author: Rivera, J.

text:
    [41 NE3d 340, 19 NYS3d 475]
    Jacqueline El-Dehdan, Respondent, v Salim El-Dehdan, Also Known as Sam Reed, Appellant.
    Argued September 10, 2015;
    decided October 20, 2015

      POINTS OF COUNSEL

      Barket Marion Epstein & Kearon, LLP, Garden City (Donna Aldea, Bruce A. Barket and Alexander R. Klein of counsel), for appellant.
    I. The Appellate Division’s decision should be reversed and the matter remanded to the trial court, because a defendant charged with civil contempt must be permitted to collaterally attack an underlying court order that was invalid, stems from an irrefutable misrepresentation by the plaintiff, and which the trial court explicitly invited the defendant to collaterally attack. (Blye v Globe-Wernicke Realty Co., 33 NY2d 15; Fuentes v Shevin, 407 US 67; Leibowits v Leibowits, 93 AD2d 535; Matter of Department of Envtl. Protection of City of N.Y. v Department of Envtl. Conservation of State of N.Y., 70 NY2d 233; Barrett v Third Ave. R.R. Co., 45 NY 628; McCarthy v Port of N.Y. Auth., 21 AD2d 125; Trapp v American Trading & Prod. Corp., 66 AD2d 515; Peterson v Melchiona, 269 AD2d 375; Shaw v Shaw, 97 AD2d 403; Mount Sinai Hosp. v Davis, 8 AD2d 361.) II. The Appellate Division’s decision should be reversed, and the matter remanded to the trial court, because the Federal and New York State Constitutions do not permit a negative inference from a defendant’s invocation of his Fifth Amendment rights where both civil and criminal penalties are being sought in the same proceeding. (Griffin v California, 380 US 609; United States v Okatan, 728 F3d 111; United States v Certain Real Prop. & Premises Known as 4003-4005 Fifth Ave., Brooklyn, N.Y., 55 F3d 78; Lefkowitz v Turley, 414 US 70; United States v United States Currency, 626 F2d 11; United States v Kordel, 397 US 1; Britt v International Bus Servs., 255 AD2d 143; Anderson v Regan, 53 NY2d 356; People v Carroll, 3 NY2d 686; Sure Fire Fuel Corp. v Martinez, 75 Misc 2d 714.) III. The Appellate Division’s decision should be reversed because Salim El-Dehdan, also known as Sam Reed, may not be held in civil contempt without a showing that he willfully violated a lawful and unambiguous court order, and such showing could not be made in this case. (Suiss v Baron, 107 AD3d 690; McCain v Dinkins, 84 NY2d 216; Matter of McCormick v Axelrod, 59 NY2d 574; United States v Big Crow, 327 F3d 685; Bearden v Georgia, 461 US 660; Sure Fire Fuel Corp. v Martinez, 75 Misc 2d 714; Matter of Hynes v Hartman, 63 AD2d 1; Matter of Farmer v Farmer, 123 Misc 2d 298; Department of Hous. Preserv. & Dev. of City of N.Y. v Ieraci, 156 Misc 2d 646; United States v Bobart Travel Agency, Inc., 699 F2d 618.)

      Alomar & Associates PC, Ridgewood CKarina E. Alomar of counsel), for respondent.
    I. Defendant-appellant in this matter may not collaterally attack the validity of the mandate in a motion for contempt. (Getter v Flamount Realty Corp., 260 NY 346; Ketchum v Edwards, 153 NY 534.) II. Defendant-appellant failed to preserve for appeal the arguments the court erred in issuing the order of January 29, 2010 on the grounds that a hearing was required prior to the issuance of the order and the argument that the passage of time had invalidated the order of January 29, 2010. (Glow-Brite Elec. Serv. Corp. v Frocol Rest. Corp., 56 AD2d 909.) III. Plaintiff-respondent met the burden necessary to prevail on both civil and criminal contempt. (Matter of McCormick v Axelrod, 59 NY2d 574; Matter of Daniels v Guntert, 256 AD2d 940; Dwyer v De La Torre, 279 AD2d 854; Dalessio v Kressler, 6 AD3d 57; McCain v Dinkins, 84 NY2d 216; Matter of CBS Rubbish Removal v Town of Babylon Sanitation Commn., 249 AD2d 541; Yeager v Yeager, 38 AD3d 534; Matter of Garbitelli v Broyles, 257 AD2d 621; Matter of Powers v Powers, 86 NY2d 63; Matter of Department of Envtl. Protection of City of N.Y. v Department of Envtl. Conservation of State of N.Y., 70 NY2d 233.) IV. The court properly drew an adverse inference from defendant-appellant’s invocation of the Fifth Amendment. (Carter-Wallace, Inc. v Hartz Mtn. Indus., Inc., 553 F Supp 45; In re Master Key Litig., 507 F2d 292; Matter of Kourakos v Tully, 92 AD2d 1051; United States v Neff, 615 F2d 1235; OSRecovery, Inc. v One Groupe Intl., Inc., 262 F Supp 2d 302; Armstrong v Guccione, 470 F3d 89; United States v Rylander, 460 US 752; United States v Certain Real Prop. & Premises Known as 4003-4005 Fifth Ave., Brooklyn, N.Y., 55 F3d 78; Kuriansky v Bed-Stuy Health Care Corp., 135 AD2d 160, 73 NY2d 875; Marine Midland Bank v Russo Produce Co., 50 NY2d 31.)
   OPINION OF THE COURT

Rivera, J.

Defendant challenges a determination of civil contempt for his failure to comply with a January 2010 order issued in the course of the parties’ matrimonial proceeding. That order requires him to deposit in escrow the proceeds of the sale of properties which are the subject of a prior equitable distribution determination in favor of plaintiff.

We conclude that plaintiff met her burden in support of her motion for civil contempt by establishing that defendant violated a lawful, clear mandate of the court, of which he had knowledge, and that such violation resulted in prejudice to her rights. We reject defendant’s contentions that a civil contempt determination requires a finding of a contemnor’s wilful violation of the underlying order, and that Supreme Court could not draw a negative inference from defendant’s invocation of his Fifth Amendment right against self-incrimination at the contempt hearing.

We, therefore, conclude that the evidence adduced at the hearing established a sufficient basis for the civil contempt judgment. Accordingly, we answer in the affirmative the certified question as to whether the Appellate Division properly affirmed Supreme Court.

L

Defendant, Salim El-Dehdan, also known as Sam Reed, concedes that he has not complied with an order issued in a matrimonial proceeding commenced by plaintiff Jacqueline El-Dehdan, defendant’s former spouse. To address the specific issue of the propriety of the contempt order challenged in this appeal, we begin with a review of the somewhat tortuous procedural history of the parties’ matrimonial action.

A. The Matrimonial Action for Divorce and Equitable Distribution

In October 2008, plaintiff commenced an action for divorce and equitable distribution, and thereafter moved by order to show cause for pendente lite relief seeking, in part, to restrain defendant’s transfer of any real property held jointly or individually by the parties. The signed order to show cause set a hearing date on the motion, but did not include a restraint on the transfer of defendant’s property. Soon thereafter defendant cross-moved to dismiss the matrimonial action as barred on res judicata grounds, claiming the parties were divorced pursuant to a Lebanese judgment, and furthermore, that plaintiff’s prior New York divorce action was dismissed with prejudice.

At an initial court appearance in January 2009, Supreme Court indicated that another hearing would likely be necessary on the question of the legality of the Lebanese divorce. The record of the hearing demonstrates that the court and the parties were under the impression that the October 2008 order to show cause mandated a restraint on defendant’s properties, and that the court intended to extend that restraint into the future. Before adjourning to permit additional submissions by the parties, the following colloquy ensued.

“THE COURT: ... I get the feeling I’m going to need a hearing. I get the feeling you’re going to need a lot of different people coming in to testify. But I’m going to keep the status quo. All restraints will remain in full force and effect pending further order of this Court. . . .
“[DEFENDANT’S COUNSEL]: Just for clarification, as far as restraining orders, what is being restrained?
“THE COURT: All their assets.
“[DEFENDANT’S COUNSEL]: Joint assets, your Honor?
“THE COURT: Anything you have. Bank accounts, you can’t close out any accounts. Any buildings, you can’t sell, mortgage, can’t do anything. And don’t violate my order.
“THE DEFENDANT: Of course. I have nothing anymore, your Honor. I have no business anymore, because I been [sic] recovering from the expenses that I paid for the year 2000.
“THE COURT: Okay. We’re going to see what expenses were paid.”

Notwithstanding defendant’s statements that he would comply with the court’s directive and that he did not have any property that would be subject to restraint, within a few weeks of this court appearance, defendant contracted to transfer one of his real properties, which he then sold the following month. A week later, he contracted to sell another property. Specifically, he entered into a contract to sell 171 Ainslie Street, Brooklyn, New York, also known as 254/256 Leonard Street, on February 24, 2009, and then transferred this property on March 31, 2009. He also contracted to sell and transferred 60-17 60th Road, Maspeth, New York on April 6, 2009. Defendant would later concede that he transferred the Brooklyn property for $950,000, and the Maspeth property for no consideration.

At the next hearing, held on February 4, 2009 and attended by defendant and his counsel, the court informed the parties that it was sending the legal validity of the Lebanese divorce and the equitable distribution matters to a referee for a hearing and recommended determination. The court then referenced property in defendant’s control, saying, “I think there’s some money out there. But right now, you want to hold on to your money, that’s fine.” The court continued, “[w]e are going to go for a hearing. If, in fact, you are divorced, then we will move on to the next issue of equitable distribution. If you are not divorced, we are here anyway.”

Defendant failed to appear at the scheduled April 2009 date for the referee’s hearing. At that time, defendant’s counsel moved to be relieved from the case, and stated that she had told defendant that his appearance at the hearing was required, and that counsel would seek to be relieved. Supreme Court granted counsel’s motion.

The court then held defendant in default for failure to appear, and denied, with prejudice, defendant’s pending motion to dismiss plaintiff’s matrimonial proceeding. The court adjourned the referee’s inquest on equitable distribution, and modified the assignment to include consideration of plaintiff’s grounds for divorce.

Although served with notice, defendant failed to appear at the October 2009 rescheduled referee’s inquest. Nevertheless, the referee proceeded with the inquest, issued a decision granting plaintiff’s motion for divorce on grounds of cruel and inhuman treatment, awarded plaintiff exclusive title to the Brooklyn and Maspeth properties and awarded title to defendant in property located in Glendale, New York, and a dry-cleaning business he owned and operated.

Supreme Court subsequently denied defendant’s motions to vacate the April 2009 denial of his cross motion to dismiss plaintiff’s matrimonial action, as well as the referee’s decision granting a divorce and equitable distribution. The Appellate Division dismissed defendant’s appeal from this decision.

