author: Graffeo, J.

text:
    [992 NE2d 1076, 970 NYS2d 733]
    J.P. Morgan Securities Inc. et al., Appellants, v Vigilant Insurance Company et al., Respondents.
    Argued May 1, 2013;
    decided June 11, 2013

      POINTS OF COUNSEL

      Proskauer Rose LLP, New York City (John H. Gross, Steven E. Obus, Seth B. Schafler, Francis D. Landrey and Matthew J. Morris of counsel), for appellants.
    I. Bear Stearns Companies LLC incurred a covered loss, and neither received ill-gotten gains nor was unjustly enriched. (MBIA Inc. v Federal Ins. Co., 652 F3d 152; Vigilant Ins. Co. v Credit Suisse First Boston Corp., 6 Misc 3d 1020[A], 2003 NY Slip Op 51747[U], 10 AD3d 528; Level 3 Communications, Inc. v Federal Ins. Co., 272 F3d 908; Genzyme Corp. v Federal Ins. Co., 622 F3d 62; Unified W. Grocers, Inc. v Twin City Fire Ins. Co., 457 F3d 1106; Ryerson Inc. v Federal Ins. Co., 676 F3d 610; Pan Pac. Retail Props., Inc. v Gulf Ins. Co., 471 F3d 961; CNL Hotels & Resorts, Inc. v Houston Cas. Co., 505 F Supp 2d 1317; Vigilant Ins. Co. v Bear Stearns Cos., Inc., 34 AD3d 300, 10 NY3d 170; Millennium Partners, L.P. v Select Ins. Co., 24 Misc 3d 212, 68 AD3d 420.) II. The Appellate Division contravened New York public policy when it held that coverage for Bear Stearns Companies LLC’s loss should be nullified, whether or not the loss constituted the return of Bear Stearns’ own ill-gotten gain, to preserve the deterrent effect of the Securities and Exchange Commission’s disgorgement action. (Miller v Continental Ins. Co., 40 NY2d 675;
      Public Serv. Mut. Ins. Co. v Goldfarb, 53 NY2d 392; Messersmith v American Fid. Co., 232 NY 161; New England Mut. Life Ins. Co. v Caruso, 73 NY2d 74; Oppenheimer & Co. v Oppenheim, Appel, Dixon & Co., 86 NY2d 685; Morris v Snappy Car Rental, 84 NY2d 21; Charlebois v Weller Assoc., 72 NY2d 587; Slayko v Security Mut. Ins. Co., 98 NY2d 289; Joseph R. Loring & Assoc. v Continental Cas. Co., 56 NY2d 848; Hartford Acc. & Indem. Co. v Village of Hempstead, 48 NY2d 218.) III. The Appellate Division erroneously assumed that Bear Stearns Companies LLC engaged in wrongful conduct warranting the nullification of its insurance coverage. (511 W. 232nd Owners Corp. v Jennifer Realty Co., 98 NY2d 144; Servidone Constr. Corp. v Security Ins. Co. of Hartford, 64 NY2d 419; Pendergest-Holt v Certain Underwriters at Lloyd’s of London, 600 F3d 562; Little v MGIC Indem. Corp., 836 F2d 789; Lipsky v Commonwealth United Corp., 551 F2d 887; In re Platinum & Palladium Commodities Litig., 828 F Supp 2d 588; Matter of Halyalkar v Board of Regents of State of N.Y., 72 NY2d 261; Raychem Corp. v Federal Ins. Co., 853 F Supp 1170; Cambridge Fund, Inc. v Abella, 501 F Supp 598; National Union Fire Ins. Co. of Pittsburgh, Pa. v Xerox Corp., 25 AD3d 309.)

