author: Rivera, J.

text:
    [16 NE3d 1165, 992 NYS2d 687]
    Quadrant Structured Products Co., Ltd., Individually and Derivatively on Behalf of Athilon Capital Corp., Appellant, v Vincent Vertin et al., Respondents.
    Argued May 7, 2014;
    decided June 10, 2014

      POINTS OF COUNSEL

      Bingham McCutchen LLP (Sabin Willett, of the Massachusetts bar, admitted pro hac vice, and Samuel Rowley, of the Massachusetts bar, admitted pro hac vice, of counsel), and Richards, Layton & Finger, PA., Wilmington, Delaware (Lisa A. Schmidt, Catherine G. Dearlove and Russell C. Silberglied of counsel), for appellant.
    I. Under New York law, as a matter of plain language, the absence of the phrase “or the securities” from the no-action clause renders it inapplicable to Quadrant Structured Products Company, Ltd.’s claims. (Racepoint Partners, LLC v JPMorgan Chase Bank, N.A., 14 NY3d 419; Greenfield v Philles Records, 98 NY2d 562; Helmsley-Spear, Inc. v New York Blood Ctr., 257 AD2d 64; Suffolk County Water Auth. v Village of Greenport, 21 AD3d 947; Greenwich Capital Fin. Prods., Inc. v Negrin, 74 AD3d 413; Maurice Goldman & Sons v Hanover Ins. Co., 80 NY2d 986; Roberts v Tishman Speyer Props., L.P., 62 AD3d 71, 13 NY3d 270.) II. New York law shows that, by its plain language, the no-action clause does not bar Quadrant Structured Products Company, Ltd.’s claims. (General Inv. Co. v Interborough R.T. Co., 200 App Div 794, 235 NY 133; Deutsch v Gutehoffnungshutte, Aktienverein Fur Bergbau und Huttenbetrieb, 168 Misc 872; Lidgerwood v Hale & Kilburn Corp., 47 F2d 318; Rudick v Ulster & Delaware R.R., 147 Misc 637; Cruden v Bank of N.Y., 957 F2d 961; Walnut Place LLC v Countrywide Home Loans, Inc., 96 AD3d 684, 35 Misc 3d 1207[A], 2012 NY Slip Op 50601[U]; Elliott Assoc. v J. Henry Schroder Bank & Trust Co., 838 F2d 66; AMBAC Indem. Corp. v Bankers Trust Co., 151 Misc 2d 334; Emmet & Co., Inc. v Catholic Health E., 37 Misc 3d 854.) III. Neither New York law nor the indenture has conferred upon the indenture trustee the power to bring Quadrant Structured Products Company, Ltd.’s claims. (Navarro Savings Assn. v Lee, 446 US 458; Meckel v Continental Resources Co., 758 F2d 811.) IV Adlowing Quadrant Structured Products Company, Ltd.’s claims to proceed would not subvert the purpose of the no-action clause.

      Quinn Emanuel Urquhart & Sullivan, LLP, New York City (Kathleen M. Sullivan, Philippe Z. Selendy, Nicholas F. Joseph, Sean P. Baldwin and Alicia K. Cobb of counsel), Potter Anderson

      & Corroon LLP, Wilmington, Delaware (Philip A. Rovner of counsel), and Seitz Ross Aronstam & Moritz LLP (Garrett B. Moritz of counsel) for respondents.
    I. The parties’ failure to use the particular words “the securities” does not, in and of itself, restrict coverage of a no-action clause. (Wood v Duff-Gordon, 222 NY 88; Riverside S. Planning Corp. v CRP/Extell Riverside, L.P., 13 NY3d 398; Matter of Westmoreland Coal Co. v Entech, Inc., 100 NY2d 352; Batchelder v Council Grove Water Co., 131 NY 42; Campbell v Hudson & Manhattan R.R. Co., 277 App Div 731; Emmet & Co., Inc. v Catholic Health E., 114 AD3d 605; Walnut Place LLC v Countrywide Home Loans, Inc., 96 AD3d 684; Bank of N.Y. v Battery Park City Auth., 251 AD2d 211; Greene v New York United Hotels, Inc., 236 App Div 647, 261 NY 698; Akanthos Capital Mgt., LLC v CompuCredit Holdings Corp., 677 F3d 1286.) II. The Athilon Capital Corp. no-action clause covers all claims a noteholder has based on its status as a noteholder. (Matter of Express Indus. & Term. Corp. v New York State Dept. of Transp., 93 NY2d 584; Travelers Cas. & Sur. Co. v Certain Underwriters at Lloyd’s of London, 96 NY2d 583; Suffolk County Water Auth. v Village of Greenport, 21 AD3d 947; Akanthos Capital Mgt., LLC v CompuCredit Holdings Corp., 677 F3d 1286; Allan v Moline Plow Co., 14 F2d 912; Beal Sav. Bank v Sommer, 8 NY3d 318; Roberts v Tishman Speyer Props., L.P., 62 AD3d 71; Greene v New York United Hotels, Inc., 236 App Div 647, 261 NY 698; ABN AMRO Bank, N.V. v MBIA Inc., 17 NY3d 208; Walnut Place LLC v Countrywide Home Loans, Inc., 96 AD3d 684.)
   OPINION OF THE COURT

Rivera, J.

In response to the first certified question from the Supreme Court of the State of Delaware, we conclude that a trust indenture’s “no-action” clause that specifically precludes enforcement of contractual claims arising under the indenture, but omits reference to “the Securities,” does not bar a security-holder’s independent common-law or statutory claims. Accordingly, we answer the second question in the affirmative.

L

The Delaware litigation underlying the certified questions is a reminder of the continued effects of the 2008 financial crisis and the economic fallout associated with the utilization of complex financial instruments that mask investment risk levels (see generally Kristin N. Johnson, Things Fall Apart: Regulating the Credit Default Swap Commons, 82 U Colo L Rev 167 [2011]; Brendan Sapien, Financial Weapons of Mass Destruction: From Bucket Shops to Credit Default Swaps, 19 S Cal Interdisc LJ 411 [2010]). Against this backdrop of high-stakes securities transactions and downward spiraling financial fortunes, the certified questions present for our consideration familiar efforts to prohibit individual lawsuits of securityholders, by the use of a contractual provision referred to as a “no-action” clause.

II

Quadrant Structured Products Company, Ltd. (Quadrant) sued several defendants in the Delaware Court of Chancery for alleged wrongdoing related to notes purchased by Quadrant and issued by defendant Athilon Capital Corp. (Athilon), a business which plaintiff alleges is now insolvent. Defendant EBF & Associates, LP (EBF) acquired Athilon in 2010, installed and now controls its Board. Like Quadrant, EBF holds certain Athilon issued securities. Defendants moved to dismiss the suit as barred by a no-action clause contained in the indenture agreement governing Quadrant’s notes. The notes and indenture were a necessary part of Athilon’s financing scheme, which has its roots in Athilon’s initial formation. Athilon was founded in 2004 with $100 million in equity and, along with its wholly owned subsidiary Athilon Asset Acceptance Corp., sold credit derivative products in the form of “credit default swaps” which afforded credit protection for large financial institutions. These credit default swaps provided that Athilon would pay the purchaser in the case of a default on the debt that was the subject of the swap. As a risk containment measure, Athilon’s operating guidelines mandated that it invest conservatively, and that when certain “suspension events” occurred, enter “runoff mode” — a period during which it could not issue new credit swaps and was required to pay off existing swaps as claims arose.

As part of its capital raising strategy, Athilon incurred debt through the issuance of a series of securities, as relevant here, consisting of $350 million in senior subordinated notes, $200 million in three series of subordinated notes and $50 million in junior notes. Athilon raised $600 million in capital through this debt structure. Debt subordination is common in commercial finance, and as the name of these different classes of notes implies, payment of senior subordinated notes takes priority over payment of junior notes. Quadrant owns certain classes of these subordinated notes, including senior subordinated notes, while EBF owns junior notes.

As part of this debt financing, Athilon entered agreements, referred to as trust indentures (indentures), with two separate Trustees, who serve as third-party administrators of the issuance of the securities. An indenture is essentially a written agreement that bestows legal title of the securities in a single Trustee to protect the interests of individual investors who may be numerous or unknown to each other (see generally George G. Bogert & George T. Bogert, The Law of Trusts and Trustees § 250 at 280 [2d ed rev 1992]). As is typical of these agreements, the Athilon indentures set forth Athilon’s obligations as the issuer of the securities, the securityholders’ rights and remedies in the case of Athilon’s default on the provisions of the indenture, and the duties and obligations of the Trustee (see Thomas Lee Hazen, The Law of Securities Regulation § 19.1 at 467 [6th ed], citing 15 USC § 77ccc [7] [“The contract, or ‘indenture,’ identifies the rights of all parties concerned, as well as the duties of the trustee (a third-party administrator), the obligations of the borrower, and the remedies available to the investors”]).

By 2008, Athilon had undertaken $50 billion in nominal credit default risk, far exceeding its $700 million in capital reserves, which consisted of the $100 million in equity and $600 million in security debt. Quadrant contends that at this rate a mere 0.2% loss on the collateralized debt obligations covered by Athilon’s credit default swaps would strip Athilon of its equity and render it insolvent. Indeed, in the aftermath of the 2008 financial crisis, in early 2009, Athilon and its subsidiary sustained several suspension events and entered into runoff mode as per its operating guidelines.

In October 2011, Quadrant sued Athilon, Athilon’s officers and directors, EBF, and EBF affiliate Athilon Structured Investment Advisors LLC (ASIA), asserting various counts directly and derivatively as a creditor of Athilon. Quadrant asserted claims for breaches of fiduciary duty, seeking damages and injunctive relief, and also asserted fraudulent transfer claims against EBF and ASIA. According to Quadrant, EBF acquired Athilon in 2010, and controls the Athilon Board by virtue of having installed its board members. Quadrant claimed that the Board failed to preserve Athilon’s value in anticipation of liquidation in 2014 when the last credit swap was set to expire, and instead took actions in direct contravention of its duties, but which favored EBF and its affiliate. Specifically, Quadrant alleged that the EBF-controlled Board paid interest on the junior notes, notwithstanding that Athilon agreed to defer interest payments on these notes and that junior notes would not receive a return during liquidation. As a consequence, EBF received payment on its junior notes, to the detriment of senior subordinated securities, including Quadrant’s subordinated notes. Quadrant also alleged the Board paid ASIA above-market-rate service fees to manage Athilon’s day-to-day operations.