B. Plaintiff’s Motion for Civil Contempt and Deposit of the Transfer Proceeds

After plaintiff’s attorney learned defendant had transferred the Brooklyn and Maspeth properties, she filed an order to show cause seeking, inter alia, that defendant be held in civil contempt for violation of the October 2008 order, and that he be required to deposit the proceeds from the transfers with plaintiff’s attorney. Thereafter, in January 2010, Supreme Court signed the order to show cause, which in addition to scheduling a hearing on plaintiff’s contempt motion, directed defendant to immediately deposit with plaintiff’s counsel the net proceeds of the transfers, reduced by broker’s fees, taxes and mortgage payments. Defendant was personally served with this order to show cause.

As is clear from the record of the contempt hearing, the court and all the parties were under the mistaken belief that the October 2008 order to show cause prohibited the transfers. Supreme Court found defendant in contempt and ordered him incarcerated until he paid $1,500,000 and returned the deeds and ownership of the Brooklyn and Maspeth properties and the dry-cleaning business to the marital estate. Defendant remained incarcerated for two weeks, until defendant’s new counsel discovered that the October 2008 order to show cause contained no restraint provision and brought the matter to the court’s attention, whereupon the court ordered defendant’s immediate release.

C. Plaintiff’s Motion for Civil and Criminal Contempt Based on the January 2010 Order

In August 2010, plaintiff filed a motion to hold defendant in civil and criminal contempt for his failure to deposit the proceeds with plaintiff’s attorney as required by the January 2010 order. Defendant cross-moved to vacate that order, arguing that it was void because it was obtained by plaintiff’s fraud upon the court, namely her misrepresentations that the October 2008 order prohibited defendant’s transfer of the properties. Although defendant conceded he sold the Brooklyn property, he disputed the amount of the proceeds, claiming he received $561,046.21, not $950,000 as plaintiff alleged. He further asserted that he no longer had any of these funds. With respect to the Maspeth property, he claimed he received no money for the transfer, never had possession of the property, and, in fact, he only took title as a favor to friends so that they could secure a new mortgage. He also claimed that the property since had been transferred back to the owners through their son. He further contended that he did not act in wilful disobedience of a judicial mandate because no order was in place when he actually transferred the properties.

At the hearing before the referee assigned to consider the parties’ motions, defendant’s counsel stipulated that defendant was served with a copy of the January 2010 order in February 2010, and that defendant failed to deposit the funds in plaintiff’s counsel’s escrow account as required by that order. He further stipulated to submission of the recorded deed that evidenced the transfer of the Brooklyn property.

Plaintiff testified on her own behalf that she received none of the proceeds from the transfer of the Brooklyn property and submitted into evidence proof of the transfer, including defendant’s contract of sale and closing. Plaintiff further submitted into evidence an affidavit of personal service for the January 2010 order. Plaintiff also called defendant as a witness. During his testimony he refused to answer any questions related to the proceeds from the transfer, and invoked his Fifth Amendment right against self-incrimination. Specifically, he refused to explain what he did with the proceeds from the transfer and whether he was currently in possession of the money.

The referee found that defendant had actual knowledge of the terms of the January 2010 order, had dissipated marital assets after the commencement of the matrimonial action, namely the Brooklyn and Maspeth properties, and had not deposited the proceeds from the transfer. The referee found specifically that less than one month after he filed his affidavit in support of his motion to dismiss plaintiff’s action for divorce, defendant executed a contract of sale for the Brooklyn property for $950,000, received a $150,000 deposit for the sale, wired $516,046.21 to a bank from the sale proceeds, and that the deed was thereafter recorded. However, the referee concluded that plaintiff failed to establish that defendant could deposit the funds after the order was issued, and therefore recommended denial of the motion for civil contempt. The referee also recommended denial of the motion for criminal contempt, finding that plaintiff failed to establish defendant’s wilful violation of the January 2010 order.

In September 2011, Supreme Court granted plaintiff’s motion to set aside the referee’s report, concluding that the referee’s findings were not supported by the record. After finding that all the elements of civil contempt were satisfied in this case, the court noted that the Fifth Amendment did not relieve defendant of the usual evidentiary burden in a civil proceeding, and also found that defendant’s actions were wilful. Supreme Court thus found defendant in contempt of court for failing to comply with the January 2010 order, and provided that he “c[ould] purge himself of th[e] contempt” by depositing his passport and the proceeds from the Brooklyn property transfer within 20 days of the contempt order. Failure to do so would result in his incarceration.

The Appellate Division unanimously affirmed, treating Supreme Court’s decision as, in effect, granting only plaintiff’s motion for civil contempt because the court did not impose a definite jail term without opportunity to purge the contempt (114 AD3d 4 [2d Dept 2013]). In a comprehensive and insightful opinion, the Appellate Division broadly addressed and clarified the burdens of proof where the contemnor invokes the Fifth Amendment privilege against self-incrimination, as well as what the Court considered to be inconsistencies in the case law regarding the elements of civil contempt. The Appellate Division granted defendant leave to appeal, and certified the question whether its opinion and order was properly made. (2014 NY Slip Op 72178[U] [2d Dept 2014].)

IL

Defendant challenges the Appellate Division’s decision on three grounds: plaintiff failed to establish the necessary elements of civil contempt, including defendant’s wilful violation of a lawful court order; he was denied the opportunity to collaterally attack the January 2010 order; and in the context of a hearing on a joint civil and criminal contempt motion, Supreme Court may not draw a negative inference from defendant’s invocation of his Fifth Amendment right to remain silent. We are unpersuaded by these arguments, and address each of them in turn.

A. Evidence of Defendant’s Civil Contempt

1. Elements of Civil Contempt and Plaintiff’s Burden of Proof Under Judiciary Law § 753,

“[a] court of record has power to punish, by fine and imprisonment, or either, a neglect or violation of duty, or other misconduct, by which a right or remedy of a party to a civil action or special proceeding, pending in the court may be defeated, impaired, impeded, or prejudiced” (Judiciary Law § 753 [A]; see generally People v Sweat, 24 NY3d 348, 353-354 [2014] [discussing Judiciary Law § 753]).

In Matter of McCormick v Axelrod (59 NY2d 574 [1983]), this Court described the elements necessary to support a finding of civil contempt. First, “it must be determined that a lawful order of the court, clearly expressing an unequivocal mandate, was in effect” {id. at 583). Second, “[i]t must appear, with reasonable certainty, that the order has been disobeyed” {id.). Third, “the party to be held in contempt must have had knowledge of the court’s order, although it is not necessary that the order actually have been served upon the party” {id.). Fourth, “prejudice to the right of a party to the litigation must be demonstrated” {id.; see Karg v Kern, 125 AD3d 527, 528-529 [1st Dept 2015] [contempt requires a showing of a violation of a clear and unequivocal court mandate and that the movant was thereby prejudiced]; Matter of Vernon D. [Tarah F.], 119 AD3d 784, 784 [2d Dept 2014] [civil contempt was properly found where the contemnor did not obey a clear and unequivocal order]; Matter of North Tonawanda First v City of N. Tonawanda, 94 AD3d 1537, 1538 [4th Dept 2012] [order violated must be an unequivocal mandate]; Conners v Pallozzi, 241 AD2d 719, 719 [3d Dept 1997] [evidence proving with a reasonable certainty that a prior court order has been violated will support a finding of civil contempt]; N.A. Dev. Co. v Jones, 99 AD2d 238, 242 [1st Dept 1984] [movant must establish a reasonable certainty]; Power Auth. of State of N.Y. v Moeller, 57 AD2d 380, 382 [3d Dept 1977] [personal service is not necessary if the party has actual knowledge of the order], lv denied 42 NY2d 806 [1977]).

In order to carry her burden, plaintiff had to establish by clear and convincing evidence defendant’s violation of the January 2010 order (Town Bd. of Town of Southampton v R.K.B. Realty, LLC, 91 AD3d 628, 629 [2d Dept 2012] [the movant bears the burden of establishing contempt with clear and convincing evidence]; Tener v Cremer, 89 AD3d 75, 78 [1st Dept 2011] [same]; Town of Copake v 13 Lackawanna Props., LLC, 73 AD3d 1308, 1309 [3d Dept 2010] [civil contempt requires clear and convincing evidence]; Dietrich v Michii, 57 AD3d 1527 [4th Dept 2008] [same]; Raphael v Raphael, 20 AD3d 463, 463-464 [2d Dept 2005] [same]; Graham v Graham, 152 AD2d 653, 654-655 [2d Dept 1989] [same]).

2, Plaintiff’s Evidence

Here, there is no genuine dispute that plaintiff established, by clear and convincing evidence, defendant’s requisite knowledge of the order and noncompliance. Defendant’s counsel stipulated at the contempt hearing before the referee that defendant was previously served with the January 2010 order, and also admitted that defendant had not complied. Indeed, now five years after the order was signed and issued defendant has yet to comply.

Plaintiff also easily established that defendant’s failure to deposit the proceeds was prejudicial to her interests. Defendant’s conduct denied plaintiff equitable distribution in accordance with the 2009 determination awarding her title to the Brooklyn and Maspeth properties.

The real dispute between the parties centers on whether “a lawful order of the court, clearly expressing an unequivocal mandate, was in effect” (McCormick, 59 NY2d at 583). We conclude that the January 2010 order constitutes the lawful order which defendant failed to comply with, and defendant’s efforts to distract our analysis from that central and obvious conclusion are without legal or record factual support.

The signed January 2010 order explicitly states that the defendant

“shall deposit immediately with the Plaintiff’s attorney the sum of nine hundred fifty thousand ($950,000.00) dollars which is the sum of money he purportedly received from the transfer of [the property] 171 Ainslie Street, Brooklyn, New York and 64-17 60th Road, Maspeth, New York, minus the money paid [for] the real estate broker, transfer taxes and payment of the underlying mortgage.”

This unambiguous directive, describing the property and the exact amount of the proceeds, and directing defendant to immediately deposit those funds with counsel, left no doubt as to its requirements and time frame, and, therefore, constitutes “a lawful order of the court, clearly expressing an unequivocal mandate, [that] was in effect” (McCormick, 59 NY2d at 583).

Nevertheless, defendant claims that the January 2010 order is not lawful. According to defendant, the order is a nullity because it was procured based on plaintiff’s attorney’s misrepresentations, and in violation of his due process rights to notice and a hearing. In essence what defendant seeks to do is excise from the January 2010 order its mandatory language that he deposit the proceeds of the transfer. However, the fact that the January 2010 order contains plaintiff’s request for contempt does not negate the order’s clear directive that defendant deposit the proceeds. That portion of the order did not seek to penalize defendant but rather to preserve funds for plaintiff’s benefit. As the referee’s report on the contempt motion explained, part of the intent of the January 2010 order was “to preserve funds to protect the plaintiff’s rights to equitable distribution as decided by the undersigned in the decision issued” in December 2009.