      DLA Piper LLP (US), New York City (Joseph G. Finnerty III, Megan Shea Harwick, Eric S. Connuck and Miles D. Norton of counsel), Kaufman Borgeest & Ryan LLP (Scott A. Schechter and Sergio Alves of counsel), D’Amato & Lynch, LLP (Luke D. Lynch, Jr., Richard F. Russell and Liza A. Chafiian of counsel), Drinker Biddle & Reath LLP (Marsha J. Indych, Douglas M. Mangel and David F. Abernethy of counsel), Clyde & Co. US LLP (.Edward J. Kirk and Allison M. Calkins of counsel), Land-man Corsi Ballaine & Ford PC. (.Michael L. Gioia of counsel) and Bates Carey Nicolaides LLP, Chicago, Illinois (Ommid C. Farashahi, Kristi S. Nolley and R. Patrick Bedell of counsel), for respondents.
    I. The First Department correctly held that Bear Stearns’ disgorgement payment is not an insurable loss as a matter of New York law and public policy. (Securities & Exch. Commn. v First Jersey Sec., Inc., 101 F3d 1450; United States Sec. & Exch. Commn. v Svoboda, 409 F Supp 2d 331; United States Sec. & Exch. Commn. v Universal Express, Inc., 646 F Supp 2d 552; 212 Inv. Corp. v Kaplan, 16 Misc 3d 1125[A], 2007 NY Slip Op 51577[U]; Securities & Exch. Commn. v First City Fin. Corp., Ltd., 890 F2d 1215; Securities & Exch. Commn. v Warde, 151 F3d 42; Securities & Exch. Commn. v Patel, 61 F3d 137; Federal Trade Commn. v Bronson Partners, LLC, 654 F3d 359; Securities & Exch. Commn. v Fischbach Corp., 133 F3d 170; Securities & Exch. Commn. v DiBella, 587 F3d 553.) II. Bear Stearns is bound by the consented-to and stipulated findings in the Securities and Exchange Commission order and New York Stock Exchange decision. (Ark Bryant Park Corp. v Bryant Park Restoration Corp., 285 AD2d 143; Wilhelmina Models, Inc. v Fleisher, 19 AD3d 267; Biondi v Beekman Hill House Apt. Corp., 257 AD2d 76, 94 NY2d 659; International Telephone & Telegraph Corp. v Electrical Workers, 419 US 428; Levy v United States Sec. & Exch. Commn., 462 F Supp 2d 64; Millennium Partners, L.P. v Select Ins. Co., 24 Misc 3d 212, 68 AD3d 420; Servidone Constr. Corp. v Security Ins. Co. of Hartford, 64 NY2d 419; Bankwest v Fidelity & Deposit Co. of Md., 63 F3d 974; Travelers Ins. Co. v Waltham Indus. Labs. Corp., 883 F2d 1092; Northland Cas. Co. v HBE Corp., 160 F Supp 2d 1348.) III. The Securities and Exchange Commission findings set forth Bear Stearns’ inherently harmful and fraudulent conduct. (Town of Massena v Healthcare Underwriters Mut. Ins. Co., 98 NY2d 435; Austro v Niagara Mohawk Power Corp., 66 NY2d 674; Hertz Corp. v Government Empls. Ins. Co., 250 AD2d 181; Public Serv. Mut. Ins. Co. v Goldfarb, 53 NY2d 392; Messersmith v American Fid. Co., 232 NY 161; Dodge v Legion Ins. Co., 102 F Supp 2d 144; Allstate Ins. Co. v Mugavero, 79 NY2d 153; Accessories Biz, Inc. v Linda & Jay Keane, Inc., 533 F Supp 2d 381; DeSantis Enters, v American & Foreign Ins. Co., 241 AD2d 859; Syvertsen v Great Am. Ins. Co., 267 AD2d 854.) IV The policies exclude coverage for claims based upon or arising out of any improper profit or advantage obtained by Bear Stearns. (United States Fid. & Guar. Co. v Annunziata, 67 NY2d 229; Bassuk Bros. v Utica First Ins. Co., 1 AD3d 470; Jahier v Liberty Mut. Group, 64 AD3d 683; Jarvis Christian Coll. v National Union Fire Ins. Co. of Pittsburgh, PA., 197 F3d 742; TIG Specialty Ins. Co. v Pinkmonkey.com Inc., 375 F3d 365; National Union Fire Ins. Co. of Pittsburgh, Pa. v Continental Ill. Corp., 666 F Supp 1180; Steadfast Ins. Co. v Stroock & Stroock & Lavan LLP, 277 F Supp 2d 245; Penna v Peerless Ins. Co., 510 F Supp 2d 199; Excess Ins. Co. Ltd. v Factory Mut. Ins. Co., 3 NY3d 577; Maroney v New York Cent. Mut. Fire Ins. Co., 5 NY3d 467.) V The insurers did not agree to indemnify Bear Stearns for the disgorgement of ill-gotten gains created by its willful collaboration in an illegal mutual fund trading scheme. (Public Serv. Mut. Ins. Co. v Goldfarb, 53 NY2d 392; Messersmith v American Fid. Co., 232 NY 161; Official Comm. of Unsecured Creditors of WorldCom, Inc. v Securities & Exch. Commn., 467 F3d 73; Securities & Exch. Commn. v Cavanagh, 445 F3d 105; Securities