The Court of Chancery characterized Athilon’s investment strategy as “high risk” and “contrary to the terms of Athilon’s governing documents,” which was designed to ensure EBF benefitted financially, regardless of the risk associated with the investment, and regardless of the status of the EBF junior notes (Quadrant Structured Prods. Co., Ltd. v Vertin, 2013 WL 3233130, *2, 2013 Del Ch LEXIS 152, *7 [June 20, 2013, CA No. 6990-VCL]). All the while, the owners of the senior notes suffered the loss of the failed high-risk investment.

Defendants moved to dismiss, asserting that Quadrant’s claims were barred by a no-action clause (Athilon clause) contained in article 7, § 7.06 of the indenture governing the subordinated notes. The Athilon clause provides:

“Limitations on Suits by Securityholder. No holder of any Security shall have any right by virtue or by availing of any provision of this Indenture to institute any action or proceeding at law or in equity or in bankruptcy or otherwise upon or under or with respect to this Indenture, or for the appointment of a trustee, receiver, liquidator, custodian or other similar official or for any other remedy hereunder, unless such holder previously shall have given to the Trustee written notice of default in respect of the series of Securities held by such Securityholder and of the continuance thereof, as hereinbefore provided, and unless also the holders of not less than 50% of the aggregate principal amount of the relevant series of Securities at the time Outstanding shall have made written request upon the Trustee to institute such action or proceedings in its own name as trustee hereunder and shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby and the Trustee for 60 days after its receipt of such notice, request and offer of indemnity shall have failed to institute any such action or proceedings and no direction inconsistent with such written request shall have been given to the Trustee pursuant to Section 7.08 hereof within such 60 days.”

Defendants argued that the clause permitted only Trustee-initiated suits upon request of a majority of securityholders, and prohibited individual securityholder actions. In support of this argument defendants relied on Feldbaum v McCrory Corp. (1992 WL 119095, 1992 Del Ch LEXIS 113, 18 Del J Corp L 630 [June 1, 1992]) and Lange v Citibank, N.A. (2002 WL 2005728, *1, 2002 Del Ch LEXIS 101, *1-2 [Aug. 13, 2002, CA No. 19245-NC]), Delaware Court of Chancery cases applying New York law, wherein the court dismissed the respective plaintiffs’ claims based on a no-action clause. The clauses at issue in those cases barred a securityholder’s action “with respect to this Indenture or the Securities unless [specified conditions are met]” (Feldbaum, 1992 WL 119095 at *5, 1992 Del Ch LEXIS 113 at *17, 18 Del J Corp L at 641; Lange, 2002 WL 2005728 at *5, 2002 Del Ch LEXIS 101 at *16 [emphasis added]).

The Delaware Chancery Court dismissed Quadrant’s complaint, citing Feldbaum and Lange (Quadrant Structured Prods. Co., Ltd. v Vertin, 2012 WL 2051753, 2012 Del Ch LEXIS 300 [June 5, 2012, CA No. 6990-VCL]). On appeal to the Delaware Supreme Court, Quadrant asserted for the first time that the Feldbaum and Lange clauses were distinguishable because the clauses in those cases specifically mentioned claims arising under both the indenture and “the Securities,” whereas the Athilon clause only applies to claims under the indenture. Therefore, the clause did not bar common-law or statutory claims arising under the securities. The Delaware Supreme Court remanded the case back to the Court of Chancery, ordering it “to issue an opinion analyzing the significance (if any) under New York law of the differences between the no-action clauses in the Lange and Feldbaum indentures and the Athilon Indenture” (Quadrant Structured Prods. Co., Ltd. v Vertin, 2013 WL 8858605, *2, 2013 Del LEXIS 380, *5-6 [Feb. 12, 2013, No. 338, 2012]; see — A3d at —, 2013 WL 5962813 at *8, 2013 Del LEXIS 570 at *23).

Thereafter, the Court of Chancery issued a Report on Remand in which the court concluded that the no-action clause applies only to contractual claims arising under the indenture. After a thorough analysis of New York cases and Feldbaum and Lange, the court found the Athilon clause differed from a Feldbaum and Lange-type clause, and only extended to actions or proceedings where a securityholder claims a right by virtue or by availing of any provision of the indenture. The court, therefore, concluded that the majority of Quadrant’s claims were not barred under the clause, and that dismissal was warranted with respect to two claims and partial dismissal with respect to a third because only those claims arose under the Athilon indenture.

Upon receipt of the Report, the Delaware Supreme Court certified the following questions to us:

“(1) A trust indenture no-action clause expressly precludes a security holder[,] who fails to comply with that clause’s preconditions, from initiating any action or proceeding upon or under or with respect to ‘this Indenture,’ but makes no reference to actions or proceedings pertaining to ‘the Securities.’
“The question is whether, under New York law, the absence of any reference in the no-action clause to ‘the Securities’ precludes enforcement only of contractual claims arising under the Indenture, or whether the clause also precludes enforcement of all common law and statutory claims that security holders as a group may have.
“(2) In its Report on Remand . . . , the Court of Chancery found that the Athilon no-action clause, which refers only to ‘this Indenture,’ precludes enforcement only of contractual claims arising under the Indenture. The question is whether that finding is a correct application of New York law to the Athilon no-action clause” (— A3d at —, 2013 WL 5962813 at *5, 2013 Del LEXIS 570 at *14-15).

Pursuant to section 500.27 of the Rules of Practice of the Court of Appeals (22 NYCRR), we accepted both certified questions (Quadrant Structured Prods. Co., Ltd. v Vertin, 22 NY3d 1008 [2013]).

III.

A.

In response to the first question, for the reasons discussed in detail below, we conclude that a no-action clause which by its language applies to rights and remedies under the provisions of the indenture agreement, but makes no mention of individual suits on the securities, does not preclude enforcement of a securityholder’s independent common-law or statutory rights. We reach this conclusion based on the legal standards applicable to indenture agreements, as well as the analyses of no-action clauses in Feldbaum and Lange, and cases from New York.

A trust indenture is a contract, and under New York law “[interpretation of indenture provisions is a matter of basic contract law” (Sharon Steel Corp. v Chase Manhattan Bank, N.A., 691 F2d 1039, 1049 [2d Cir 1982]; see also Thomas Lee Hazen, The Law of Securities Regulation § 19.1 at 467 [6th ed] [referring to indenture as a contract]; Racepoint Partners, LLC v JPMorgan Chase Bank, N.A., 14 NY3d 419 [2010] [same]; AG Capital Funding Partners, L.P. v State St. Bank & Trust Co., 11 NY3d 146 [2008] [same]).

In construing a contract we look to its language, for “a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms” (Greenfield v Philles Records, 98 NY2d 562, 569 [2002]; accord J. D’Addario & Co., Inc. v Embassy Indus., Inc., 20 NY3d 113, 118 [2012]; Vermont Teddy Bear Co. v 538 Madison Realty Co., 1 NY3d 470, 475 [2004]; W.W.W. Assoc. v Giancontieri, 77 NY2d 157, 162 [1990]; Nichols v Nichols, 306 NY 490, 496 [1954]). As the case law further establishes, we read a no-action clause to give effect to the precise words and language used, for the clause must be “strictly construed” (Cruden v Bank of N.Y., 957 F2d 961, 968 [2d Cir 1992] [citation omitted]; cf. Feldbaum, 1992 WL 119095, *7-8, 1992 Del Ch LEXIS 113, *25, 18 Del J Corp L at 645; Lange, 2002 WL 2005728 at *7, 2002 Del Ch LEXIS 101 at *20-22; Cruden v Bank of N.Y., 1990 WL 131350, *12, 1990 US Dist LEXIS 11564, *35 [SD NY, Sept. 4, 1990, Nos. 85 Civ. 4170 (JFK), 85 Civ. 4219 (JFK), 85 Civ. 4570 (JFK), 87 Civ. 5493 (JFK)]; Victor v Riklis, 1992 WL 122911, *6 n 7, 1992 US Dist LEXIS 7025, *20 n 7 [SD NY, May 15, 1992, No. 91 Civ. 2897 (LJF)]; McMahan & Co. v Wherehouse Entertainment, Inc., 859 F Supp 743 [SD NY 1994]).

Even where there is ambiguity, if parties to a contract omit terms — particularly, terms that are readily found in other, similar contracts — the inescapable conclusion is that the parties intended the omission. The maxim expressio unius est exclusio alterius, as used in the interpretation of contracts, supports precisely this conclusion (see generally Glen Banks, New York Contract Law § 10.13 [West’s NY Prac Series 2006]; see also In re Ore Cargo, Inc., 544 F2d 80, 82 [2d Cir 1976] [where sophisticated drafter omits a term, expressio unius precludes the court from implying it from the general language of the agreement]).

Applying these well established principles of contract interpretation, and with the understanding that no-action clauses are to be construed strictly and thus read narrowly, we turn to the language of the no-action clause presented by the certified question. The no-action clause here states that no security-holder “shall have any right by virtue or by availing of any provision of this Indenture to institute any action or proceeding at law or in equity or in bankruptcy or otherwise upon or under or with respect to this Indenture . . . .” The clear and unambiguous text of this no-action clause, with its specific reference to the indenture, on its face limits the clause to the contract rights recognized by the indenture agreement itself. Further supporting this construction of the clause is the sole textual reference to securities, which is contained in the clause’s provision for a Trustee-initiated suit for a continuing “default in respect of the series of Securities.” This part of the no-action clause permits the trustee to sue in its name, after notice by a securityholder of a continuing default and upon approval of the suit by a majority of securityholders. Thus, the clear import of the no-action clause is to leave a securityholder free to pursue independent claims involving rights not arising from the indenture agreement.

This no-action clause, with its specific limit on the enforcement of indenture contract rights, is in contrast to no-action clauses which extend beyond the four corners of the indenture agreement to cover securities-based claims. As the cases illustrate, where the no-action clause refers to both the indenture and the securities the securityholder’s claims are subject to the terms of the clause, whether those claims be contractual in nature and based on the indenture agreement, or arise from common law and statute.

Thus, in Feldbaum, where the no-action clause stated, in pertinent part, that “[a] Securityholder may not pursue any remedy with respect to this Indenture or the Securities unless [specified conditions are met]” (1992 WL 119095, *5, 1992 Del Ch LEXIS 113, *17, 18 Del J Corp L at 641), the court held that the clause barred the securityholders’ fraud and breach of contract claims against the issuers of the securities (1992 WL 119095 at *2-3, 1992 Del Ch LEXIS 113 at *7-10, 18 Del J Corp L at 636-638). The court concluded that by its language the no-action clause barred not only contractual claims arising from the indenture itself, but also any claims individuals may have based on their status as securityholders (1992 WL 119095 at *7-8, 1992 Del Ch LEXIS 113 at *26-27, 18 Del J Corp L at 645).