We further note that defendant’s description of plaintiff’s request for relief undermines his current argument that the January 2010 order sought only to address a violation of a (nonexistent) restraint provision in the October 2008 order. In his brief to this Court, defendant declares that plaintiff’s order to show cause “sought multiple layers of relief — including (a) contempt, and (b) an immediate deposit of money,” leading Supreme Court to “address [ ] only the first issue — namely, whether Mr. Reed should be held in contempt. It never addressed the separate and immediate order for Mr. Reed to convey money to the Plaintiff’s attorney.” Thus, defendant, in actuality, recognizes that the provisions of the January 2010 order reflect different, compartmentalized directives.

With respect to defendant’s due process argument, the record does not support defendant’s claim that he was denied notice and a hearing. To the contrary, the record establishes that he received notice of the hearing as he was personally served with the January 2010 order. Furthermore, his arguments in opposition to the motion for contempt, and in support of his cross motion to vacate the January 2010 order, were fully submitted and considered by Supreme Court prior to issuance of its civil contempt order.

To the extent defendant complains that the January 2010 order is invalid because it was issued ex parte, the law is clear that a court is authorized to issue an order to preserve marital property, both in advance of, and upon, a determination of equitable distribution. In accordance with Domestic Relations Law § 234, in an action for divorce the court may “(1) determine any question as to the title to property arising between the parties, and (2) make such direction, between the parties, concerning the possession of property, as in the court’s discretion justice requires having regard to the circumstances of the case and of the respective parties” (see also CPLR 2214 [d] [a “court in a proper case may grant an order to show cause, to be served in lieu of a notice of motion”]; CPLR 6313 [a] [allowing for a temporary restraining order]; 22 NYCRR 202.7 [f] [permitting the court to grant temporary injunctive relief upon an affirmation demonstrating significant prejudice to the party seeking the restraining order if prior notice is given to the adverse party]). Therefore, the January 2010 order to deposit the proceeds from the transfer was well within the court’s authority (see e.g. Nederlander v Nederlander, 102 AD3d 416, 416 [1st Dept 2013] [“in order to protect (the) expectancy (of spouses in marital property) pending equitable distribution, to maintain the status quo, and to prevent the dissipation of marital property, the court must be able to issue orders to ensure that such marital property is protected should it later become the subject of equitable distribution”]; Maillard v Maillard, 211 AD2d 963, 964 [3d Dept 1995] [“Domestic Relations Law § 234 allows courts to issue preliminary injunctions aimed at the preservation of marital assets pending equitable distribution. . . . Proper cause may be shown to exist by the admission . . . that there was a conversion and/or dissipation of marital assets” (citations omitted)]; Nebot v Nebot, 139 AD2d 635 [2d Dept 1988] [as defendant’s only claim to a property purchased with the separate funds of the plaintiff was to any part of the appreciation she might have contributed to, it was appropriate for the court to require that half of the proceeds of the sale be placed in escrow while the determination was pending]; Palitz v Palitz, 111 AD2d 119, 119 [1st Dept 1985] [Court found it appropriate to deposit half the assets of a dissolved corporation in an escrow account while the determination was made as to whether the corporation was marital property, and to allow for “other prudent investments yielding substantially greater returns”]; Monroe v Monroe, 108 AD2d 793, 794 [2d Dept 1985] [Domestic Relations Law § 234 allows courts to issue preliminary injunctions outside of the requirements of CPLR article 63]; Leibowits v Leibowits, 93 AD2d 535, 535-536 [2d Dept 1983] [“Section 234 of the Domestic Relations Law provides the authority for the issuance of an order restraining disposition of marital assets during the pendency of a divorce action. Therefore, compliance with the formalities and jurisprudential requirements of CPLR article 63 relative to preliminary injunctions is not a prerequisite to an order of restraint”]; Perry v Perry, 79 AD2d 851, 851 [4th Dept 1980] [“(i)n an action for divorce the court may determine any question as to the title to property arising between the parties”]; Weinstock v Weinstock, 8 Misc 3d 221, 223 [Sup Ct, Nassau County 2005] [“Section 234 of the Domestic Relations Law specifically empowers the court to determine any question as to the title or possession of property as between the parties in a matrimonial action .... This power . . . necessarily includes the power to prevent a party from frustrating such delivery by improper disposition of assets”]).

Defendant is also foreclosed from arguing to this Court that the equitable distribution determination itself is invalid. Having previously unsuccessfully challenged that decision, defendant should not be given a “second bite at the apple” in this appeal from the civil contempt judgment. Moreover, inasmuch as the court awarded plaintiff the Brooklyn and Maspeth properties in its equitable distribution determination, the propriety of which is not at issue on this appeal, it was perfectly lawful for the court to require defendant to deposit the proceeds of his transfer of those properties with plaintiff’s counsel, regardless of whether the initial transfer of the properties violated any court order.

3. Wilfulness is Not a Required Element of Civil Contempt

Defendant argues that Supreme Court’s finding of contempt is not supported by the record because the evidence failed to establish that he wilfully disobeyed the January 2010 order. According to defendant our case law establishes that wilful conduct is a necessary element of both civil and criminal contempt, and that what distinguishes the two is merely the level of a contemnor’s wilfulness. Defendant’s arguments are contradicted by statute as well as our prior holdings (McCormick, 59 NY2d at 583).

Turning to the relevant statutory provision, nowhere in Judiciary Law § 753 (A) (3) is wilfulness explicitly set forth as an element of civil contempt (see also McCain v Dinkins, 84 NY2d 216, 226 [1994]). Indeed the only mention of wilfulness for civil contempt is in section 753 (A) (1), which is not at issue in this case as it applies only to “[a]n attorney, counsellor, clerk, sheriff, coroner,” or someone otherwise selected or appointed for judicial or ministerial service. In contrast, Judiciary Law § 750, the criminal contempt provision, permits a court to impose punishment for criminal contempt only for “[w]ilful disobedience to its lawful mandate” (Judiciary Law § 750 [A] [3]; see also Sweat, 24 NY3d at 353-354). This statutory language makes clear that where the legislature intended to require wilfulness, it knew how to do so, and any omission of such element is intentional (McKinney’s Cons Laws of NY, Book 1, Statutes § 74; Pajak v Pajak, 56 NY2d 394, 397 [1982] [“(t)he failure of the Legislature to include a matter within a particular statute is an indication that its exclusion was intended”]). We are, of course, not at liberty to read into the statute what is not mandated by the legislature (McKinney’s Cons Laws of NY, Book 1, Statutes § 94; Lederer v Wise Shoe Co., 276 NY 459, 465 [1938] [“(w)e do not by implication read into a clause of a rule or statute a limitation for which we find no sound reason and which would render the clause futile”]).

Apart from the statute, this Court has not imposed a wilfulness requirement for civil contempt (McCain, 84 NY2d at 226; McCormick, 59 NY2d at 583). Nevertheless, defendant relies on McCormick and McCain v Dinkins to persuade us that, absent a finding of wilfulness, civil contempt cannot be imposed. However, those cases stand for the opposite proposition.

In McCormick this Court explained that civil contempt seeks “the vindication of a private right of a party to litigation and any penalty imposed upon the contemnor is designed to compensate the injured private party for the loss of or interference with that right” (McCormick, 59 NY2d at 583, citing State of New York v Unique Ideas, 44 NY2d 345 [1978]). Whereas, criminal contempt “involves vindication of an offense against public justice and is utilized to protect the dignity of the judicial system and to compel respect for its mandates” (id., citing King v Barnes, 113 NY 476 [1889]). This Court then stated that “the element which serves to elevate a contempt from civil to criminal is the level of willfulness with which the conduct is carried out” (id.).

Defendant argues the Court must have meant that both forms of contempt require wilfulness, just in varying degrees. We reject this interpretation because it depends on reading the language in isolation, rather than as an integral part of the Court’s entire analysis. Read in context, it is clear that the language does not mean that wilfulness is required. Indeed, the Court’s analysis is devoid of any mention or application of wilfulness as a necessary element of civil contempt. Instead, the Court granted the motion for civil contempt, despite its conclusion that there was no evidence of wilfulness to support a finding of criminal contempt.

The meaning to be attached to the Court’s “level of wilfulness” language is that the contemnor’s action must connote an intentionality not otherwise indicative of wrongfulness (McCormick, 59 NY2d at 583). In other words, the contemnor must have a consciousness that reflects an awareness of the act that is other than “unwitting conduct” (Bryan v United States, 524 US 184, 191 [1998]; see also Black’s Law Dictionary 1834 [10th ed 2014] [defining willful as “(v)oluntary and intentional”]).

This Court again upheld a finding of civil contempt without requiring wilfulness in McCain (84 NY2d at 226-227). In that case, the Court cited to McCormick's distinction between criminal and civil contempt as based on “the level of willfulness associated with the conduct” and, just as in McCormick, engaged in a civil contempt analysis without reference to wilfulness as a necessary element {id. at 226). As these cases establish, wilfulness is not an element of civil contempt. We, therefore, agree with the Appellate Division that civil contempt is established, regardless of the contemnor’s motive, when disobedience of the court’s order “defeats, impairs, impedes, or prejudices the rights or remedies of a party” (El-Dehdan, 114 AD3d at 17 [citation omitted]).

4. Defendant’s Response

Once plaintiff met her burden and established that defendant violated the order to deposit the proceeds from the transfer, it was incumbent upon defendant to proffer evidence of his inability to pay. Defendant’s argument to the contrary is unpersuasive because, as the contemnor, he is the party who is charged with violating the court’s order, and also the party with access to the relevant financial information regarding his ability to pay.