      & Exch. Commn. v Tome, 833 F2d 1086; Securities & Exch. Commn. v Commonwealth Chem. Sec., Inc., 574 F2d 90; Securities & Exch. Commn. v Drexel Burnham Lambert, Inc., 956 F Supp 503; Ryerson, Inc. v Federal Ins. Co., 796 F Supp 2d 911; Continental Cas. Co. v Pittsburgh Coming Corp., 917 F2d 297; Raymond Corp. v National Union Fire Ins. Co. of Pittsburgh, Pa., 5 NY3d 157.) VI. The prior wrongful acts exclusion applies to bar coverage under underwriters’ excess policies. (Matter of Garner v New York State Dept. of Correctional Servs., 10 NY3d 358; McKee v City of Cohoes Bd. of Educ., 99 AD2d 923; Matter of Miller v Captain Brereton, 98 AD3d 824; Clayton B. Obersheimer, Inc. v Travelers Cas. & Sur. Co. of Am., 96 AD3d 1284; Matter of Tristram K., 65 AD3d 894; Securities & Exch. Commn. v Durgarian, 477 F Supp 2d 342; Securities & Exch. Commn. v Pimco Advisors Fund Mgt., LLC, 341 F Supp 2d 454; Executive Risk Indem. Inc. v Pepper Hamilton LLP, 13 NY3d 313; CPA Mut. Ins. Co. of Am. Risk Retention Group v Weiss & Co., 80 AD3d 431.) VII. Defense costs are uninsurable where, as here, no coverage is triggered by the claim. (Vigilant Ins. Co. v Credit Suisse First Boston Corp., 10 AD3d 528; Millennium Partners, L.P. v Select Ins. Co., 24 Misc 3d 212, 68 AD3d 420; Stonewall Ins. Co. v Asbestos Claims Mgt. Corp., 73 F3d 1178.)

      Melito & Adolfsen PC, New York City (S. Dwight Stephens of counsel), and Wiley Rein LLP, Washington, D.C. (Daniel J. Standish and Cara Tseng Duffield of counsel), for American Insurance Association, amicus curiae.
    I. The public policy prohibition against insuring disgorgement payments is critical to the sound functioning of the insurance market. (Securities & Exch. Commn. v Fischbach Corp., 133 F3d 170; Securities & Exch. Commn. v Drexel Burnham Lambert, Inc., 956 F Supp 503; Reliance Group Holdings v National Union Fire Ins. Co. of Pittsburgh, Pa., 188 AD2d 47; Vigilant Ins. Co. v Credit Suisse First Boston Corp., 10 AD3d 528; Millennium Partners, L.P. v Select Ins. Co., 68 AD3d 420; Soto v State Farm Ins. Co., 83 NY2d 718; Home Ins. Co. v American Home Prods. Corp., 75 NY2d 196; Public Serv. Mut. Ins. Co. v Goldfarb, 53 NY2d 392; Hartford Acc. & Indem. Co. v Village of Hempstead, 48 NY2d 218; Allstate Ins. Co. v Mugavero, 79 NY2d 153.) II. Allowing insureds to recast the terms of regulatory settlements would alter the nature of the insured risk and obstruct the claims handling process. (Vigilant Ins. Co. v Bear Stearns Cos., Inc., 34 AD3d 300; Vigilant Ins. Co. v Credit Suisse First Boston Corp., 10 AD3d 528; Millennium Partners, L.P. v Select Ins. Co., 68 AD3d 420; Level 3 Communications, Inc. v Federal Ins. Co., 272 F3d 908; Ryerson Inc. v Federal Ins. Co., 676 F3d 610.)
   OPINION OF THE COURT

Graffeo, J.