Similarly, in Lange, the court dismissed plaintiffs’ claims as barred by a trust indenture no-action clause that provided “[a] Securityholder may not pursue a remedy with respect to this Indenture or the Securities unless [specified conditions are met]” (2002 WL 2005728 at *5, 2002 Del Ch LEXIS 101 at *16). Plaintiffs in Lange were a group of securityholders who sued the issuer for having sold off its subsidiaries for an unfair value (2002 WL 2005728 at *1, 2002 Del Ch LEXIS 101 at *1-2). Plaintiffs sought to rescind the sales or disgorge the proceeds arguing, inter alia, breach of the issuer’s fiduciary duty. The court applied the reasoning in Feldbaum to find that the no-action clause barred all claims “with respect to the Indenture or the Debentures themselves” (2002 WL 2005728 at *7, 2002 Del Ch LEXIS 101 at *21).

The decisions in Feldbaum and Lange relied on the language of the clause, which was broad enough to encompass conditions on enforcement of indenture and securities-based claims (Feldbaum, 1992 WL 119095 at *6, 1992 Del Ch LEXIS 113 at *17-18, 18 Del J Corp L at 641; Lange, 2002 WL 2005728 at *7, 2002 Del Ch LEXIS 101 at *20-22). Here, unlike the Feldbaum and Lange clauses, the Athilon no-action clause omits the phrase “or the Securities,” indicating its coverage is limited to the indenture and rights thereunder.

Decisions from New York further support this interpretation of the words contained in the no-action clause. For example, in General Inv. Co. v Interborough R.T. Co. (200 App Div 794 [1st Dept 1922]), plaintiff sought to recover payment on five promissory notes. Defendant argued the no-action clause barred recovery, relying on language in the clause that provided:

“No holder of any note hereby secured shall have any right to institute any suit, action or proceeding in equity or at law for the enforcement of this indenture, or for the execution of any trust hereof, or for the appointment of a receiver, or for any other remedy hereunder, unless such holder [meets specified requirements]” (id. at 796 [emphasis omitted]).

The Appellate Division held that the no-action clause did not bar plaintiff’s suit because the clause applied to proceedings arising from the enforcement of the indenture and plaintiffs action “is not to affect, disturb or prejudice the lien of the collateral indenture or to enforce any right thereunder” (id. at 801).

In Cruden, plaintiffs sought to assert fraud and civil claims under the Racketeer Influenced and Corrupt Organizations Act (RICO) against the issuer. Defendants argued a no-action clause barred their claims. The clause therein provided:

“No holder of any Debenture shall have any right by virtue of or by availing himself of any provision of this Indenture to institute any action or proceedings at law or in equity or in bankruptcy or otherwise, upon or under or with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder . . . .” (1990 WL 131350, *12, 1990 US Dist LEXIS 11564, *35-36.)

Although reversing in part, the Second Circuit agreed with the District Court’s conclusion that plaintiffs’ fraud and RICO claims were not made under the indenture and, thus, could not be barred by the no-action clause (Cruden, 957 F2d at 968).

In contrast, in Victor, the District Court dismissed plaintiffs RICO claims as barred by a no-action clause (1992 WL 122911 at *1, 1992 US Dist LEXIS 7025 at *2). The clause at issue, similar to the clause in Feldbaum, prohibited “any remedy with respect to [the] Indenture or the Securities” unless specified conditions were met (1992 WL 122911 at *6, 1992 US Dist LEXIS 7025 at *19 [emphasis omitted]). The District Court distinguished the clause from the no-action clause in Cruden because the former was “not as broad as the one [here]” (1992 WL 122911, *6 n 7, 1992 US Dist LEXIS 7025, *20 n 7).

In McMahan, a no-action clause barred actions seeking “any remedy with respect to [the] Indenture or the Securities” (859 F Supp at 747). Plaintiffs brought federal securities claims arguing, inter alia, that they were entitled to immediate tender of their securities as a consequence of the issuer’s merger with two other entities. The District Court held federal securities laws preclude application of a no-action clause to plaintiffs’ federal securities claims, allowing those claims to proceed, but concluded the state law claims were properly barred by the no-action clause (id. at 749).

As these cases illustrate, a no-action clause, like the Athilon clause, that refers only to actions under the indenture, is limited by its language to indenture-based contract claims. However, a no-action clause similar to the clauses in Feldbaum and Lange, that refers specifically to claims and remedies arising under the indenture and the securities, applies to all claims, except those excluded from coverage as a matter of law. Here, the Athilon no-action clause when strictly construed and afforded its plain meaning, makes no reference to the securities, and therefore does not apply to claims arising outside the scope of the indenture. Accordingly, we agree with the Delaware Chancery Court’s Report on Remand that Feldbaum and Lange are distinguishable, and the Athilon no-action clause applies only to contract claims under the indenture, not to Quadrant’s common-law and statutory claims.

Defendants argue that under New York law, what matters is the parties’ intent, not any “legal talismans,” and that the parties’ intent was for the no-action clause to apply to all individual securityholder suits. This is no argument at all, for under our law where the language of the contract is clear we rely on the terms of the document to give effect to the parties’ intent (see J. D’Addario & Co., 20 NY3d at 118; Vermont Teddy Bear Co., 1 NY3d at 475; Nichols, 306 NY at 496). As we have discussed, the no-action clause is clear on its face and applies to indenture contract claims only. The New York cases upon which defendants rely fail to persuade us otherwise, for they involve rights under the indenture, or securityholder rights which a no-action clause may not abridge as a matter of law (see e.g. Greene v New York United Hotels, Inc., 236 App Div 647, 648 [1st Dept 1932] [petition for receivership dismissed as defective; debentureholder failed to plead compliance with no-action clause for claims of past-due payment]; Emmet & Co., Inc. v Catholic Health E., 37 Misc 3d 854, 856 [Sup Ct, NY County 2012] [claim arising under indenture]; Walnut Place LLC v Countrywide Home Loans, Inc., 35 Misc 3d 1207[A], 2012 NY Slip Op 50601[U] [Sup Ct, NY County 2012] [claim against Trustee]). The reasoning in these cases provides no basis to alter our conclusion that a no-action clause that omits language specifically referencing the securities does not extend to a security-holder’s common-law and statutory claims.

Nevertheless, defendants argue that, regardless of the actual words used, the language of the no-action clause includes all securityholder actions. Defendants essentially argue that references to the indenture should be interpreted to include the securities, and that to do otherwise will upset the parties’ expectations. These arguments are unsupported by the no-action clause itself.

In support of their argument that indenture also means securities, defendants point to the purpose of the no-action clause, which they argue is to prevent unpopular duplicative suits, by channeling all securityholder claims through the Trustee. They contend that a no-action clause prohibits what they call the “lone ranger” lawsuit: individuals asserting claims that foster the interests of minority securityholders at the potential expense of the majority’s interest. Quadrant’s suit, defendants argue, is exactly the type of litigation the no-action clause is intended to prevent. Given this understanding of the intent of the no-action clause, the omission of the words “the Securities” is logical because they would be superfluous, adding nothing to the already expansive coverage of the clause.

Defendants are correct that generally a no-action clause prevents minority securityholders from pursuing litigation against the issuer, in favor of a single action initiated by a Trustee upon request of a majority of the securityholders (see American Bar Foundation, Commentaries on Indentures § 5.7 at 232 [1971] [discussing proposed no-action clause in model indenture, finding “(t)he major purpose of this (proposed no-action clause) is to deter individual debentureholders from bringing independent law suits for unworthy or unjustifiable reasons, causing expense to the Company and diminishing its assets”]).

As the court in Feldbaum noted, limitations on individual securityholder suits serve the primary purpose of a no-action clause, which is “to protect issuers from the expense involved in defending [individual] lawsuits that are either frivolous or otherwise not in the economic interest of the corporation and its creditors” (1992 WL 119095 at *6, 1992 Del Ch LEXIS 113 at *20, 18 Del J Corp L at 642). These limitations further “protect[ ] against the risk of strike suits” (id.). Indeed, a no-action clause “make[s] it more difficult for individual bondholders to bring suits that are unpopular with their fellow bondholders” (1992 WL 119095, *5, 1992 Del Ch LEXIS 113, *19, 18 Del J Corp L at 642). The no-action clause achieves these goals

“by delegating the right to bring a suit enforcing rights of bondholders to the trustee, or to the holders of a substantial amount of bonds, and by delegating to the trustee the right to prosecute such a suit in the first instance. These clauses also ensure that the proceeds of any litigation actually prosecuted will be shared ratably by all bondholders” (1992 WL 119095 at *6, 1992 Del Ch LEXIS 113 at *21, 18 Del J Corp L at 643 [citation omitted]).

However, even defendants admit that the Athilon clause is not a complete bar to any and all securityholder suits. There are claims which, by law, cannot be prohibited by a no-action clause, most notably claims against the trustee (see e.g. 15 USC § 77ooo [d] [“The indenture . . . shall not contain any provisions relieving the indenture trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct”]; see also Cruden, 957 F2d at 968 [no-action clause will not bar securityholder suit against Trustee because “it would be absurd to require the debenture holders to ask the Trustee to sue itself’]).

Defendants appear to argue that the enactment of the Trust Indenture Act of 1939 (TIA) eliminated the need to reference the securities in a no-action clause because the TIA prohibits the clause from barring a securityholder’s action against the Trustee for breach of duties recognized by the TIA, or for past-due interest or principal on the securities (see 15 USC § 77ppp [b]). Of course, as Quadrant’s case illustrates, a securityholder may have claims apart from claims against the Trustee, or for past-due payments. Moreover, as long as the indenture does not violate or conflict with the TIA, the parties may structure the indenture agreement to address their respective interests and obligations, including placing limits on certain claims of right.

Most significant here is that the no-action clause, by its own terms, is concerned with minority holders’ actions in the case of a default by the issuer of the securities. The no-action clause requires a written request for the Trustee to commence an action or proceeding regarding a default with respect to the series of securities held by the noteholder and approval by a majority of securityholders. Logically then, the no-action clause applies when the Trustee is authorized to decide whether to act; it cannot serve as an outright prohibition on a suit filed by a security-holder in the case where the Trustee is without authorization to act. Otherwise, the purpose of the no-action clause — to avoid duplicative suits and protect the majority interests by mandating that actions be channeled through the Trustee — would be subverted (Feldbaum, 1992 WL 119095 at *6, 1992 Del Ch LEXIS 113 at *19, 18 Del J Corp L at 642). This is what the parties intended. Of course, they were free to not limit the no-action clause in this way. Here, therefore, the purpose of the Athilon no-action clause is not frustrated where the Trustee is without authority to act.