Nonetheless, defendant failed to submit evidence that he could not pay due to a lack of sufficient funds, economic distress or financial hardship, or some other obstacle to his compliance with the January 2010 order to deposit the proceeds. Instead, he submitted an affidavit containing bald face statements that by January 29, 2010, he “was no longer in possession of the proceeds of the March, 2009 sale,” that he received less from the sale of the Brooklyn property than evidenced by the transfer documents, and that he received nothing from the transfer of the Maspeth property as he was merely holding it in his name for friends. Such “[vjague and conclusory allegations of . . . inability to pay or perform are not acceptable” (Matter of Storm, 28 AD2d 290, 294 [1st Dept 1967]). Rather, courts have required a more specific showing of the contemnor’s economic status (see e.g. Yeager v Yeager, 38 AD3d 534, 534-535 [2d Dept 2007] [plaintiff husband met his burden of showing his inability to comply with the judgment by establishing he had no additional source of funds after accounting for payments made in accordance with the pendente lite order and his reasonable needs, and where his investment account was frozen pursuant to court order]; Ovsanikow v Ovsanikow, 224 AD2d 786, 787 [3d Dept 1996] [an undocumented assertion of the inability to pay without any evidentiary support, will not suffice to provide the defense of a financial inability to pay]; Bowie v Bowie, 182 AD2d 1049, 1051 [3d Dept 1992] [contemnor failed to establish inability to pay where papers consisted of a brief two-page affidavit wherein he summarily denied the arrearages and asserted financial inability to pay, but lacked current documentation supporting his claims]; Lake v Schuner, 106 AD2d 893, 894 [4th Dept 1984] [record established that plaintiff was impoverished and therefore unable to comply with his support order]; and compare Matter of Kainth v Kainth, 36 AD3d 915, 916 [2d Dept 2007] [“(t)he evidence adduced at the hearing established that the father’s income for the 12 months preceding the hearing was insufficient to permit payments in accordance with the order of support. Further, the father’s loss of higher paying employment was not self-imposed, and the record contains evidence of his active, but unsuccessful, pursuit of similar employment”], lv dismissed 8 NY3d 1003 [2007]).

B. Collateral Attack on the January 2010 Order

Defendant’s argument that he was entitled to collaterally challenge the January 2010 order in the contempt proceeding is simply another version of his claim that the October 2008 order did not prohibit his transfer of the properties. Defendant, however, ignores the fact that the October 2008 order is not the subject of the civil contempt order, and, consequently, the contents of the October 2008 order are not material to the issues before us.

Instead, the contempt order defendant challenges on this appeal is based on his failure to comply with the January 2010 order, which required that he deposit with the plaintiff’s attorney the proceeds from the transfer. Whether his transfer of the property initially violated any order of the court is beside the point. Moreover, as we have already discussed, the court was well within its authority to issue the January 2010 order.

C. Defendant’s Invocation of the Fifth Amendment

Defendant contends that Supreme Court improperly drew a negative inference from his invocation of his Fifth Amendment right against self-incrimination during the contempt hearing. He maintains that by holding one hearing on plaintiff’s joint motion for civil and criminal contempt he was forced to choose between protecting himself against civil liability by testifying as to his lack of funds, and exercising his rights under the Fifth Amendment to remain silent so as to avoid criminal contempt. We find his argument unpersuasive and conclude that under the circumstances of this case, where defendant failed to take steps to avoid the alleged dilemma complained of here, Supreme Court acted within its authority to draw a negative inference, and in so doing did not violate defendant’s constitutional rights.

The Fifth Amendment of the United States Constitution provides that “[n]o person shall be . . . compelled in any criminal case to be a witness against himself.” However, the right against self-incrimination does not automatically insulate a party to a civil action from potential liability. Both the United States Supreme Court, in Baxter v Palmigiano (425 US 308, 318 [1976]), and this Court, in Marine Midland Bank v Russo Produce Co. (50 NY2d 31, 42 [1980]), have held that a negative inference may be drawn in the civil context when a party invokes the right against self-incrimination. Here, defendant could invoke the privilege, but that did not relieve him of his burden to present adequate evidence of his financial inability to comply with the January 2010 order so as to avoid civil contempt liability (United States v Rylander, 460 US 752, 758 [1983] [invocation of Fifth Amendment does not “substitute for evidence that would assist in meeting a burden of production”]; Access Capital v DeCicco, 302 AD2d 48, 51 [1st Dept 2002] [“(w)hile a party may not be compelled to answer questions that might adversely affect his criminal interest, the privilege does not relieve the party of the usual evidentiary burden attendant upon a civil proceeding; nor does it afford any protection against the consequences of failing to submit competent evidence”]). As we have explained, defendant relied on his conclusory statements that he no longer has the proceeds of the transfers and that he has no funds to deposit with the respondent’s attorney. He cannot seek to avoid the consequences of this failure to proffer sufficient evidence by invoking his Fifth Amendment right.

We might view this case differently if defendant had sought relief from Supreme Court to avoid the prejudice he now claims was the result of a joint civil and criminal contempt hearing. If defendant was concerned about the spillover effect of invoking his Fifth Amendment right, he could have sought to bifurcate the hearing so that the court would first consider plaintiff’s criminal contempt allegations (CPLR 2201; Britt v International Bus Servs., 255 AD2d 143, 144 [1st Dept 1998]). He chose not to do so. Instead, he seeks reversal of the contempt determination, or, in the alternative, that we grant a new hearing solely on civil liability. The latter is essentially a request for the very remedy he could have sought from Supreme Court if he had filed a request to bifurcate. Thus, because he failed to seek this relief before Supreme Court, in the first instance, he cannot complain that Supreme Court erred in drawing negative inferences specifically allowed by law.

We are especially reticent in the context of matrimonial proceedings to issue a decision that may, unintentionally, undermine legislative efforts to protect parties from unauthorized unilateral dissipation of marital assets. To permit defendant to avoid contempt by refusing to answer, even though he failed to request that the court hold the civil contempt branch of plaintiff’s motion in abeyance pending the outcome of the criminal contempt branch, would incentivize defendant, and those similarly situated, to refrain from seeking relief initially before the contempt court, and later argue on appeal that the proceeding was constitutionally infirm. We decline to sanction this conduct where doing so will result in prejudice to those, like plaintiff, who have established the existence of conduct evincing civil contempt, and will thereby further delay and obstruct plaintiff’s efforts to secure any remaining marital assets she may be entitled to under the prior equitable distribution determination.

III.

Accordingly, the Appellate Division order should be affirmed, with costs, and the certified question answered in the affirmative.

Chief Judge Lippman and Judges Pigott, Abdus-Salaam, Stein and Fahey concur.

Order affirmed, with costs, and certified question answered in the affirmative.

      . The order also placed a restraint on the business of defendant and on the Glendale, New York property; required defendant to provide plaintiff’s attorney with copies of the contract and all closing documents for the transfers of the Brooklyn and Maspeth properties; restricted defendant from accessing any bank account or other financial account or fund that might be in his name or the name of his business or an agent; ordered defendant to submit his passport to the court; and ordered that defendant would be responsible for all tax consequences of the transfers of the Brooklyn and Maspeth properties.

      . Defendant does not challenge the Appellate Division’s determination that Supreme Court granted only the civil contempt branch of plaintiff’s motion, and requests specifically that we reverse and vacate the civil contempt judgment. Our review is therefore limited to the matter as briefed by defendant.

      . In 2009, the New York Legislature amended the Domestic Relations Law to provide upon commencement of a divorce action for automatic orders restraining the parties from transferring or disposing of marital assets, without written consent of the other party or consent of the court (Domestic Relations Law § 236 [B] [2] [b]). As described in a letter from the Chair of the Assembly Judiciary Committee to the Governor, the automatic orders were intended to address the hardship to one spouse caused by unilateral dissipation of marital assets upon commencement of divorce proceedings.
      “Having standardized orders automatically in effect from the commencement of a case would ensure timely prevention of dissipation of assets and would eliminate the expense and delays involved in making applications for temporary restraining orders. It is not uncommon for parties to dissipate assets as soon as divorce papers are served. This results in extreme hardship to one party in the divorce action” (Letter from Chair of Assembly Jud Comm, June 10, 2009, Bill Jacket, L 2009, ch 72 at 5).


source: Caselaw Access Project

license: Public Domain

text:
    [41 NE3d 353, 19 NYS3d 488]
    Nomura Asset Capital Corporation et al., Respondents-Appellants, v Cadwalader, Wickersham & Taft LLP, Appellant-Respondent.
    Argued September 8, 2015;
    decided October 22, 2015

      POINTS OF COUNSEL

      Cravath, Swaine & Moore, LLP, New York City {David R. Marriott of counsel), for appellant-respondent.
    I. The First Department erred in holding that the deal highlights document raised a potential red flag. (AmBase Corp. v Davis Polk & Wardwell, 8 NY3d 428; Rosner v Paley, 65 NY2d 736; Darby & Darby v VSI Intl., 95 NY2d 308.) II. The First Department erred in finding a triable issue where the undisputed evidence shows that Cadwalader, Wickersham & Taft LLP met the standard of care. (Alvarez v Prospect Hosp., 68 NY2d 320; Schadoff v Russ, 278 AD2d 222; Orchard Motorcycle Distribs.,

      Inc. v Morrison Cohen Singer & Weinstein, LLP, 49 AD3d 292; AmBase Corp. v Davis Polk & Wardwell, 8 NY3d 428; Rosner v Paley, 65 NY2d 736; Darby & Darby v VSI Intl., 95 NY2d 308.) III. The First Department erred in allowing Nomura Asset Capital Corporation’s claim to proceed, because the alleged malpractice could not have caused the alleged injury. (Dombrowski v Bulson, 19 NY3d 347; Rosner v Paley, 65 NY2d 736; Tinter v Rapaport, 253 AD2d 588; Darby & Darby v VSI Intl., 95 NY2d 308; Town of N. Hempstead v Winston & Strawn, LLP, 28 AD3d 746; AmBase Corp. v Davis Polk & Wardwell, 8 NY3d 428; Williams v State of New York, 18 NY3d 981.)

      Hinman Straub P.C., Albany (James T. Potter of counsel), and Constantine Cannon LLP, New York City (Amianna Stovall and Joel A. Chernov of counsel), for respondents-appellants.
    I. Nomura Asset Capital Corporation’s advice claim should be reinstated as there are genuine issues of material fact with respect to whether Cadwalader, Wickersham & Taft LLP gave Nomura proper REMIC advice. (Vega v Restani Constr. Corp., 18 NY3d 499; Jackson v Montefiore Med. Ctr., 109 AD3d 762; Matter of Ostrander v Ostrander, 280 AD2d 793; People v Reger, 13 AD2d 63; Hill v Arnold, 226 AD2d 232; Schultz v Third Ave. R.R. Co., 89 NY 242.) II. Cadwalader, Wickersham & Taft LLP’s failure to conduct the requisite due diligence presents an issue of fact for the jury. (Food Pageant v Consolidated Edison Co., 54 NY2d 167; Melendez v Dorville, 93 AD3d 528; Serradilla v Lords Corp., 50 AD3d 345; Bistricer v Singer, Bienenstock, Zamansky, Ogele & Selengut, LLP, 14 AD3d 468; Estate of Nevelson v Carro, Spanbock, Kaster & Cuiffo, 259 AD2d 282; Freese v Schwartz, 203 AD2d 513; Selkowitz v County of Nassau, 45 NY2d 97; Forte v Weiner, 200 AD2d 421; People v Abney, 31 Misc 3d 1231[A], 2011 NY Slip Op 50919[U]; Weiss v Securities & Exch. Commn., 468 F3d 849.) III. Cadwalader, Wickersham & Taft LLP’s purported justifications for blind reliance on Nomura Asset Capital Corporation’s representations raise issues of fact. (AmBase Corp. v Davis Polk & Wardwell, 8 NY3d 428; Garten v Shearman & Sterling LLP, 52 AD3d 207.) IV. The deal highlights document raised “red flags” precluding Cadwalader, Wickersham & Taft LLP from relying on Nomura Asset Capital Corporation’s representations. V. The record contains substantial evidence that Cadwalader, Wicker-sham & Taft LLP’s negligence proximately caused Nomura Asset Capital Corporation’s damages. (Derdiarian v Felix Contr. Corp., 51 NY2d 308; Sweeney v Bruckner Plaza Assoc., 57 AD3d 347; Freese v Schwartz, 203 AD2d 513; Burgos v Aqueduct

      Realty Corp., 92 NY2d 544; Barnett v Schwartz, 47 AD3d 197; Arnav Indus., Inc. Retirement Trust v Brown, Raysman, Millstein, Felder & Steiner, 96 NY2d 300; Boudreau v Ivanov, 154 AD2d 638; Utica Cutlery Co. v Hiscock & Barclay, LLP, 109 AD3d 1161; Equitable Life Assur. Socy. of U.S. v Nico Constr. Co., 245 AD2d 194; Harding v Noble Taxi Corp., 182 AD2d 365.)
   OPINION OF THE COURT

Rivera, J.

