pending against petitioners. Petitioner Lopes was sentenced on September 30, 1987 and petitioner DeBellis was sentenced on October 23, 1987. Each was sentenced to a fine of $1,000. Between the two sentencing dates, by letter dated October 20, 1987, petitioners’ attorney, then apparently representing only DeBellis, made a "formed demand” upon the property clerk for the release of the property, noting that DeBellis had earlier visited the property clerk and requested the return of the property, but his request had been refused on the ground that the property was subject to a Federal tax levy.

On September 1, 1988, petitioners secured releases of the levy from the IRS and, on the same day, DeBellis presented the release to the property clerk and demanded the return of the property. The property clerk refused and issued to DeBellis a form acknowledging the demand and containing boilerplate language that the request was being referred to the Legal Bureau of the Police Department to consider whether to institute a forfeiture proceeding. By letter dated September 29, 1988, the Legal Bureau notified petitioners’ attorney that the demand was to be denied because it was untimely and noting further that a District Attorney’s release had not yet been obtained.

Petitioners’ attorney then attempted to secure a release from the District Attorney, who indicated that a release would be issued if proof of ownership were supplied. In an attempt to meet this requirement, on December 7, 1988, petitioners’ attorney submitted to the District Attorney various invoices and requested release of the property. Receiving no response, petitioners commenced this proceeding seeking a court order directing the property clerk to return the property to them.

Supreme Court granted the petition, concluding that petitioners were entitled to the return of the property because they had made an "appropriate” demand for the return of the property and respondents had not commenced a forfeiture proceeding. The Appellate Division affirmed, holding that petitioners’ initial demand was timely and that the property therefore should have been released upon satisfaction of the tax levy. In addition, the court held, relying upon Moreno v City of New York (69 NY2d 432), that a demand need not be accompanied by a District Attorney’s release.

On appeal, respondents’ argue that petitioners’ demand was properly rejected by the property clerk for three reasons: (1) it was untimely; (2) it was improper because it was not accompanied by a District Attorney’s release; (3) petitioners had agreed as part of their plea agreement that the property would not be returned unless they could submit proof of ownership satisfactory to the District Attorney.

With respect to timeliness, respondents argue first that the demand made by petitioners’ attorney by letter dated October 20, 1987, and the one made in person by petitioner DeBellis some time earlier were both premature because they were made before DeBellis was sentenced on October 23, 1987. They contend that, under McClendon, a demand must be made within 90 days after the termination of the criminal proceeding, unless the District Attorney releases the property at an earlier stage, and that the criminal proceeding did not terminate until sentencing. Respondents further contend that the demand made in September 1988, after satisfaction of the tax levy, was made well beyond the 90-day limit.

We agree with respondents that the criminal proceedings did not terminate with petitioners’ guilty pleas and that, therefore, the demand made on behalf of petitioner DeBellis before his sentencing was premature. Although the McClendon order does not specify which event, the plea or the sentencing, constitutes the "termination of criminal proceedings”, CPL 1.20 (18) provides that a criminal proceeding "means any proceeding which * * * constitutes a part of a criminal action” and CPL 1.20 (16) provides that a criminal action "terminates with the imposition of sentence or some other final disposition in a criminal court of the last accusatory instrument filed in the case.” Thus, respondents’ position is consistent with the CPL.

In addition, especially if the seized property is related to the criminal proceedings, there may be valid reasons not to release the property until after sentencing — it may form the basis for a restitutionary component of a sentence, for example. Furthermore, inasmuch as a successful appeal might require use of the seized property as evidence in a trial or retrial, as the case may be, the property clerk should not be required to release property — where the predicate for release is termination of the criminal proceedings — until direct appeals have been exhausted or the time to take a direct appeal has expired, 30 days after sentencing (CPL 460.10 [1] [a]). A release from the District Attorney certifying that the property can be returned to its owner would, of course, negate any such justification for continued detention of the property and would obligate the property clerk to return the property immediately unless a timely forfeiture proceeding is instituted.

Although for these reasons we agree with respondents that petitioners’ initial demands were premature and it is clear that their subsequent demand, following satisfaction of the tax levy, came several months after expiration of the 90-day period, we conclude that these deficiencies are not fatal to their claim. Nor, for related reasons, is their failure to submit a District Attorney’s release a bar.

Respondents would have us interpret and apply the various procedural requirements imposed on a claimant by the Mc-Clendon order as if those requirements were cast in stone and as if a claimant must somehow earn the right to redemption of his property by strict compliance with those procedures. Such a strict approach is unwarranted.

While the McClendon order sets forth a useful, more lenient alternative to the unconstitutionally burdensome procedure imposed by the Administrative Code, it is not the last word on the subject. Our role, in assessing the adequacy of a demand made under the authority of McClendon, is not as limited as it would be if we were interpreting a statute. A judicial order stands on quite different footing. First, a decision of a Federal District Court is not binding authority in this Court. More fundamentally, although the McClendon order was intended to have prospective injunctive effect, its primary object was the resolution of the dispute between those particular parties and it was framed to address the concerns raised by their circumstances. We are free, in a case arising under different circumstances, to determine whether some other procedure may be sufficient.