Defendants’ argument that interpreting the no-action clause to exclude certain claims would upset the contracting parties’ expectations is unpersuasive. The indenture itself defines “indenture” and “securities” separately, recognizing them as distinct. Therefore, defendants’ functional equivalency argument is merely another version of the argument we have already rejected on the law: that the parties intended other than what the words in the document mean. As our law makes clear, we rely on the unambiguous terms of the agreement when construing contract provisions like the indenture no-action clause (see J. D’Addario & Co., 20 NY3d at 118; Vermont Teddy Bear Co., 1 NY3d at 475; Nichols, 306 NY at 496). Quadrant’s claims are based not on the indenture agreement — under which the Trustee administers the debt issuance by Athilon — but rather arise from Quadrant’s status as a securityholder. The parties could not have expected otherwise, given the plain language of the clause. If the parties sought to prohibit these types of suits, they were free to include them within the Athilon no-action clause.

We also note that in 2000, the Ad Hoc Committee for Revision of the 1983 Model Simplified Indenture produced a model no-action clause which provides “[a] Securityholder may pursue a remedy with respect to this Indenture or the Securities only if [the holder complies with the terms of the clause]” (55 Bus Law 1115, 1137-1138 [2000]). By its terms, the no-action clause references the indenture and the securities. Even this broad model clause is not without limits. In its commentary to this provision, the Committee states: “[t]he clause applies, however, only to suits brought to enforce contract rights under the Indenture or the Securities, not to suits asserting rights arising under other laws” (id. at 1191). The Committee intended the model no-action clause to limit only contract rights, not to encompass all securityholder suits. We express no opinion on whether no-action clauses should be so narrowly construed, but note only that parties sophisticated and well versed in this area of the law — like the parties here — are well aware of these commentaries and, thus, we find unsupportable defendants’ argument that a construction of the no-action clause that permits Quadrant’s claims to proceed would be unsettling to the parties’ expectations.

B.

The second certified question asks whether the Vice Chancellor’s Report on Remand correctly interpreted New York law. We answer this question in the affirmative. In its complaint, Quadrant asserts individual and derivative claims seeking damages and injunctive relief for breaches of fiduciary duty, fraudulent transfer, breach of covenant of good faith and fair dealing, intentional interference with contractual relations, and conspiracy. Essentially, Quadrant claims that Athilon’s Board, installed and controlled by EBF, acted pursuant to a scheme which ensures that the junior securityholders are paid, despite their inferior status vis-a-vis Quadrant’s senior notes, and, as a consequence, payment of the junior securities imperils payment of the senior securities. As described by Quadrant, Athilon’s actions are an effort to siphon off as much capital as possible, as quickly as possible, for the benefit of EBE Thus understood, the Trustee cannot address these claims because the Trustee’s duties, as per the indenture, are only triggered upon an event of default — exactly what Quadrant seeks to avoid, at least with respect to the senior securities.

Accordingly, the Vice Chancellor correctly concluded that, with the exception of two claims and part of a third, the no-action clause did not bar plaintiffs action. The claims the Vice Chancellor found viable are those that the Trustee cannot assert, as they are not based on any default on the securities. Specifically, the Vice Chancellor correctly found that those claims sounding in breach of contract and arising from the indenture are barred — requiring the majority securityholders to bring those actions through the Trustee.

IV

Accordingly, the certified questions should be answered in accordance with this opinion.

Chief Judge Lippman and Judges Graffeo, Read, Smith, Pigott and Abdus-Salaam concur.

Following certification of questions by the Supreme Court of the State of Delaware and acceptance of the questions by this Court pursuant to section 500.27 of this Court’s Rules of Practice, and after hearing argument by counsel for the parties and consideration of the briefs and the record submitted, certified questions answered in accordance with the opinion herein.

      . Quadrant is a Cayman Islands limited liability company with its principal place of business in Connecticut.

      . Athilon is a Delaware corporation with its principal place of business in New York.

      . A credit default swap is a financial instrument that serves as “a promise by one party to pay another party in the event that a third party defaults on its debt” (Jeremy C. Kress, Credit Default Swaps, Clearinghouses, and Systemic Risk: Why Centralized Counterparties Must Have Access to Central Bank Liquidity, 48 Harv J on Legis 49, 52 [2011] [citation omitted]). A credit default swap contract “obligates a protection buyer to make periodic premium payments to a protection seller, who in turn must pay the buyer if one or more underlying reference entities experiences a credit event [such as default, bankruptcy or credit rating downgrade]” {id. [citation omitted]). Such financial instruments were viewed with skepticism and concern by some critics who feared “that a spike in interest rates could trigger a ‘derivatives tsunami’ that would bring all of the major banks to their knees and cause a ‘blowup’ in world credit markets” (Robert F. Schwartz, Risk Distribution in

        the Capital Markets: Credit Default Swaps, Insurance and a Theory of Demarcation, 12 Fordham J Corp & Fin L 167, 170 [2007] [citation omitted]).

      . A security is
      “any note, stock, treasury stock, security future, security-based swap, bond, debenture, certificate of interest or participation in any profit-sharing agreement or in any oil, gas, or other mineral royalty or lease, any collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or in general, any instrument commonly known as a ‘security’; or any certificate of interest or participation in, temporary or interim certificate for, receipt for, or warrant or right to subscribe to or purchase, any of the foregoing; but shall not include currency or any note, draft, bill of exchange, or banker’s acceptance which has a maturity at the time of issuance of not exceeding nine months, exclusive of days of grace, or any renewal thereof the maturity of which is likewise limited” (15 USC § 78c [a] [10]).

      . A “note” is defined as “A written promise by one party (the maker) to pay money to another party (the payee) or to bearer” (Black’s Law Dictionary [9th ed 2009]).

      . “[T]he basic concept of a subordination agreement is simple: It is the subordination of the right to receive payment of certain indebtedness . . . prior [to] payment of certain other indebtedness (the senior debt) of the same debtor. Put another way — in the circumstances specified in the subordination agreement, the senior debt must be paid in full before payment may be made on the subordinated debt and retained by the subordinating creditor” (Dee Martin Calligar, Subordination Agreements, 70 Yale LJ 376, 376 [1961]).

      . Deutsche Bank Trust Company serves as Trustee under the indenture governing subordinated notes, and The Bank of New York serves as Trustee pursuant to the indenture governing senior subordinated notes (see Quadrant Structured Prods. Co., Ltd. v Vertin, — A3d — , —, 2013 WL 5962813, *2, 2013 Del LEXIS 570, *5 [Nov. 7, 2013, No. 338, 2012]).

      . A collateralized debt obligation is a type of asset-backed security (see Neal Deckant, X. Reforms of Collateralized Debt Obligations: Enforcement, Accounting and Regulatory Proposals, 29 Rev Banking & Fin L 79, 80 [2009]). The underlying assets are “pooled together, split into subordinated repayment rights (‘tranches’), rated by a credit rating agency and sold to investors” (see Neal Deckant, Criticisms of Collateralized Debt Obligations in the Wake of the Goldman Sachs Scandal, 30 Rev Banking & Fin L 407, 410 [2010] [citation omitted]).

      . The Court of Chancery described a strategy “that amounts to a ‘heads EBF wins, tails everyone else loses’ bet. If the high-risk investments succeed, then the underwater Junior Notes and equity will benefit. If the investments fail, then the more senior tranches of Notes will bear the loss” (Quadrant, 2013 WL 3233130, *2, 2013 Del Ch LEXIS 152, *7).

      . Specifically, the court identified as subject to dismissal count VII, which alleged breach of the implied covenant of good faith and fair dealing; count VIII, which alleged tortious interference with the implied covenant referenced in count VII; and part of count X, which alleged civil conspiracy relating to all other counts in Quadrant’s complaint (see Quadrant Structured Prods. Co., Ltd. v Vertin, 2013 WL 3233130, *23, 2013 Del Ch LEXIS 152, *84-85 [June 20, 2013, CA No. 6990-VCL]).

      . Specifically, section 7.06 of the indenture provides that no action may be commenced
      “unless such holder previously shall have given to the Trustee written notice of default in respect of the series of Securities held by such Securityholder . . . , and unless also the holders of not less than 50% of the aggregate principal amount of the relevant series of Securities at the time Outstanding shall have made written request upon the Trustee to institute such action or proceedings in its own name as trustee hereunder . . . and the Trustee [after 60 days] . . . shall have failed to institute any such action or proceedings and no direction inconsistent with such written request shall have been given to the Trustee pursuant to [the indenture] within such 60 days . . .

      . This Court affirmed without discussion of the no-action clause (see General Inv. Co. v Interborough R.T. Co., 235 NY 133 [1923]).

      . The Second Circuit reversed the District Court’s ruling that some of plaintiffs’ claims against the Trustees were time-barred (Cruden, 957 F2d at 978).

      . The Second Circuit affirmed, but remanded back to the District Court for a recalculation of damages under the Securities Act of 1933 (McMahan & Co. v Wherehouse Entertainment, Inc., 65 F3d 1044, 1051 [2d Cir 1995]).

      . The requirement of notice to the Trustee and majority securityholder approval makes sense because litigation by a minority securityholder upon a default is an attempt to secure payment, and resolution of the matter is of interest to the entire class of securityholders.