On these cross appeals from an order granting partial summary judgment in a legal malpractice action, we conclude that no triable issues of fact exist with respect to the first cause of action, which alleges that counsel failed to properly advise and conduct requisite due diligence in a mortgage securitization matter. Therefore, we modify the Appellate Division order, grant summary judgment to dismiss the first cause of action in its entirety, and otherwise affirm.

L

At times relevant to this appeal, plaintiffs, Nomura Asset Capital Corporation and Asset Securitization Corporation (Nomura), and defendant, the law firm of Cadwalader, Wicker-sham & Taft LLP, were working in the mortgage securitization field. In this industry, an investment bank sources and funds mortgages on properties with the objective of aggregating the mortgages into securitization pools. The loans are then sold to a trust, which issues securities in the form of certificates to investors. The certificates entitle the holders to a portion of the revenue stream produced by payments made by the mortgage borrowers.

Nomura established a commercial mortgage-backed securities business, and engaged Cadwalader to advise and confirm that Nomura’s securitized commercial mortgage loans qualified as real estate mortgage investment conduit (REMIC) trusts. Over the course of several years, Cadwalader’s work on Nomura REMIC securitizations garnered immense profits for Nomura and significant legal fees for Cadwalader. However, the professional relationship soured when a 1997 REMIC securitization, known as the series 1997-D5 securitization (D5 securitization), embroiled Nomura in federal litigation and demands for a buyback of a defaulted loan. In an attempt to recoup its losses associated with the federal lawsuit, Nomura commenced the underlying legal malpractice action against Cadwalader, alleging that Cadwalader failed to provide appropriate legal advice and perform necessary due diligence concerning the REMIC eligibility of the D5 securitization.

Now, almost two decades since the events leading to the original securitization, and almost 10 years since Nomura filed this action, the case has reached this Court, and we are presented with the question whether Cadwalader is entitled to summary judgment as to all or part of the first cause of action. For the reasons set forth below, we conclude that Cadwalader has established, as a matter of law, that summary judgment and dismissal of the legal malpractice cause of action are merited in this case.

IL

We begin our analysis with a discussion of the relevant legal requirements for REMIC qualification of the D5 securitization, and the events leading up to Cadwalader’s opinion as to the REMIC eligibility of the mortgage loan at the center of the parties’ dispute. The D5 securitization consists of 156 loans, secured by first liens on 220 commercial and multifamily properties. For these mortgage loans to be pooled in a REMICqualified trust they had to be in compliance with certain federal Internal Revenue Code requirements, including that substantially all of the assets be “qualified mortgages and permitted investments” within the meaning of the Code (26 USC § 860D [a] [4]).

Under the Internal Revenue Code, a “qualified mortgage” is “principally secured by an interest in real property” (26 USC § 860G [a] [3] [A]), which in accordance with federal tax regulations, requires that “the fair market value of the interest in real property securing” the mortgage is “at least equal to 80 percent of the adjusted issue price” of the loan, as of the loan origination date or when the REMIC sponsor contributes the loan to the trust (26 CFR 1.860G-2 [a] [1] [i]; [5]). This is known as the “80% test.”

Although pursuant to the federal regulations the 80% test is based on a value-to-loan ratio (VTL) (see 26 CFR 1.860G-2 [a] [1] [i]; [5]), the parties agree that mortgage lenders, such as Nomura, typically utilize a loan-to-value ratio (LTV) for underwriting purposes, and that Nomura understood that an 80% VTL is equal to a 125% LTV. However, the LTV is based on the overall value of property, whereas the regulations define REMIC real property as “land or improvements thereon, such as buildings or other inherently permanent structures” (26 CFR 1.856-3 [d]). It does not include personal property (id.).

One of the mortgages included in the D5 trust was a $50 million loan secured by the Doctor’s Hospital of Hyde Park (hospital), an acute care facility located in Chicago. In order to be REMIC-qualified and in compliance with the warranties set forth in the pooling service agreement (PSA) and mortgage loan purchase and sale agreement (MLPSA), the real property value for the hospital had to be appraised at a minimum of $40 million. Nomura’s appraiser estimated the hospital property’s market value at $68 million, based on a valuation of $3 million for the land, $27,960,000 for improvements, $9,640,000 for equipment, and $27,400,000 for intangibles. Although not set forth in the appraisal, a property valued at $68 million with a $50 million mortgage has an LTV of 73%, and therefore appears to be REMIC-qualified.

The final appraisal was determined after a reconciliation of three valuation approaches: “income capitalization,” “sales comparison,” and “cost.” The “income capitalization approach” resulted in an estimated valuation of the hospital property at $68 million, based on a 21.5% capitalization rate of the hospital’s net operating income ($14,547,499), determined by gross annual income, minus operating expenses. The “sales comparison” resulted in an estimated value of $64 million, based on the cost of acquiring an equally desirable substitute property. The “cost approach” estimated the property at $40.6 million, based on the value of the land as vacant ($3 million), replacement costs of buildings ($27,761,163), and depreciation of improvements and equipment ($180,000 and $9,640,000, respectively).

The appraisal lacked a detailed breakdown of the hospital equipment included in the property valuation, and instead applied figures for similar acute care hospitals. However, because not all types of equipment count for REMIC purposes, the lack of detail arguably left unclear whether the appraisal could provide a reasonable basis for determining REMIC qualification. Although the land, building, and improvements, valued by the appraiser at $30,960,000, would count under the RE-MIC standards, they failed to meet the $40 million minimum required under the 80% test. Nevertheless, Nomura relied on this appraisal, as written.

It is undisputed that prior to the closing on the D5 securitization, Nomura did not provide, Cadwalader did not request, and no one at Cadwalader ever reviewed or even saw the actual appraisal for the hospital, or, for that matter, for any other D5 securitization mortgage loan. Nomura did fax to an associate at Cadwalader, approximately 24 days before the D5 closing, a freestanding asset description report prepared by Nomura’s bankers for credit purposes, titled “Doctor’s Hospital of Hyde Park . . . Deal Highlights” (highlights document). The highlights document stated that the $50 million loan was secured by “the land, building, and operations of the property” and that the collateral was the hospital’s “land, building and property management (operations).” It set forth an LTV at 73.5%. It also listed the appraiser’s reconciled valuation of $68 million, as well as the three valuation approaches.

In preparation for the closing, Cadwalader provided an opinion letter to Nomura stating that the D5 series was REMIC-qualified. Cadwalader stated that its legal conclusion was based on the information contained in the PSA, MLPSA, prospectus, and two supplements. The letter also specifically stated that “as to any facts material to such opinions . . . not known to” Cadwalader, it relied on “statements, certificates and representations” of Nomura officers and representatives. There was no mention of the highlights document.

Cadwalader also drafted the D5 securitization’s PSA and MLPSA. The PSA and the MLPSA stated specifically that Nomura warranted that each mortgage loan is a “qualified mortgage” within the meaning of the Internal Revenue Code, and that the loans in the trust were secured by mortgages on real property with a fair market value of at least 80% of the principal amount of the loan, as measured at the origination or closing date. In other words, that the mortgage loans in the D5 securitization complied with the 80% test.

m.

Approximately three years after the closing, the hospital went bankrupt and defaulted on its loan. Thereafter, the D5 securitization trustee notified Nomura that the hospital property was insolvent and that Nomura was in breach of the PSA and MLPSA warranties because the hospital’s property value was below the 80% REMIC minimum. Nomura refused to repurchase the loans and submitted letters from Cadwalader and the appraiser stating that the hospital had an overall REMIC-qualified market value of $45,080,000.

Unpersuaded by these representations, the trustee commenced a federal action against Nomura in the District Court for the Southern District of New York, for the alleged breach of the PSA and MLPSA. The District Court granted Nomura summary judgment, concluding that based on Cadwalader’s opinion letter, Nomura reasonably believed the property met the 80% REMIC test (see LaSalle Bank N.A. v Nomura Asset Capital Corp., 2004 WL 2072501, 2004 US Dist LEXIS 18599 [SD NY, Sept. 14, 2004, No. 00-Civ-8720(NRB)]). The Second Circuit Court of Appeals reversed, finding that Nomura could be liable, notwithstanding the opinion letter or other provisions in the PSA and MLPSA, and remanded the matter to district court for a factual determination of whether the fair market value of the hospital was less than 80% of the loan (see LaSalle Bank N.A. v Nomura Asset Capital Corp., 424 F3d 195, 208 [2d Cir 2005]). Prior to trial, Nomura settled the federal action for $67.5 million.

Nomura then commenced the instant legal malpractice action in state court to recoup the settlement costs. In its complaint, Nomura asserted three causes of action, only the first of which is at issue in this appeal. Nomura alleged that Cadwalader committed malpractice because it failed to advise Nomura that the D5 appraisals had to separately value real property, as defined in the REMIC regulations, and, furthermore, that Cadwalader failed to perform the necessary due diligence to confirm that the D5 securitization was REMICqualified before issuing its pre-closing opinion letter.

Cadwalader moved for summary judgment, which Supreme Court denied (35 Misc 3d 1222[A], 2012 NY Slip Op 50815[U] [2012]). The court concluded that with respect to Nomura’s “failure to advise” claim, triable issues of fact existed because Cadwalader relied on deposition testimony that raised credibility issues more appropriately addressed through cross-examination. As to the due diligence claim, the court concluded that Cadwalader’s evidence, including testimony from its own experts, was conflicting. The court also concluded that questions of fact existed as to whether Cadwalader’s alleged malpractice proximately caused Nomura’s damages.