Furthermore, the purpose of the McClendon procedure is to make it easier for claimants to retrieve property taken from them, not to place procedural obstacles in their way. The core principle of the Second Circuit’s McClendon decision is that, although the government may seize and hold a citizen’s property for a variety of reasons in connection with a criminal or related proceeding, once those proceedings have terminated or it is determined that the property is not related to or is otherwise not needed for those proceedings, due process requires that the property be returned upon demand unless the government can establish a new basis for its detention. The order implementing the Second Circuit’s decision should be construed with that principle in mind. Thus, the procedural requirements imposed on claimants by that order, to the extent that they impede claimants’ due process right to return of their property, ought to be justified by some countervailing State interest and strictly applied only where that interest is implicated.

From that perspective, it makes little sense to bar petitioners’ claim on timeliness grounds. The purpose of limiting the period for making a demand to 90 days, after which the property clerk can transfer the property or its proceeds to the Pension Fund, is to free the property clerk from the burden of maintaining custody of the property indefinitely (see, Moreno v City of New York, 69 NY2d 432, 436, supra). That interest was not compromised in this case.

The initial in-person demand of petitioner DeBellis, coupled with the written demand of his attorney, clearly put the property clerk on notice that these claimants were interested in recovering the property in his custody as soon as possible. Though the demands may have been technically premature, that was not the reason given for denying the request. Instead, petitioners were informed that the property could not be released until a tax levy was satisfied. Upon satisfaction of the levy approximately 11 months later, petitioners immediately renewed their demand. Respondents contend that this was too late, and that petitioners should have made the demand 8 to 10 months earlier at a time when they knew and had informed petitioners that it could not be honored because of the pending tax levy. Nowhere do respondents explain what purpose might have been served by such a futile request. Nor do respondents contend that they had already disposed of the property or, indeed, that they could have done so during the pendency of the tax levy. Thus, respondents’ refusal to honor petitioners’ request on timeliness grounds was without basis.

Similarly, the absence of a District Attorney’s release in this case cannot justify respondents’ refusal to return the property. The purpose of requiring a District Attorney’s release is apparent when a criminal proceeding related to the property is still pending. The pendency of such a proceeding is prima facie justification for its detention by the government, and it is reasonable to require the claimant to establish the contrary by obtaining a release from the District Attorney.

Once all criminal proceedings related to the property have terminated, however, as was the case here, the government’s presumptive right to detain the property no longer exists. In such cases, the rationale of the McClendon decision requires that any further detention be justified by a new predicate, such as a forfeiture proceeding or perhaps the initiation of further criminal proceedings.

Thus, although the McClendon order generally requires a District Attorney’s release, it would be inconsistent with the due process underpinnings of the decision to allow the District Attorney to block the return of the property by simply refusing to issue a release in a case where all criminal matters to which the property is relevant have terminated. The inconsistency is especially apparent in this case, where the District Attorney apparently refused to release the property because petitioners could not provide satisfactory proof of ownership. The point of the McClendon decision was precisely to relieve claimants of that burden. If the District Attorney can effectively block return of the property on such grounds, then McClendon accomplished little more than transferring that arbitrary power from the property clerk to the District Attorney.

For these reasons, we conclude that a claimant’s failure to produce a release cannot stand as a bar to his claim where, as in this case, the District Attorney refuses to issue a release sought by the claimant and fails either to initiate a timely forfeiture proceeding or to offer a valid reason for continued retention of the property, such as the pendency of further relevant criminal proceedings. Where the District Attorney takes neither step, proof that a demand for a release was made on the District Attorney is sufficient to satisfy the claimant’s burden.

Respondents’ final argument is that petitioners agreed to provide proof of ownership as part of their plea agreements. They rely on a statement by petitioner Lopes’ attorney following the entry of Lopes’ plea to the effect that the Assistant District Attorney had agreed to return the property upon proof of ownership satisfactory to her. This statement, however, is too ambiguous to establish a waiver of petitioners’ rights under McClendon — it may have meant, for example, only that the District Attorney would not consider a forfeiture proceeding if petitioners could present such proof. At most, the statement is evidence that the Assistant District Attorney and Lopes’ attorney in the criminal proceeding believed that the District Attorney had control over whether the property would be returned. That erroneous belief does not bind Lopes in this proceeding. In any event, the statement by Lopes’ attorney would not bind petitioner DeBellis, who has an independent right to the return of the property.

For the foregoing reasons, we conclude that petitioners made timely and sufficient demands for the return of their property.

Accordingly, the order of the Appellate Division should be affirmed, with costs.

Judges Simons, Kaye, Alexander, Titone, Hancock, Jr., and Bellacosa concur.

Order affirmed, with costs.

      . In Moreno v City of New York (69 NY2d 432), we held that the section providing for disposition of property by the property clerk after three months did not extinguish the owner’s right to claim the property pursuant to a common-law replevin action. Instead, that provision "simply fixes the point at which the property clerk may be relieved of the responsibility of retaining the moneys in custody, and provides for the transfer of the money from one fund to another at the termination of the statutory period.” (Id., at 436.)

      . The Appellate Division also held that petitioners were not required to serve a notice of claim pursuant to General Municipal Law § 50-e as a procedural prerequisite to this proceeding. That holding is not challenged on this appeal.