      . Section 1.01 defines “Indenture” as “this instrument as originally executed,” and “Securities” as the “Series A Notes and the Series B Notes,” i.e., the notes purchased by plaintiff securityholder.


source: Caselaw Access Project

license: Public Domain

text:
    [16 NE3d 1156, 992 NYS2d 678]
    In the Matter of New York State Commission on Judicial Conduct, Respondent, v Seth Rubenstein, Appellant. (And Another Action.)
    Argued April 30, 2014;
    decided June 10, 2014

      POINTS OF COUNSEL

      Greenfield Stein & Senior; LLP, New York City (Gary B. Freidman and Jeffery H. Sheetz of counsel), for appellant.
    I. The New York State Commission on Judicial Conduct’s completion of its investigation and disciplinary proceeding against Judge Doe did not render Seth Rubenstein’s appeal moot, and even if it did, the Appellate Division should have decided Mr. Ruben-stein’s appeal because the issue whether CPL 160.50 bars disclosure to the State Commission of an acquitted defendant’s sealed criminal records is novel and substantial, likely to recur and to continue to evade review. (Matter of Bickwid v Deutsch, 87 NY2d 862; Matter of Williams v Cornelius, 76 NY2d 542;
      Matter of Dondi, 63 NY2d 331; Matter of Westchester Rockland Newspapers v Leggett, 48 NY2d 430; Matter of M.B., 6 NY3d 437; Coleman v Daines, 19 NY3d 1087; Green v Montgomery, 95 NY2d 693; Matter of Joseph M. [New York City Bd. of Educ.], 82 NY2d 128; Matter of Katherine B. v Cataldo, 5 NY3d 196; Matter of Hynes v Karassik, 47 NY2d 659.) II. This Court should reverse the Appellate Division’s dismissal of Seth Rubenstein’s appeal and Justice Fisher’s May 25, 2012 order, because Justice Fisher’s release of Mr. Rubenstein’s criminal records violates CPL 160.50, in conflict with this Court’s prior decisions. (Matter of Katherine B. v Cataldo, 5 NY3d 196; Matter of Joseph M. [New York City Bd. of Educ.], 82 NY2d 128; Matter of Dondi, 63 NY2d 331; Matter of Hynes v Karassik, 47 NY2d 659; Matter of City of Elmira v Doe, 39 AD3d 942, 11 NY3d 799; People v Marcus A., 28 Misc 3d 667; East Meadow Community Concerts Assn. v Board of Educ. of Union Free School Dist No. 3, 18 NY2d 129.)

      Eric T. Schneiderman, Attorney General, New York City (Won S. Shin, Barbara D. Underwood and Steven C. Wu of counsel), for respondent.
    I. The appeal should be dismissed as academic. (Matter of Hearst Corp. v Clyne, 50 NY2d 707; Lillbask ex rel. Mauclaire v State of Conn. Dept. of Educ., 397 F3d 77; Seven Words LLC v Network Solutions, 260 F3d 1089; Matter of Morrison v New York State Div. of Hous. & Community Renewal, 93 NY2d 834; Matter of Citineighbors Coalition of Historic Carnegie Hill v New York City Landmarks Preserv. Commn., 2 NY3d 727.) II. The New York State Commission on Judicial Conduct is entitled to obtain relevant sealed records when investigating judicial misconduct. (Matter of Stern v Morgenthau, 62 NY2d 331; Matter of Mogil, 88 NY2d 749; Matter of Duckman, 92 NY2d 141; Matter of Margaret Ann E. v Huban F., 54 NY2d 814; Matter of New York City Health & Hosps. Corp. v New York State Commn. of Correction, 19 NY3d 239; Matter of Harper v Angiolillo, 89 NY2d 761; Matter of Dondi, 63 NY2d 331; Matter of Joseph M. [New York City Bd. of Educ.], 82 NY2d 128; Matter of Nicholson v State Commn. on Jud. Conduct, 50 NY2d 597; Matter of Hart [State Commn. on Jud. Conduct], 7 NY3d 1.)
   OPINION OF THE COURT

Rivera, J.

In this appeal, we conclude that the New York State Commission on Judicial Conduct is authorized, pursuant to the Judiciary Law and its constitutional mandate to investigate judicial misconduct, to request and receive records sealed under Criminal Procedure Law § 160.50 for use in its investigations. We further hold that the Appellate Division erred by dismissing as moot appellant’s challenge to the Commission’s authority. We therefore reverse the Appellate Division order dismissing the appeal as moot, and deny appellant’s application to vacate the ex parte order releasing his sealed records.

I

Appellant Seth Rubenstein appeals from an order of the Appellate Division, dismissing as moot his challenge to the release of sealed criminal records to respondent New York State Commission on Judicial Conduct (Commission). Supreme Court had granted the Commission access to records of a criminal proceeding terminated in favor of appellant for use in the Commission’s investigation into possible judicial misconduct by Judge Doe, not a party here, and appellant’s codefendant in the underlying criminal proceeding. The investigation led to the Commission’s July 2011 formal written complaint against Judge Doe charging misconduct arising from her judicial election campaign, and her censure in 2012.

Appellant is a lawyer who was criminally prosecuted along with Judge Doe on charges of violations of the Campaign Finance Law in relation to contributions he made to the Judge’s campaign, and advice he allegedly provided regarding those contributions. Eight of the 10 criminal charges brought against Judge Doe and appellant were dismissed on jurisdictional grounds, and a jury acquitted them of the remaining charges. In accordance with CPL 160.50, the records of the criminal proceeding were sealed following termination of the proceedings in favor of the defendants.

Approximately one month after the acquittal, the Commission initiated an investigation into Judge Doe for possible misconduct related to her campaign. In furtherance of its investigation, the Commission moved ex parte in Supreme Court for an order releasing for its review the sealed records from the underlying criminal proceeding, “for use in proceedings conducted pursuant to Article 6, Section 22, of the Constitution, and Article 2-A of the Judiciary Law.” In his supporting affirmation, the Commission Administrator asserted that “New York courts have regularly ordered that sealed materials in criminal cases be provided to the Commission,” and cited a number of examples of lower court cases. In May 2010, Supreme Court granted the motion and ordered release of the records pursuant to Judiciary Law § 42 (3) and CPL 160.50, and further granted the Commission’s request to seal the order and all supporting papers.

Thereafter, in January 2011, the Commission deposed the appellant in connection with its investigation of Judge Doe. At the deposition, appellant’s counsel inquired whether any questions to be asked of his client directly, or regarding any documents, originated from information contained in the sealed criminal records. Counsel for the Commission responded that the Commission had received materials through an appropriate court order, and that his questions were “in part possibly” derived from those court records. Appellant’s counsel then objected to the release of the records from the underlying criminal proceeding on the ground that it violated CPL 160.50. Nevertheless, he instructed appellant to answer the Commission’s questions rather than be held in contempt. According to appellant, the Commission refused requests to provide him with a copy of the court’s ex parte release order.

II

In March 2012, the Commission issued a subpoena for a second deposition of appellant. In response, appellant filed an order to show cause to vacate the ex parte May 2010 order releasing the sealed records to the Commission, prohibit the Commission’s use of any documents or information obtained pursuant to that release order, and order the Commission to return all documents and copies “to the files from which they were obtained.” Appellant argued that CPL 160.50 prohibited the Commission’s access to the sealed records because the Commission did not fall within one of the six statutory exceptions to the sealing provision, specifically the “law enforcement agency” exception under CPL 160.50 (1) (d) (ii). The Commission opposed the motion, arguing it had inherent constitutional responsibility to oversee the discipline of judges and authority under Judiciary Law § 42 (3) to access the sealed documents.

Supreme Court ostensibly denied appellant’s application to vacate the release order as procedurally defective. However, the court also rejected the claim that it was without authority to disclose to the Commission its own records and papers, and cited to our decision in Matter of Dondi (63 NY2d 331 [1984]), which recognized the Appellate Division’s “inherent powers” to obtain sealed records of criminal proceedings in furtherance of its attorney discipline function. Finding that the public interest in the integrity of the judiciary was as compelling as the interest involved in Matter of Dondi, the court stated that “[t]he Commission’s authority and the preservation of the integrity of the state’s judiciary may not be stymied by the statutory constraints of CPL 160.50; to conclude otherwise would dangerously undermine the ability of the Commission to meet its constitutional mandate.” Appellant appealed.

During the pendency of the appeal Judge Doe agreed to a censure. In accordance with Judiciary Law § 44 (5), she entered an agreed statement of facts, stipulating that the Commission make its determination based upon the facts contained therein, recommending she be censured, and waiving further submissions or oral argument. The Commission drafted the agreed statement of facts with input from Judge Doe, who provided a detailed overview of the circumstances giving rise to the underlying criminal proceeding. The agreed statement of facts identified appellant by name and discussed Judge Doe’s apparent reliance on his advice and financial payments during her election campaign. In October 2012, the Commission issued its written determination recommending a censure and posted that determination, the agreed statement of facts, the pleadings, and three related letters on its public government website.

Thereafter, the Commission moved before the Appellate Division to dismiss appellant’s application to vacate the ex parte release order. The Commission argued that further proceedings would be purely academic because it no longer needed the records given Judge Doe’s consent to the censure. Appellant opposed the motion on the grounds that the issue was not moot, and, even if it were, that the matter fell within the exception to the mootness doctrine.

The Appellate Division dismissed the appeal as moot, but directed the Commission to return to the originating court all of the previously sealed documents and ordered that the records be resealed for all purposes (see 103 AD3d 409 [1st Dept 2013]). The Commission has apparently complied with the Appellate Division order to return the records. We granted appellant leave to appeal (21 NY3d 855 [2013]).

III

An appeal is moot “unless the rights of the parties will be directly affected by the determination of the appeal and the interest of the parties is an immediate consequence of the judgment” (Matter of Hearst Corp. v Clyne, 50 NY2d 707, 713-714 [1980]). Where the case presents a live controversy and enduring consequences potentially flow from the order appealed from, the appeal is not moot (see Saratoga County Chamber of Commerce v Pataki, 100 NY2d 801, 810 [2003] [“The jurisdiction of this Court extends only to live controversies”]; Matter of Bickwid v Deutsch, 87 NY2d 862, 863 [1995] [holding an appeal from a civil contempt order for which the appellant had already served his sentence was not moot, “(i)nasmuch as enduring consequences potentially flow(ed)” from the order]; Matter of Williams v Cornelius, 76 NY2d 542, 546 [1990] [concluding that, “as lasting consequences potentially flow(ed)” from the appellant’s criminal contempt adjudication, “the proceeding remain(ed) ripe for judicial review” regardless of the appellant’s having already served his sentence]).

The Commission argues the appeal is moot because appellant will not be affected by resolution of the issue presented in this litigation. Given that its investigation is complete, it has no further use for the sealed records, and it has returned the documents to the originating court, the Commission claims there is no live controversy left to resolve and, thus, any decision on the merits would be purely academic.

Appellant counters that this matter is not moot because the continued posting of the Commission’s determination on its website, with its references to him and his alleged conduct, has “enduring consequences” for his credibility and reputation as a practicing lawyer. In particular, he notes that the Commission’s determination revealed his indictment and “is replete with comments critical of [his] conduct.” He argues that it is the lasting effects of the Commission’s unlawful access to and use of the records, represented by the posting of private and discrediting information on its website, which renders this proceeding live.

We agree that the Commission’s identification of appellant in its publicly available documents, and its description of his involvement in Judge Doe’s judicial election campaign, including assertions that his legal advice informed the Judge’s actions, adversely impact his professional reputation and standing within the legal and greater communities, and constitute enduring consequences that flow from the use of the sealed records. It is impossible to see how it could be otherwise.