The Appellate Division, in a 3-1 decision, modified the order of Supreme Court by dismissing the advice claim, and otherwise affirmed, but limited the due diligence claim to a factual issue related to the highlights document (115 AD3d 228 [2014]). The Court concluded that Cadwalader had met its prima facie burden on the advice claim, based on the testimony of two Cadwalader partners and Nomura representatives, which demonstrated that Cadwalader provided Nomura with the advice on REMIC qualification, and that Nomura failed to establish a triable issue of fact on this claim. Regarding the due diligence claim, the Court concluded that Cadwalader had no generalized duty to review all of the appraisals in the D5 securitization, but that triable issues of fact existed as to whether the highlights document contained warning signs that the hospital loan may not have been REMIC-qualified, requiring further inquiry by Cadwalader. The Court also rejected Cadwalader’s argument that Nomura could not establish proximate cause.

The dissent agreed with the Court’s analysis of the advice claim, but would have held that the due diligence claim was similarly without merit, and, therefore, Nomura’s malpractice cause of action should be dismissed in its entirety. The dissent would have found that the highlights document failed to demonstrate that the hospital loan was “more likely to be inappropriate . . . for inclusion in the securitization than any of the other 155 loans” {id. at 247) simply because the face of the document revealed appraised values exceeding the REMIC threshold {id. at 256-257). The dissent reasoned that had Cadwalader been required to further inquire based on the highlights document it would have had to “conduct the due diligence for which its highly sophisticated investment-banking client had deliberately declined to engage it” {id. at 260).

The Appellate Division granted Cadwalader and Nomura’s respective motions for leave to appeal to this Court, and certified the question whether the order, which modified the order of Supreme Court, was properly made (2014 NY Slip Op 75455 [U] [2014]). We now answer the certified question in the negative, and modify.

IV.

On a motion for summary judgment, the moving party must “make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact” (Alvarez v Prospect Hosp., 68 NY2d 320, 324 [1986]). If the moving party produces the requisite evidence, the burden then shifts to the nonmoving party “ ‘to establish the existence of material issues of fact which require a trial of the action’ ” (Vega v Restani Constr. Corp., 18 NY3d 499, 503 [2012], quoting Alvarez, 68 NY2d at 324). Viewing the evidence “in the light most favorable to the non-moving party,” if the nonmoving party, nonetheless, fails to establish a material triable issue of fact, summary judgment for the movant is appropriate (Ortiz v Varsity Holdings, LLC, 18 NY3d 335, 339 [2011]; see Alvarez, 68 NY2d at 324).

To sustain its cause of action for legal malpractice, Nomura must “establish that [Cadwalader] failed to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession and that the attorney’s breach of this duty proximately caused plaintiff to sustain actual and ascertainable damages” (Dombrowski v Bulson, 19 NY3d 347, 350 [2012] [internal quotation marks and citations omitted]). An attorney’s conduct or inaction is the proximate cause of a plaintiff’s damages if “but for” the attorney’s negligence “the plaintiff would have succeeded on the merits of the underlying action” (AmBase Corp. v Davis Polk & Wardwell, 8 NY3d 428, 434 [2007]), or would not have sustained “actual and ascertainable” damages (Dombrowski, 19 NY3d at 350; Brooks v Lewin, 21 AD3d 731, 734 [1st Dept 2005], lv denied 6 NY3d 713 [2006]). Thus, in order for Cadwalader to prevail on its summary judgment motion, it must establish that it provided the advice, and conducted the due diligence expected of counsel “exercising] the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession” (Dombrowski, 19 NY3d at 350). If Cadwalader fell short of this professional standard, it must demonstrate that its conduct was not the proximate cause of Nomura’s damages.

V

As discussed below, we conclude that Cadwalader established that it provided the proper advice regarding REMIC qualification, and that it conducted the due diligence required in the context of its representation of Nomura. Nomura has failed, in response, to establish the existence of a material triable issue of fact. Therefore, the Appellate Division should have granted Cadwalader summary judgment and dismissed Nomura’s legal malpractice cause of action.

A. Failure to Advise

Nomura admits that Cadwalader advised it that the REMIC regulations required that mortgage loans be secured by real property equal to 80% of the loan. Yet, it contends that Cadwalader failed to properly advise it on the mechanics of how to apply the 80% test to the D5 securitization properties. However, Cadwalader’s summary judgment submissions sufficiently belie this claim.

Cadwalader submitted deposition testimony from Charles Adelman and Anna Glick, two Cadwalader partners responsible for the D5 securitization. They testified that they advised Nomura regarding how to satisfy the REMIC 80% test, and what constituted real property for REMIC purposes.

Adelman testified that in the years before and during the D5 securitization, Cadwalader advised Nomura “as to each and every one of the matters described in” Cadwalader’s advice sheet, which was included in Cadwalader’s summary judgment papers. The advice sheet specifically sets forth 12 bullet points concerning advice on REMIC qualification and Nomura’s representations and warranties. Listed therein are the following advisements: “Personal property does not count towards satisfying the REMIC . . . test — only real property counts”; “real property includes land and improvements . . . [and] other inherently permanent structures” (internal quotation marks omitted); the REMIC test is “best proved by an independent third party appraisal and should measure real property separately”; “[i]t was Nomura’s responsibility to confirm the accuracy of Nomura’s representations and warranties in the MLPSA, including the 80% Warranty”; “Cadwalader would not independently verify the accuracy of any of Nomura’s representations and warranties unless asked to do so by Nomura”; and the LTV ratios are “guidance on whether a loan is REMIC eligible, but [are] not a substitute for the due diligence required to ensure that a loan is secured by real property equal to 80% of the . . . loan.”

Glick testified that Cadwalader repeatedly advised Nomura about how to comply with the 80% test. She stated that “[o]ver the course of the ten years or so that I did work for Nomura, we had numerous conversations about REMIC requirements, the 80 percent requirement, about what satisfied the 80 percent requirement.” She noted that in working with Nomura “new questions would come up, and so we would be advising [Nomura] continuously over this entire ten-year period, we w[ould] be discussing REMIC related and 80 percent issues, as well as what type of collateral would satisfy the 80 percent.”

Cadwalader also submitted Glick’s affidavit, wherein she states that Cadwalader told Nomura prior to the D5 securitization closing that land and structural improvements should be added to determine REMIC real property:

“As part of that advice, a rule of thumb communicated by Cadwalader to Nomura was that the value of what was plainly real property (such as land and structural improvements, or ‘sticks and bricks’), should be added up by Nomura to see if it amounted to at least 80% of the loan amount. If those items alone satisfied the 80% Test (and they usually did), then the 80% Test would be satisfied. If not, then Nomura needed to inquire further to determine whether the loan met the 80% Test.”

Cadwalader also submitted testimony from Nomura’s former vice-president and officer-in-charge of the D5 securitization, Perry Gershon. Gershon’s testimony wholly confirmed Adelman and Glick’s representations. He testified that Cadwalader fully informed Nomura about the REMIC requirements and how to ensure compliance with the 80% test. Like Adelman, he testified that Cadwalader provided all the advice listed on the Cadwalader advice sheet, and that Cadwalader advised Nomura that if it had any questions regarding whether a property contained sufficient real property in compliance with the RE-MIC regulations, Nomura needed to consult with outside counsel prior to making the loan.

When asked specifically about Nomura’s understanding about the REMIC regulations and the 80% test, Gershon confirmed that Cadwalader advised Nomura: (1) REMIC eligibility required the mortgage loan to be principally secured by an interest in real property, meaning that at least 80% of the mortgage is secured by real property; (2) personal property does not count towards the 80% test; and (3) the 80% test is best proved by an independent third-party appraisal, which measures real property separately. According to Gershon, “Cadwalader definitely gave instructions to Nomura that . . . among the purposes of getting these properties appraised was to show that they would, in essence, be REMIC-eligible assets.” The foregoing testimony was buttressed by documents relating to the hospital mortgage loan originated by Nomura that reflected Nomura’s awareness of the applicable REMIC regulations.

This evidence sufficiently established that Cadwalader adequately advised Nomura concerning REMIC qualification as applicable to the D5 securitization. The burden then shifted to Nomura to set forth evidence to establish material issues of triable fact (see Vega, 18 NY3d at 503).

In an effort to meet its burden, Nomura argued that credibility issues foreclosed summary judgment. Specifically, Nomura sought to discredit Gershon’s testimony based on bias, alleging that Gershon’s spouse was a Cadwalader attorney who worked on the Nomura matters, and that after Gershon left Nomura, his spouse benefitted financially from securitization business Gershon continued to send to Cadwalader. We agree with the Appellate Division that this alleged credibility issue is speculative and unsupported by any evidence, and thus cannot be the basis for denying summary judgment.

Nomura also contends that a material issue of fact exists as to whether Cadwalader’s advice was adequate because testimony from several Nomura employees reveals that they did not know how to apply the REMIC 80% test. As the Appellate Division properly concluded, this amounts to a showing that some Nomura employees did not understand REMIC principles, not that Cadwalader failed to provide appropriate legal advice, or that Cadwalader refused to answer Nomura’s questions about REMIC qualification. Thus, Nomura failed to present triable issues of fact as to whether Cadwalader provided adequate advice and “exercise [d] the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession” (Dombrowski, 19 NY3d at 350). Therefore, Cadwalader is entitled to summary judgment with respect to Nomura’s failure to advise claim.

B. Due Diligence

Nomura’s other claim in support of its legal malpractice cause of action is that Cadwalader failed to conduct the requisite due diligence prior to issuing its pre-closing REMIC opinion letter. According to Nomura, in order to fulfill its professional responsibilities, Cadwalader could not simply rely on Nomura’s representations, but instead had to review the appraisals for all the mortgage loans in the D5 securitization to ensure that each loan was REMIC-qualified.

In support of its summary judgment motion on this claim, Cadwalader argues that Nomura did not retain it to conduct or review appraisals, generally, or in its role as securitization counsel. Cadwalader submitted testimony from Adelman and Nomura’s own representatives describing Cadwalader’s role vis-á-vis the D5 securitization. Cadwalader also submitted testimony from experts regarding the accepted practice of attorneys dealing with REMIC qualification and securitization, which further supports the conclusion that a duty to review appraisals was beyond the scope of Cadwalader’s representation.

For example, Adelman testified that it was Nomura’s responsibility to review the D5 securitization appraisals. According to Adelman, Nomura told Cadwalader that it would review appraisals and that Cadwalader “was not to duplicate Nomura’s work in that regard.” Adelman also stated that Nomura’s “direction was specific enough that we did not view it as a part of our normal process to have appraisals sent to us for review.” Instead, as the Cadwalader opinion letter made clear, Cadwalader relied on Nomura for the fact that the property was REMIC-qualified because it met the 80% test.

Gershon acknowledged that Nomura did not request or expect that Cadwalader review the appraisals for the D5 securitization. He further acknowledged that Cadwalader advised Nomura that it relied on Nomura’s representations, and that Nomura was responsible for the accuracy of those representations, as well as the warranties in the MLPSA, specifically the 80% warranty. Most devastating was Gershon’s acknowledgment that Cadwalader advised Nomura that it would not independently verify the accuracy of Nomura’s representations and warranties unless asked to do so, and that Nomura did not make any such request. Gershon’s understanding was confirmed by General Counsel for Nomura Asset Capital Corporation, Barry Funt, who testified that he “would not have requested or even thought it proper for Cadwalader to review every single appraisal.”

The experts confirmed that this representation was in line with legal practice in the securitization field. James Peaslee, an expert for Cadwalader, opined that it was not standard practice for securitization counsel to review appraisals, absent a specific request from the client. David Rodgers, an expert on origination and securitization, stated that, subject to a specific agreement, “the role of securitization counsel relating to the determination of REMIC value does not include calculating or even recalculating real property value-to-loan ratios for loans.”

This testimony, along with Cadwalader’s clear statements in its opinion letter that it relied on Nomura’s representations for its conclusions that the D5 securitization was REMIC-qualified, are sufficient to establish a prima facie showing in support of Cadwalader’s motion for summary judgment. The burden then shifted to Nomura.

In response, Nomura disputes that this was the parties’ understanding of Cadwalader’s professional obligations, and relies on alleged discrepancies in the testimony to show otherwise. However, Nomura mischaracterizes the record, which, as we have described, makes abundantly clear that the parties understood that Nomura, pursuant to its own directives, was responsible for: securing the appraisals; reviewing whether, based on those appraisals, the loans complied with the 80% test; and confirming the veracity and accuracy of Nomura’s warranties as set forth in the MLPSA.

Nomura also relies on expert testimony from Thomas J. Biafore and Arthur N. Field that Cadwalader could not rely on Nomura’s representations to establish the property’s value because that factual determination was tantamount to the legal representation required of Cadwalader. This testimony, however, focuses on general principles, and does not create a triable issue of fact concerning the parties’ actual understanding of Cadwalader’s responsibilities. As Gershon acknowledged, Nomura understood that Cadwalader would not request the appraisals in the course of its review of the D5 securitization documents, and Cadwalader would rely on Nomura’s representations that the 80% test had been met unless Nomura asked it to look further.

Essentially Nomura seeks to have us ignore the fact that it assumed the responsibility for ensuring that the loans complied with the 80% test based on independent appraisals that Cadwalader did not conduct or review. However, we cannot ignore that Nomura chose to run its business in this way, and that Cadwalader acted upon and relied on that business model in its representation of Nomura.

Nomura argues, alternatively, that even if Cadwalader did not have a general duty to confirm Nomura’s representations for all the D5 mortgage loans, it had such a duty in the case of the hospital loan. In support, Nomura relies on testimony from Adelman and Cadwalader’s experts that Cadwalader had a legal responsibility to confirm REMIC qualification where a “red flag” suggested that the appraisal valuation of the real property was inconsistent with Nomura’s representations. Cadwalader concedes this point, but argues that there was nothing in the D5 securitization to require that it confirm Nomura’s representations of REMIC qualification.

Nomura contends that the highlights document was a red flag because it contained statements that the loan was “secured by the land, building, and operations,” and that the collateral for the loan is the “land, building and property management (operations).” Nomura argues that this alerted Cadwalader to the possibility that the appraisal was based on the hospital’s operations, and not land and buildings, as required for REMIC qualification. As a consequence, Cadwalader should have taken steps to confirm that the property satisfied the 80% test.

Despite Nomura’s arguments to the contrary, the fact that the operational part of the hospital business may have factored in some way into the appraisal did not mean that Cadwalader should have considered Nomura’s representations unreliable. After all, the D5 securitization consisted of numerous commercial mortgages, all of which Nomura assessed in accordance with Cadwalader’s advice about how to determine RE-MIC qualification based on the 80% test. Therefore, the hospital mortgage loan was no different from the others.

Moreover, what Nomura now identifies as a red flag — that a commercial property may be valued, in part, based on its business operations — had already been raised by Cadwalader with Nomura as something to monitor in the valuation process. Adelman testified that he communicated to Nomura representatives that REMIC real estate did not include what he called the “business element of the overall [property] value,” explaining that where the “income was from the operation of a business rather than from the receipt of rent, [it] required a distinction to be made between the real property value from being occupied by a going business as distinguished from the value of the business itself.”

Nomura also argues that Cadwalader should not have ignored the fact that the highlights document includes a cost approach valuation of the hospital that is dangerously close to the 80% REMIC minimum. While it is true that the cost approach valued the hospital property at $40,600,000, that number is still above the $40 million required to meet REMIC qualification. In any case, and more to the point is the fact that the highlights document placed the hospital’s reconciled appraised value at $68 million, $28 million in excess of the $40 million required under the 80% test. That final appraisal was established only after the reconciliation of the three valuation approaches, two of which (the “income” and “sales” approaches) valued the property at over $60 million. Given such a large differential, Cadwalader did not have a basis to doubt Nomura’s representation that the hospital loan complied with the 80% test. Indeed, Adelman testified that in his experience, even if a property valued at $68 million included a significant amount of personal property, its real property valuation would not fall below $40 million. Gershon similarly testified that in his experience in real estate, a $68 million appraisal based on the income approach (which was the case here) means the real estate value likely exceeded $40 million. Rather than establish that triable issues of fact exist, the evidence instead shows that these parties — sophisticated business entities in the securitization field — held similar views that a $68 million appraisal provided sufficient confidence that the property was REMIC-qualified.

Cadwalader, thus, met its burden to establish that it conducted the requisite due diligence, and that it “exercise [d] the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession” when it relied on Nomura’s representations in issuing an opinion that the D5 securitization was REMIC-qualified (see Dombrowski, 19 NY3d at 350). In contrast, Nomura failed to meet its burden to establish the existence of a triable issue of fact.

VL

For the foregoing reasons, the Appellate Division’s order should be modified, with costs to Cadwalader, by granting Cadwalader’s motion for summary judgment dismissing the first cause of action in its entirety and, as so modified, affirmed and the certified question answered in the negative.

Chief Judge Lippman and Judges Pigott, Abdus-Salaam, Stein and Fahey concur.

Order modified, with costs to defendant, by granting defendant’s motion for summary judgment dismissing the first cause of action in its entirety and, as so modified, affirmed and certified question answered in the negative.

      . See 5 Baxter Dunaway, Distressed Real Estate § 56:1 (“Asset Securitization and Commercial Mortgage-Backed Securities”).

      . Commercial mortgage-backed securities are “[securities collateralized by a pool of mortgages on commercial real estate in which all principal and interest from the mortgages flow to certificate holders.” (Id.) The pools are secured by loans on commercial properties. (Id.)

      . REMIC qualification is advantageous because it allows the trust to be treated as a pass-through entity and claim certain tax exemptions (see 26 USC § 860A).

      . Value-to-loan ratio is calculated by dividing the value of the property by the amount of the loan. The inverse, loan-to-value, is determined by dividing the loan amount by the property’s value. Based on the mathematical equations, a loan with a low LTV percentage presents less risk to the lender because the property securing the loan has a high value as compared to the loan amount.

      . The MLPSA and PSA are the agreements by which Nomura sold, pooled, and transferred the loans to the trust.

      . The Second Circuit held that the qualified mortgage warranty in the MLPSA needed to be satisfied without regard to what is known as a REMIC safe harbor provision. As set forth in the REMIC regulations, under this “safe harbor,” an obligation is “deemed” to meet the 80% test if the REMIC “sponsor” “reasonably believes” that to be so at the time it contributes the loan to the REMIC trust (26 CFR 1.860G-2 [a] [3] [i]).

      . The second cause of action, involving the drafting of a provision of the MLPSA, was dismissed on Cadwalader’s pre-answer motion to dismiss. Nomura withdrew the third cause action alleging malpractice with respect to another D5 loan.


author: Stein, J.

text:
    [41 NE3d 760, 19 NYS3d 796]
    Remet Corporation, Appellant, v Estate of James R. Pyne, Deceased, et al., Respondents, et al., Defendant.
    Argued September 9, 2015;
    decided October 20, 2015

      POINTS OF COUNSEL

      Mayer Brown LLP, New York City (Scott A. Chesin, Michael E. Rayfield and Alex O. Kardon of counsel), Mayer Brown LLP, Chicago, Illinois (Kevin G. Desharnais and Fern C. Bomchill of counsel), and Hancock Estabrook, LLP, Syracuse (Janet D. Callahan and Timothy P. Murphy of counsel), for appellant.
    I. Remet Corporation is entitled to indemnification. (National Railroad Passenger Corporation v Boston & Maine Corp., 503 US 407; Laguna Hermosa Corp. v United States, 671 F3d 1284; Ragins v Hospitals Ins. Co., Inc., 22 NY3d 1019; Railway Labor Executives’ Assn. v United States R.R. Retirement Bd., 749 F2d 856; Marine Midland Realty Credit Corp. v LLMD of Mich., Inc., 821 F Supp 370; Aetna Cas. & Sur. Co., Inc. v Pintlar Corp., 948 F2d 1507; Anderson Bros., Inc. v St. Paul Fire & Mar. Ins. Co., 729 F3d 923; Avondale Indus., Inc. v Travelers Indem. Co., 887 F2d 1200; Burt Rigid Box Inc. v Travelers Prop. Cas. Corp., 126 F Supp 2d 596; Technicon Elecs. Corp. v American Home Assur. Co., 141 AD2d 124.) II. If this Court concludes that Remet Corporation is not entitled to summary judgment, it should at least reverse the Fourth Department’s grant of summary judgment to the Pyne Estate. (Mallad Constr. Corp. v County Fed. Sav. & Loan Assn., 32 NY2d 285.)