The publicly-posted Commission determination of censure specified that appellant was criminally indicted for felonies and misdemeanors arising from payments he made to Judge Doe during her campaign, and that the majority of the criminal charges were dismissed for jurisdictional reasons with the remainder dismissed pursuant to an acquittal. The Commission further characterized appellant as playing “an active role” in Judge Doe’s campaign inasmuch as he “was actively involved in fundraising” for her and “was one of the signatories on the campaign’s bank account.” Additionally, the Commission set forth the amount of money appellant contributed and loaned to Judge Doe’s campaign, and stated that he advised her on election financing issues. The Commission also wrote that certain financial conveyances by appellant for the benefit of Judge Doe’s campaign, “were contrary to the generally accepted and understood interpretation of the Election Law.” In addition to the election finance matters, the Commission referred to appellant’s long-term professional relationship and friendship with Judge Doe, and suggested unethical conduct based on this relationship.

Given these statements, the potential for damage to appellant’s professional reputation from the posting of the Commission’s censure determination is obvious. Therefore, we conclude that the identification of appellant by name, and the detailed description of his involvement in Judge Doe’s misconduct, has enduring consequences for appellant so long as the Commission’s censure determination remains posted on its website. Thus, we reverse the Appellate Division order dismissing the appeal as moot.

IV

Turning to the question of whether the Commission acted within its power when it obtained records of appellant’s underlying criminal proceeding, we conclude that in order to fulfill its constitutional duties and obligations to investigate judicial misconduct, and in accordance with its broad investigatory powers under the Judiciary Law, the Commission is authorized to obtain criminal records sealed pursuant to CPL 160.50. The Commission may receive sealed records provided they are reasonably related to a judicial misconduct inquiry. This authority extends to the sealed records of an individual other than the judge under investigation. Therefore, the Commission acted within the scope of its authority in obtaining and using appellant’s sealed criminal records in its investigation of Judge Doe.

The Commission is an independent agency charged with “protecting] the integrity of the judiciary,” “preserving] and enhancing] the public’s confidence in its courts,” and ensuring qualified judges serve as part of our judicial system (Matter of Stern v Morgenthau, 62 NY2d 331, 339 [1984]). It is constitutionally authorized to “receive, initiate, investigate and hear complaints” of judicial misconduct and has exclusive jurisdiction over such complaints (NY Const, art VI, § 22 [a]; see Judiciary Law § 42 [3]). Upon request by the affected judge, this Court has plenary power to review the legal and factual findings of the Commission as well as the sanction imposed (see NY Const, art VI, § 22 [d]; Judiciary Law § 44 [9]; see also Matter of Gilpatric [State Commn. on Jud. Conduct], 13 NY3d 586, 589 [2009]; Matter of Washington, 100 NY2d 873, 876 n 2 [2003]). We have recognized that the Commission “must be free to conduct . . . investigation[s]” (Matter of Nicholson v State Commn. on Jud. Conduct, 50 NY2d 597, 608 [1980]), and that the effectiveness of its inquiries “necessarily requires the free flow of information to the Commission” (Matter of Stern, 62 NY2d at 339).

The Commission relies specifically on Judiciary Law § 42 (3) in support of its argument that it has authority to obtain sealed criminal records. Section 42 (3) provides that the Commission may “request and receive from any court, department, division, board, bureau, commission, or other agency of the state or political subdivision thereof or any public authority such assistance, information and data as will enable it properly to carry out its functions, powers and duties.” By its plain terms, the Judiciary Law grants the Commission broad access to information in furtherance of its investigatory mandate.

Notwithstanding this broad access to a wide range of information from a diverse body of sources, appellant contends that the Commission is statutorily prohibited from obtaining criminal records sealed pursuant to CPL 160.50. He points to the Commission’s absence from the express statutory exceptions to the sealing provision in support of his argument that the Commission cannot access his criminal records.

Section 160.50 (1) provides that, “[u]pon the termination of a criminal action or proceeding against a person in favor of such person, . . . the record of such action or proceeding shall be sealed.” The sealing provision encompasses, among other things, all “official records and papers” (CPL 160.50 [1] [c]). We have recognized the salutary and protective goals of section 160.50, explaining that

“the Legislature’s objective in enacting CPL 160.50 and the related statutes . . . was to ensure that the protections provided be consistent with the presumption of innocence .... Indeed, the over-all scheme of the enactments demonstrates that the legislative objective was to remove any stigma flowing from an accusation of criminal conduct terminated in favor of the accused, thereby affording protection ... to such accused in the pursuit of employment, education, professional licensing and insurance opportunities” (People v Patterson, 78 NY2d 711, 716 [1991] [internal quotation marks and citations omitted]).

However, “a former defendant’s interest in preventing the disclosure of official records and papers ... is not absolute” (Matter of Harper v Angiolillo, 89 NY2d 761, 767 [1997]). Indeed, “the Legislature has acknowledged the existence of countervailing considerations to the sealing of such records and papers” as reflected in express statutory exceptions set forth in CPL 160.50 (1) (d) (Matter of Harper, 89 NY2d at 766-767 [internal quotation marks and citation omitted]).

In addition to the accused and the accused’s designated agent, a court may make sealed records available only: to (1) a “prosecutor in any proceeding in which the accused” has moved for an adjournment in contemplation of dismissal in a case involving marijuana charges below felony grade (CPL 160.50 [1] [d] [i]); (2) “a law enforcement agency upon ex parte motion in any superior court, if such agency demonstrates to the satisfaction of the court that justice requires” release (CPL 160.50 [1] [d] [ii]); (3) state or local gun licensing agencies when the accused applies for a gun license (see CPL 160.50 [1] [d] [iii]); (4) the Division of Parole when the arrest occurred while the accused was under parole supervision (see CPL 160.50 [1] [d] [iv]); (5) the prospective employer of a police officer or peace officer, so long as the applicant is provided with a copy of all records and given an opportunity to explain (see CPL 160.50 [1] [d] [v]); and (6) any probation department responsible for the accused’s supervision at the time of his or her arrest (see CPL 160.50 [1] [d] [vi]). None of these exceptions apply to the Commission.

Our inquiry does not commence and end with CPL 160.50, for we have recognized that there may be other sources of authority permitting access to sealed records. Thus, in Matter ofDondi, a case in which a grievance committee sought sealed records in connection to an attorney disciplinary proceeding, we noted the “extraordinary circumstances” arising from the Appellate Division’s oversight and disciplinary power over attorneys (63 NY2d at 338). We further recognized Judiciary Law § 90 (2) as the basis for the Appellate Division’s “inherent authority over records and its oversight and disciplinary power over attorneys and counselors at law, to permit the unsealing of criminal records” (Matter of Dondi, 63 NY2d at 338, citing Matter of Hynes v Karassik, 47 NY2d 659, 664-665 [1979]).

However, we have been careful when considering whether to permit access to sealed records so that we do not undermine the legislative goals of CPL 160.50, and make unsealing of records the rule rather than a narrowly confined exception (see Matter of Katherine B. v Cataldo, 5 NY3d 196, 202-203 [2005]; Matter of Joseph M. [New York City Bd. of Educ.], 82 NY2d 128 [1993]; Patterson, 78 NY2d at 714; Matter of Dondi, 63 NY2d at 338; Matter of Hynes, 47 NY2d at 663-665). In Matter of Joseph M., we held that the Board of Education was not a “law enforcement agency” within the meaning of CPL 160.50 (1) (d) (ii) and, thus, could not obtain sealed records for use in a teacher disciplinary proceeding (82 NY2d at 133). “Absent such a specific grant of power,” we concluded, “a holding that the court has inherent authority to order the unsealing of records . . . would frustrate a primary purpose of the 1976 amendments to the Criminal Procedure Law” (82 NY2d at 133-134 [describing that purpose as “protecting exonerated individuals from the unwarranted stigma . . . others could attach to dismissed criminal charges”]).

What Matter of Dondi and our other cases make clear is that absent “extraordinary circumstances” (63 NY2d at 338), a specific grant of power (see Matter of Joseph M., 82 NY2d at 133-134), or the existence of a legal mandate the nature of which would be impossible to fulfill without unsealing criminal records (see Matter of Dondi, 63 NY2d at 338), sealed criminal records may only be accessed by individuals and agencies specifically enumerated, and “narrowly defined” in CPL 160.50 (1) (d) (Matter of Hynes, 47 NY2d at 663; see Matter of Katherine B., 5 NY3d at 203-205; Matter of Joseph M., 82 NY2d at 132-134).

Given the Commission’s broad powers under the Judiciary Law, specifically its authority under Judiciary Law § 42 (3) to request and receive a wide range of records and data, and its constitutional duties and obligations to ensure the integrity of the judicial system by investigating and sanctioning judicial misconduct, we conclude that the Commission may obtain documents sealed pursuant to CPL 160.50. Continued public confidence in the judiciary is of singular importance, and can be furthered only by permitting the Commission access to information that allows it to quickly identify and respond to judicial misconduct, including criminal behavior, abuse of power, corruption, and other actions in violation of laws applicable to judges. In short, ensuring the integrity of the judiciary is no less important than we found protecting the integrity of the bar to be in Matter of Dondi (63 NY2d at 338).

Allegations of judicial misconduct bring the integrity of the judicial system into direct question and undermine the public’s faith in our judicial officers. It is the Commission’s duty to preempt and mitigate these potential consequences by quickly and effectively investigating allegations of judicial misconduct. The Commission’s responsibilities “transcend the criminal prosecution of individuals” because its “concern is institutional” (Matter of Stern, 62 NY2d at 339). Release of sealed records to the Commission serves the dual goals of facilitating the speedy sanction or removal of questionable jurists, while enabling the Commission to clear the names of judges whose conduct does not deserve reproach.

In upholding its authority to request and receive records sealed under CPL 160.50, we again emphasize the Commission’s “overriding constitutional concern [in] protecting] the standards of the judicial system as a whole and [in] insuring] that none but qualified Judges remain a part of it” (Matter of Stern, 62 NY2d at 339). Accordingly, the order of the Appellate Division should be reversed, without costs, and appellant’s application to vacate the order releasing his sealed records denied.

Chief Judge Lippman and Judges Graffeo, Read, Smith, Pigott and Abdus-Salaam concur.

Order reversed, without costs, and appellant’s application denied.