      Law Office of Neil M. Gingold, Fayetteville (Neil M. Gingold of counsel), and Steates, Remmell, Steates & Dziekan, Utica
      (F. Paul Steates of counsel), for respondents.
    I. Plaintiff/ appellant is prohibited from arguing that the word “required,” as set forth and used within the purchase and sale agreement (PSA) at section 8.1 (a) (iii) (B) is ambiguous, for it has argued at the trial level and at the Appellate Division, as have the defendants/respondents, that the agreement is clear on its face and undisputed on its meaning as to what the parties intended in executing the purchase and sale agreement, and is raising for the first time in these proceedings, before the Court of Appeals, an issue that the meaning of the term “required” is ambiguous. Questions which are not raised in the court below are not to be considered in an appeal. (Hugar v Damon & Morey LLP, 51 AD3d 1387; Collucci v Collucci, 58 NY2d 834.) II. The indemnification provisions within the purchase and sale agreement do not cover the voluntary actions for which plaintiff Remet Corporation has filed claims and sought indemnification, for the actions it sought are not actions for which it was legally required to take under or in connection with any environmental law or environmental permit, and where such actions taken did not arise from communications by Remet with any governmental agency, except to the extent such communications were actually required under any environmental law or environmental permit, or any other law. (Avondale, Indus., Inc. v Travelers Indem. Co., 887 F2d 1200; Vargas v New York City Tr. Auth., 60 AD3d 438; Burt Rigid Box Inc. v Travelers Prop. Cas. Corp., 126 F Supp 2d 596; Ryan v Royal Ins. Co. of Am., 916 F2d 731; Twitchell v Town of Pittsford, 106 AD2d 903, 66 NY2d 824; Klestinec v Thruway Terms., 124 AD2d 988; Gray Mfg. Co. v Pathe Indus., 33 AD2d 739, 26 NY2d 1045; Mallad Constr. Corp. v County Fed. Sav. & Loan Assn., 32 NY2d 285.) III. The indemnification provisions contained in article VIII of the PSA, Indemnification, require plaintiff to actually expend funds, or actually incur liability, as a prerequisite to an entitlement to indemnification. (Orlikowski v Cornerstone Community Fed. Credit Union, 55 AD3d 1245; All-city Ins. Co. v Fisch, 32 AD3d 407; Barnes v New York City Hous. Auth., 43 AD3d 842; Pfizer, Inc. v Stryker Corp., 348 F Supp 2d 131; MacArthur Bros. Co. v Kerr, 213 NY 360; McCabe v Queensboro Farm Prods., 22 NY2d 204; Relyea v State of New York, 59 AD2d 364; Hobbs v Scorse, 59 AD2d 1037; State of New York v Travelers Prop. Cas. Ins. Co., 280 AD2d 756; McDermott v City of New York, 50 NY2d 211.)
   OPINION OF THE COURT

Stein, J.

On this appeal, we are asked to consider whether a letter from the Department of Environmental Conservation (DEC) notifying plaintiff Remet Corporation that it was a potentially responsible party for a site’s environmental contamination required plaintiff to take action within the meaning of a contractual indemnification clause. We conclude that the particular language of the letter at issue threatened imminent adverse legal consequences and was, therefore, sufficiently coercive as to “require” action under the meaning of the indemnification clause.

L

Decedent James R. Pyne was the founder and sole stockholder of Remet Corporation, a company that manufactures products for use in the investment casting industry. In a purchase and sale agreement entered into in March 1999, Pyne sold to Burmah Castrol Holding, Inc. all of Remet’s stock and facilities, along with real property that he had been leasing to Remet. Because one of the parcels of real property abutted the Erie Canal site in Utica, which had been listed as an inactive hazardous waste site, the sales agreement contained an indemnification provision. In relevant part, that provision obligated Pyne to “indemnify, defend and hold [the] [b]uyer . . . harmless” for “Environmental Losses”

“that arise out of or relate to . . . any environmental remedial, investigatory or monitoring action taken or any other Losses under or relating to any Environmental Law with respect to any of the Company’s Real Properties or the Company’s assets or operations (past or present), as a result of conditions which exist (or previously existed) on or prior to the Closing Date, provided that Losses under this Section . . . shall only be indemnified by Seller if such Losses arise out of or result from actions by any Indemnified Party that such Indemnified Party is required to take under or in connection with any Environmental Law . . . (and such Loss shall not arise out of or result from communications by such Indemnified Party with any Governmental Entity (except to the extent required under any Environmental Law . . . ))” (additional emphasis added).

By its terms, the indemnification obligation was to remain in effect for 10 years and “claims for indemnification asserted prior to the end of such period [ ] . . . [would] survive until final resolution thereof.” Pyne also entered into an environmental escrow agreement pursuant to which he deposited $2.7 million into an escrow account to fund payments arising from his indemnification obligation for environmental losses under the sales agreement. Remet’s current management team ultimately acquired all of Remet’s stock and the indemnification rights under the sales agreement.

In October 2002, Remet received a letter from DEC that is at the heart of this dispute. Labeled “NOTICE LETTER” “URGENT LEGAL MATTER — PROMPT REPLY NECESSARY,” the letter informed Remet that DEC had documented a release of “hazardous substances” (see 42 USC §§ 9601 [14]; 9602) and the presence of “hazardous wastes” (see ECL 27-1301) at the Erie Canal site adjacent to Remet’s real property. The letter further stated that “[responsible parties are liable for monies expended by the State in taking response actions” and that DEC had determined that Remet was “a potentially responsible party [PRP] for the site’s contamination.” In the letter, DEC requested that Remet implement and finance a remedial program for the site, to be memorialized in a consent order. DEC advised that, “if a signed Consent Order [was] not received within 30 days ... , all further discussions [would] terminate,” and DEC would perform the necessary work itself and then seek recovery from Remet, as a PRP. In that event, the PRP letter “serve [d] as a demand for payment of all monies [DEC] may expend,” with interest accruing from the date of the letter.

Remet did not sign a consent order within the required time period, but began investigating DEC’s claims and gave notice to Pyne that it was asserting an indemnification claim under the sales agreement. Although Pyne did not assume defense of the claim, his attorneys contacted DEC and cooperated with Remet in undertaking investigative efforts with respect to the Erie Canal site. Pyne died in March 2003. Because none of the PRPs identified by DEC agreed to undertake remediation of the site, DEC determined that it would address the site’s contamination with State funds and seek recovery from the PRPs, ultimately adopting a $12.5 million decontamination plan. Remet filed notices of claim against Pyne’s estate seeking indemnification for environmental liabilities under the sales agreement, including approximately $550,000 in costs already incurred by Remet. After the Estate objected to a release of funds from the escrow account and insisted that Remet refrain from dealing with DEC directly regarding Remet’s potential liability for remediation of the site, Remet commenced this action, asserting claims for contractual and common-law indemnification.

Following joinder of issue, Remet moved for summary judgment, seeking indemnification in the amount of $550,388.60, and a declaration that it was entitled to reimbursement for all future costs that could arise as a result of its investigation into and remediation of the site. Supreme Court, among other things, granted Remet summary judgment on liability and declared that Remet was entitled to indemnification for past and future environmental losses arising out of DEC’S investigation and remediation of the Erie Canal site. On defendant’s appeal, the Appellate Division unanimously reversed, denied Remet’s motion and granted summary judgment to defendants, declaring that Remet “is not entitled to indemnification from defendants” (112 AD3d 1313, 1315 [4th Dept 2013]). The Court concluded that, because “DEC’s letter merely informed . . . [Remet] of [its] potential liability and sought voluntary action on [its] part, . . . [the letter] did not require [Remet] to take action” (id. at 1314 [internal quotation marks and citations omitted]). We granted Remet’s motion for leave to appeal (23 NY3d 907 [2014]).

IL

The plain language of the governing contractual indemnity provision, together with the language of the PRP letter and the surrounding facts and circumstances, demonstrate that Remet was entitled to indemnification because it was “required,” within the meaning of the sales agreement, to act in response to the PRP letter (see generally Drzewinski v Atlantic Scaffold & Ladder Co., 70 NY2d 774, 777 [1987]). The PRP letter stated that it pertained to an “Urgent Legal Matter,” indicated that a prompt reply was “necessary,” and set forth the consequences that would flow from Remet’s refusal to act. Regardless of whether Remet was designated a potentially responsible party or a responsible party, the letter demanded either a consent order or payment, and any language indicating that Remet’s response was voluntary must be read in terms of those demands. In other words, the PRP letter — by its terms— effectively marked the beginning of a “legal” process against Remet pursuant to the ECL, in which DEC expressly sought recovery from Remet for any amounts expended in remediating the Erie Canal site.

Additionally, the circumstances surrounding the execution of the indemnification clause include the parties’ awareness that, because the Erie Canal site was listed as an inactive hazardous waste site, the purchaser of the property at issue here risked incurring substantial expenses, and that Pyne accordingly deposited a large sum in escrow to cover at least a portion of those potential expenses. Pyne’s attorneys began cooperating with DEC shortly after the PRP letter was received, and only ceased to do so when their negotiations proved unsuccessful — indicating that Pyne, the actual signatory to the sales agreement, viewed the PRP letter as requiring action.

In short, the PRP letter issued to Remet was sufficiently coercive and adversarial as to “require” action “under or in connection with any Environmental Law” pursuant to the sales agreement, given that it threatened litigation and imminent adverse legal and financial consequences pursuant to the ECL (see Borg-Warner Corp. v Insurance Co. of N. Am., 174 AD2d 24, 35 [3d Dept 1992], lv denied 80 NY2d 753 [1992]; see also Carpentier v Hanover Ins. Co., 248 AD2d 579, 580 [2d Dept 1998]). Moreover, inasmuch as Remet asserted its claims within 10 years of the closing date of the sales agreement, those claims “shall survive until final resolution thereof.” Accordingly, based on the particular language of the PRP letter and the indemnification clause at issue here, Remet is entitled to contractual indemnification for past and future environmental losses incurred as a result of DEC’S investigation and remediation of the Erie Canal site, and Supreme Court properly granted summary judgment to plaintiff on liability. Accordingly, the order of the Appellate Division should be reversed, with costs, and the judgment of Supreme Court reinstated.

Chief Judge Lippman and Judges Pigott, Rivera, AbdusSalaam and Fahey concur.

Order reversed, with costs, and judgment of Supreme Court, Oneida County, reinstated.

       Other states’ courts have concluded that, given the adverse consequences — such as large fines, use of the PRP’s noncompliance against it in future litigation to apportion costs, and the potential that the administrative agency may remediate a site at a higher cost and then demand full reimbursement from the PRP — that can flow from a failure to respond to a PRP letter, “ ‘[fit would be naive to characterize [a PRP] letter as a request for voluntary action. [There is] no practical choice other than to respond actively to the [PRP] letter’ ” (R.T. Vanderbilt Co., Inc. v Continental Cas. Co., 273 Conn 448, 466, 870 A2d 1048, 1061 [2005], quoting Hazen Paper Co. v United States Fid. & Guar. Co., 407 Mass 689, 697, 555 NE2d 576, 581-582 [1990]; see Johnson Controls, Inc. v Employers Ins. of Wausau, 264 Wis 2d 60, 113, 665 NW2d 257, 284 [2003], cert denied 541 US 1027 [2004]).