      . The Commission requested “the official records and papers including any and all transcripts of the proceedings and exhibits and other related case documents and/or materials of this sealed case, pursuant to allegations that judicial misconduct was committed in connection with [the criminal] case.”

      . The hearing for which the Commission subpoenaed appellant was later adjourned without date.

      . Supreme Court concluded appellant lacked standing to object to the Commission’s use of the records, an order to show cause was an irregular and procedurally improper mechanism by which to challenge an administrative order concerning a criminal matter, and appellant failed to demonstrate a basis for vacatur of a prior order under CPLR 5015.

      . Appellant also sought a preliminary injunction prohibiting the Commission from using the challenged records pending determination of his appeal, as well as a temporary restraining order barring the Commission from using the records pending decision on his preliminary injunction motion. The Appellate Division denied both requests.

      . Judiciary Law § 44 (5) provides that, “[s]ubject to the approval of the [Commission, the administrator and the judge may agree on a statement of facts and may stipulate in writing that the hearing shall be waived.” Where this occurs, “the [CJommission shall make its determination upon the pleadings and the agreed statement of facts.”

      . The Appellate Division order dismissing appellant’s appeal from the Supreme Court order which denied his application to vacate the ex parte order releasing his sealed records was the first opportunity to challenge the release order and, thus, is a final appealable paper.

      . The parties disagree as to whether any of the Commission’s statements can be traced to the sealed records given that the Commission’s determination is based upon facts agreed to by Judge Doe, thus providing an independent source for the Commission’s findings. Notwithstanding that the Commission’s determination contains jointly agreed to facts, the investigatory value of the records is not in dispute. Indeed, the Commission admitted as much to appellant’s counsel during appellant’s deposition. Our determination that the matter on appeal is not moot is thus unaffected by Judge Doe’s agreement to the facts that support the Commission’s publicly announced censure determination.

      . It is unnecessary to consider whether the Commission may publicly cite or publish records previously sealed pursuant to CPL 160.50 in connection with a related judicial misconduct determination.


author: Abdus-Salaam, J.

text:
    [15 NE3d 1194, 992 NYS2d 185]
    KeySpan Gas East Corporation, Respondent, v Munich Reinsurance America, Inc., et al., Appellants.
    Argued May 6, 2014;
    decided June 10, 2014

      POINTS OF COUNSEL

      O’Melveny & Myers LLP (Jonathan D. Hacker of the District of Columbia bar, admitted pro hac vice, of counsel), Siegal & Park, Mount Laurel, New Jersey (Lawrence A. Nathanson of counsel), Boutin & Altieri, P.L.L.C., Carmel (John L. Altieri, Jr., of counsel), White and Williams LLP, New York City (Robert F. Walsh of counsel), Landman Corsi Ballaine & Ford P.C. (Michael L. Gioia of counsel) and Bates Carey Nicolaides LLP, Chicago, Illinois (Robert J. Bates, Jr., of counsel), for appellants.

      I. Common-law waiver and estoppel principles have long provided the appropriate limits on an insurer’s right to disclaim coverage. (Security Mut. Ins. Co. of N.Y. v Acker-Fitzsimons Corp., 31 NY2d 436; Argo Corp. v Greater N.Y. Mut. Ins. Co., 4 NY3d 332; Commercial Union Ins. Co. v International Flavors & Fragrances, Inc., 822 F2d 267; Albert J. Schiff Assoc. v Flack, 51 NY2d 692; S. & E. Motor Hire Corp. v New York Indem. Co., 255 NY 69; Gilbert Frank Corp. v Federal Ins. Co., 70 NY2d 966; Sirignano v Chicago Ins. Co., 192 F Supp 2d 199; Kiernan v Dutchess County Mut. Ins. Co., 150 NY 190; Titus v Glens Falls Ins. Co., 81 NY 410; Gibson Elec. Co. v Liverpool & London & Globe Ins. Co., 159 NY 418.) II. The special time limit standard of Insurance Law § 3420 (d) should not be applied outside its legislatively intended context of accidental death and bodily injury claims. (Preserver Ins. Co. v Ryba, 10 NY3d 635; B & F Bldg. Corp. v Liebig, 76 NY2d 689; Arbegast v Board of Educ. of S. New Berlin Cent. School, 65 NY2d 161; Hammelburger v Foursome Inn Corp., 54 NY2d 580; Transit Commn. v Long Is. R.R. Co., 253 NY 345; Orinoco Realty Co. v Bandler, 233 NY 24; Eaton v New York City Conciliation & Appeals Bd., 56 NY2d 340; Gurnee v Aetna Life & Cas. Co., 55 NY2d 184; Gager v White, 53 NY2d 475; Chevron Oil Co. v Huson, 404 US 97.) III. Under common-law rules, the insurers are entitled to judgment as a matter of law on their late notice defense. (Gurnee v Aetna Life & Cas. Co., 55 NY2d 184; Gilbert Frank Corp. v Federal Ins. Co., 70 NY2d 966; O’Dowd v American Sur. Co. of N.Y., 3 NY2d 347; Lugo v AIG Life Ins. Co., 852 F Supp 187.)

      Covington & Burling LLP, Washington, D.C. (Jay T. Smith and William F. Greaney of counsel), Covington & Burling LLP, New York City (Mark P. Gimbel of counsel), for respondent.
    I. Whether the insurers waived a late-notice defense is a question of fact that must be resolved by a jury. (Alsens Am. Portland Cement Works v Degnon Contr. Co., 222 NY 34; General Motors Acceptance Corp. v Clifton-Fine Cent. School Dist., 85 NY2d 232; Albert J. Schiff Assoc. v Flack, 51 NY2d 692; Hadden v Consolidated Edison Co. of N.Y., 45 NY2d 466; Sillman v Twentieth Century-Fox Film Corp., 3 NY2d 395; Gibson Elec. Co. v Liverpool & London & Globe Ins. Co., 159 NY 418; Palma v National Fire Ins. Co. of Hartford, 240 App Div 454; People ex rel. McLaughlin v Board of Police Commrs. of City of Yonkers, 174 NY 450; Readco, Inc. v Marine Midland Bank, 81 F3d 295; Allstate Ins. Co. v Gross, 27 NY2d 263.) II. Although a duty to act is not a precondition to finding waiver, a jury may consider the insurers’ duty to provide prompt coverage decisions in evaluating their inaction. (State of New York v AMRO Realty Corp., 936 F2d 1420; First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64; General Acc. Ins. Group v Cirucci, 46 NY2d 862; Matter of Firemen’s Fund Ins. Co. of Newark v Hopkins, 88 NY2d 836; Estee Lauder Inc. v OneBeacon Ins. Group, LLC, 62 AD3d 33; 151 E. 26th St. Assoc. v QBE Ins. Co., 33 AD3d 452; Hotel des Artistes, Inc. v General Acc. Ins. Co. of Am., 9 AD3d 181; Malca Amit N.Y. v Excess Ins. Co., 258 AD2d 282; Ashland Window & Housecleaning Co., Inc. v Metropolitan Cas. Ins. Co. of N.Y., 269 App Div 31; Brassil v Maryland Cas. Co., 210 NY 235.)

      Proskauer Rose LLP, New York City (John E. Failla and Matthew J. Morris of counsel), for Environmental Energy Alliance of New York, LLC, amicus curiae.
    I. Under New York law, an insurer may waive enforcement of policy conditions by knowingly failing to perform legal duties or act consistently with industry norms, including by failing to disclaim coverage promptly upon learning of a basis to disclaim. (Fundamental Portfolio Advisors, Inc. v Tocqueville Asset Mgt., L.P., 7 NY3d 96; Sillman v Twentieth Century-Fox Film Corp., 3 NY2d 395; S. & E. Motor Hire Corp. v New York Indem. Co., 255 NY 69; Skinner v Norman, 165 NY 565; Kiernan v Dutchess County Mut. Ins. Co., 150 NY 190; 151 E. 26th St. Assoc. v QBE Ins. Co., 33 AD3d 452; Malca Amit N.Y. v Excess Ins. Co., 258 AD2d 282; Amrep Corp. v American Home Assur. Co., 81 AD2d 325; Bi-Economy Mkt., Inc. v Harleysville Ins. Co. of N.Y., 10 NY3d 187; Isadore Rosen & Sons v Security Mut. Ins. Co. of N.Y., 31 NY2d 342.) II. Applying common-law waiver where warranted will curb unreasonable claim handling practices. (Argo Corp. v Greater N.Y. Mut. Ins. Co., 4 NY3d 332; American Home Assur. Co. v International Ins. Co., 90 NY2d 433; Burt Rigid Box, Inc. v Travelers Prop. Cas. Corp., 302 F3d 83; Fundamental Portfolio Advisors, Inc. v Tocqueville Asset Mgt., L.P., 7 NY3d 96; Bi-Economy Mkt., Inc. v Harleysville Ins. Co. of N.Y., 10 NY3d 187.)

      Melito & Adolfsen PC, New York City (S. Dwight Stephens of counsel), and Wiley Rein LLP, Washington, D.C. (Laura A. Foggan and Jennifer A. Williams of counsel), for Complex Insurance Claims Litigation Association, amicus curiae.
    I. The Appellate Division incorrectly overrode New York common law to impose the standards of Insurance Law § 3420 (d) even where that provision plainly is inapplicable. (Matter of Firemen’s Fund Ins. Co. of Newark v Hopkins, 88 NY2d 836; Estee Lauder Inc. v

      OneBeacon Ins. Group, LLC, 62 AD3d 33; Fairmont Funding v Utica Mut. Ins. Co., 264 AD2d 581; Travelers Indem. Co. v Orange & Rockland Utils., Inc., 73 AD3d 576; United States Fid. & Guar. Co. v Weiri, 265 AD2d 321; United States Underwriters Ins. Co. v Landau, 679 F Supp 2d 330; Gilbert Frank Corp. v Federal Ins. Co., 70 NY2d 966; Precision Auto Accessories, Inc. v Utica First Ins. Co., 52 AD3d 1198; Only Natural, Inc. v Realm Natl. Ins. Co., 37 AD3d 436; Vecchiarelli v Continental Ins. Co., 277 AD2d 992.) II. The common-law principles of waiver and estoppel are appropriate to govern an insurer’s right to deny coverage on late notice grounds. (Matter of Covert, 97 NY2d 68; Albert J. Schiff Assoc. v Flack, 51 NY2d 692; AXA Global Risks U.S. Ins. Co. v Sweet Assoc., 302 AD2d 844; Mooney v City of New York, 219 F3d 123; Kiernan v Dutchess County Mut. Ins. Co., 150 NY 190; Burt Rigid Box, Inc. v Travelers Prop. Cas. Corp., 302 F3d 83; Estee Lauder Inc. v OneBeacon Ins. Group, LLC, 62 AD3d 33; Hotel des Artistes, Inc. v General Acc. Ins. Co. of Am., 9 AD3d 181; Hartford Ins. Co. v County of Nassau, 46 NY2d 1028; New York Cent. Mut. Fire Ins. Co. v Hildreth, 40 AD3d 602.)
   OPINION OF THE COURT

Abdus-Salaam, J.

In this insurance coverage dispute, plaintiff-respondent Key-Span Gas East Corporation seeks a declaration that defendants-appellants Munich Reinsurance America, Inc., Century Indemnity Company, and Northern Assurance Company of America have a duty to defend and indemnify KeySpan for liabilities associated with the investigation and remediation of environmental damage at manufactured gas plant (MGP) sites formerly owned or operated by plaintiff Long Island Lighting Company (LILCO). Defendants issued excess insurance policies to LILCO that required, as a threshold condition for coverage, LILCO to provide prompt notice of any occurrence that potentially implicated defendants’ duty of indemnification.

In October and November 1994, LILCO notified defendants by letter about “environmental concern[s]” at retired MGP sites in Bay Shore and Hempstead, the only sites relevant to this appeal. LILCO stated that, although no regulatory agencies had commenced a lawsuit or formal investigation, LILCO expected agency action would be “forthcoming” and that the extent of its potential liability “if any” could not yet be determined. LILCO also notified defendants that a neighboring property owner had brought a property damage claim against the company for environmental contamination allegedly caused by the Bay Shore MGE LILCO asked defendants to “acknowledge [their] duty to indemnify [LILCO] for any damages that it may incur within [the] policy limits.”

Over the following year, defendants sent letters to LILCO in which they generally reserved all rights and coverage defenses, including the defense of late notice. Defendants also requested additional information about the MGPs and, noting that LILCO was self-insured at the primary level, sought documentation indicating that LILCO’s coverage under the excess policies had been reached.

Between February 1995 and January 1996, LILCO provided supplemental disclosures to defendants about, among other things, LILCO’s investigation of environmental damage at the MGP sites and its dealings with various regulatory agencies over the past 15 years. LILCO also notified defendants when, in August 1995, the New York State Department of Environmental Conservation (DEC) served a formal demand requesting that LILCO conduct site investigations and, if necessary, remediate the Bay Shore and Hempstead MGP sites. Defendants did not respond to these disclosures.

LILCO thereafter commenced this declaratory judgment action in September 1997. In their answers, defendants asserted late notice as an affirmative defense warranting denial of coverage. Defendants later moved for summary judgment based on late notice. After protracted procedural history not relevant to this appeal, Supreme Court granted summary judgment on the Bay Shore site and entered a declaration that defendants have no duty to defend or indemnify LILCO regarding those environmental damage claims, but denied summary judgment on the Hempstead site and five other MGP sites (see Long Is. Lighting Co. v Allianz Underwriters Ins. Co., 2012 NY Slip Op 30258[U] [Sup Ct, NY County 2012]). The court held that, with the exception of the Bay Shore site, the reasonableness of LILCO’s delay in notifying defendants of environmental occurrences at its MGP sites presented a question of fact for the jury (see id.). The court also rejected LILCO’s claim that defendants waived their late-notice defense by failing to disclaim coverage prior to interposing their answers (see id.). Defendants appealed from the Supreme Court order only to the extent it denied summary judgment as to the Hempstead site. KeySpan, having been assigned the right to pursue LILCO’s claims and added as a new party plaintiff, cross-appealed from the order to the extent it granted summary judgment as to the Bay Shore site.

The Appellate Division modified the Supreme Court order by denying summary judgment on the Bay Shore site and vacating the declaration, and otherwise affirmed (see Long Is. Light. Co. v Allianz Underwriters Ins. Co., 104 AD3d 581 [1st Dept 2013]). The court held that LILCO failed, as a matter of law, to provide timely notice under the policies of environmental contamination at both the Bay Shore and Hempstead MGP sites (see id.). The court nevertheless declined to award summary judgment to defendants “because issues of fact remain as to whether defendants waived their right to disclaim coverage based on late notice” by “fail[ing] to timely issue a disclaimer” (id.). Although defendants specifically reserved their rights to assert a late-notice defense, the court determined that a jury should consider whether, based on the supplemental information provided by LILCO, defendants “possessed sufficient knowledge to require that they meet the obligation to issue a written notice of disclaimer on the ground of late notice as soon as reasonably possible after first learning of the accident or of grounds for disclaimer of liability” (id. at 581-582). Accordingly, the court held that triable issues of fact exist whether defendants waived their late-notice defense (id. at 582). The Appellate Division granted defendants leave to appeal, certifying to us the question of whether its order was properly made (2013 NY Slip Op 80446[U] [2013]).

Defendants argue that the Appellate Division wrongly applied the strict timeliness standard from Insurance Law § 3420 (d) (2) in considering whether defendants waived their right to disclaim coverage of LILCO’s environmental damage claims. Although the Appellate Division did not cite section 3420 (d) (2) in its decision, the court essentially recited the statute’s disclaimer requirement when it stated that defendants had an “obligation” to disclaim coverage based on late notice “as soon as reasonably possible after first learning of the . . . grounds for disclaimer” (104 AD3d at 582). We agree with defendants that this was error.

Insurance Law § 3420 (d) (2) provides:

“If under a liability policy issued or delivered in this state, an insurer shall disclaim liability or deny coverage for death or bodily injury arising out of a motor vehicle accident or any other type of accident occurring within this state, it shall give written notice as soon as is reasonably possible of such disclaimer of liability or denial of coverage to the insured and the injured person or any other claimant.”

The legislature enacted section 3420 (d) (2) to “aid injured parties” by encouraging the expeditious resolution of liability claims (Allstate Ins. Co. v Gross, 27 NY2d 263, 267 [1970]; see First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64, 68 [2003]). To effect this goal, the statute “established] an absolute rule that unduly delayed disclaimer of liability or denial of coverage violates the rights of the insured [or] the injured party” (Allstate, 27 NY2d at 267, 269). Compared to traditional common-law waiver and estoppel defenses, section 3420 (d) (2) creates a heightened standard for disclaimer that “depends merely on the passage of time rather than on the insurer’s manifested intention to release a right as in waiver, or on prejudice to the insured as in estoppel” (id. at 269).

By its plain terms, section 3420 (d) (2) applies only in a particular context: insurance cases involving death and bodily injury claims arising out of a New York accident and brought under a New York liability policy (see Preserver Ins. Co. v Ryba, 10 NY3d 635, 642 [2008] [“Insurance Law § 3420 (d) requires timely disclaimer only for denials of coverage Tor death or bodily injury’”]; see also Jetco, 1 NY3d at 70; Matter of Firemen's Fund Ins. Co. of Newark v Hopkins, 88 NY2d 836, 837 [1996]). “Where, as here, the underlying claim does not arise out of an accident involving bodily injury or death, the notice of disclaimer provisions set forth in Insurance Law § 3420 (d) are inapplicable” (Vecchiarelli v Continental Ins. Co., 277 AD2d 992, 993 [4th Dept 2000]; see e.g. Ryba, 10 NY3d at 642 [insurer “not required by Insurance Law § 3420 (d) to make timely disclaimer of coverage” for breach of contract claim]; Travelers Indem. Co. v Orange & Rockland Utils., Inc., 73 AD3d 576, 577 [1st Dept 2010], lv dismissed 15 NY3d 834 [2010]; Topliffe v US Art Co., Inc., 40 AD3d 967, 969 [2d Dept 2007]; Fairmont Funding v Utica Mut. Ins. Co., 264 AD2d 581, 581 [1st Dept 1999]). In such cases, the insurer will not be barred from disclaiming coverage “simply as a result of the passage of time,” and its delay in giving notice of disclaimer should be considered under common-law waiver and/or estoppel principles (Travelers, 73 AD3d at 577; see Allstate, 27 NY2d at 269).

Here, the Appellate Division erred when it held that defendants had a duty to disclaim coverage “as soon as reasonably possible” after they learned that LILCO’s notice was untimely under the policies. The environmental contamination claims at issue in this case do not fall within the scope of Insurance Law § 3420 (d) (2), which the legislature chose to limit to accidental death and bodily injury claims, and it is not for the courts to extend the statute’s prompt disclaimer requirement beyond its intended bounds. Indeed, KeySpan has never relied on section 3420 (d) (2) and instead asserts a common-law waiver defense (see Allstate, 27 NY2d at 269). The Appellate Division must determine whether the evidence supporting this defense is sufficient to defeat defendants’ motion for summary judgment based on LILCO’s failure, as a matter of law, to give timely notice under the policies. Specifically, the Appellate Division must consider if, under common-law principles, triable issues of fact exist whether defendants clearly manifested an intent to abandon their late-notice defense (see e.g. Fundamental Portfolio Advisors, Inc. v Tocqueville Asset Mgt., L.P., 7 NY3d 96, 104 [2006]; Gilbert Frank Corp. v Federal Ins. Co., 70 NY2d 966, 968 [1988]; Albert J. Schiff Assoc. v Flack, 51 NY2d 692, 698 [1980]; Allstate, 27 NY2d at 269). We therefore remit this matter to the Appellate Division to make these determinations.

Accordingly, the order of the Appellate Division, insofar as appealed from, should be reversed, with costs, the case remitted to that court for further proceedings in accordance with this opinion, and the certified question answered in the negative.

Judges Graffeo, Read, Smith and Pigott concur; Chief Judge Lippman and Judge Rivera taking no part.

Order, insofar as appealed from, reversed, with costs, case remitted to the Appellate Division, First Department, for further proceedings in accordance with the opinion herein, and certified question answered in the negative.

      . LILCO eventually entered into an administrative consent order with the DEC, and no regulatory agencies commenced an enforcement action.

      . [2] To the extent Estee Lauder Inc. v OneBeacon Ins. Group, LLC (62 AD3d 33 [1st Dept 2009]), cited by the Appellate Division here, and other Appellate Division cases hold that Insurance Law § 3420 (d) (2) applies to claims not based on death and bodily injury (see Hotel des Artistes, Inc. v General Acc. Ins. Co. of Am., 9 AD3d 181, 193 [1st Dept 2004], lv dismissed 4 NY3d 739 [2004]; Malca Amit N.Y. v Excess Ins. Co., 258 AD2d 282, 282 [1st Dept 1999]), those cases were wrongly decided and should not be followed.