In this insurance dispute arising from the insured’s monetary settlement of a Securities and Exchange Commission (SEC) proceeding and related private litigation predicated on the insured’s violations of federal securities laws, we conclude that the insurers are not entitled to a CPLR 3211 dismissal of the insured’s coverage claims. We therefore reverse and reinstate the insured’s complaint.

In 2003, the SEC and other regulatory entities undertook an investigation of Bear Stearns & Co., Inc., a broker-dealer, and Bear Stearns Securities Corp., a clearing firm, for allegedly facilitating late trading and deceptive market timing on behalf of certain customers (predominately large hedge funds) for the purchase and sale of shares in mutual funds. During the course of the investigation, the SEC notified Bear Stearns of its intention to commence a civil proceeding charging Bear Stearns with violations of federal securities laws and seeking injunctive relief and sanctions of $720 million. Bear Stearns disputed the proposed charges in a “Wells Submission” in which it claimed that, as a clearing broker that processed transactions initiated by others, it did not knowingly violate any law; its management did not facilitate the late trading or market timing; and it did not share in the profits or benefits from the late trading, from which it received only $16.9 million in commissions.

Nevertheless, Bear Stearns made a formal offer of settlement in November 2005. The SEC accepted the offer and in March 2006 it issued an “Order Instituting Administrative and Cease- and-Desist Proceedings, Making Findings, and Imposing Remedial Sanctions” (the SEC order). “Solely for the purpose of these proceedings” and “without admitting or denying the findings,” Bear Steams agreed to pay $160 million as “disgorgement” and $90 million as a civil penalty. The agreed-upon $250 million payment was deposited in a fund to compensate any mutual fund investors who had been harmed by Bear Stearns’ conduct. The SEC order provided that, “[t]o preserve the deterrent effect of the civil penalty,” Bear Stearns agreed that it would not benefit from an offset in any related private litigation for sums distributed to those private litigants that were attributable to the $90 million penalty. The SEC order did not contain a similar restriction regarding the right to offset the $160 million disgorgement payment.

The SEC order also set forth detailed findings stating that, between 1999 and 2003, Bear Stearns “facilitated a substantial amount of late trading and deceptive market timing”; “knowingly or recklessly processed thousands of late trades”; “took no steps to alter [its] procedures or to implement effective measures to stop deceptive timing”; “took affirmative steps to hide from mutual funds the identity of customers that were known market timers by, for example, assigning multiple account numbers to customers”; and “knew or [was] reckless in not knowing” that its brokers’ use of multiple account numbers for certain customers “would be used for market timing.” Based on its role in supporting the late trading and market timing activities of its customers, the SEC found that Bear Stearns “willfully” violated section 17 (a) of the Securities Act of 1933 (see 15 USC § 77q [a]); sections 10 (b) and 15 (c) of the Securities Exchange Act of 1934 (see 15 USC §§ 78j [b]; 78o [c]); and SEC Rules 10b-5 and 22c-l (a) (see 17 CFR 240.10b-5, 270.22c-l [a]).

Meanwhile, during the pendency of the SEC matter, Bear Stearns was named as a defendant in a number of private class action lawsuits brought by various mutual funds based on similar late trading and market timing allegations. Following the SEC settlement and the establishment of the $250 million fund, Bear Stearns settled the private actions for $14 million. According to Bear Stearns, it incurred $40 million in defense costs attributable to defending both the SEC proceeding and the private litigation.

Bear Stearns then sought indemnification from its insurers— defendants Vigilant Insurance Company, its primary carrier, and six excess carriers (collectively, the Insurers). It requested indemnity for three claims: the $160 million SEC disgorgement payment (less a $10 million self-insured retention); $40 million in defense costs; and the $14 million private settlement. Bear Stearns did not seek coverage for the $90 million SEC penalty.

The primary professional liability policy, to which the excess policies follow form, provides that the Insurers are to “pay on behalf of [Bear Stearns] all Loss which [Bear Stearns] shall become legally obligated to pay as a result of any Claim ... for any Wrongful Act of [Bear Stearns].” “Loss” is defined as:

“(1) compensatory damages, multiplied damages, punitive damages where insurable by law, judgments, settlements, costs, charges and expenses or other sums [Bear Stearns] shall legally become obligated to pay as damages resulting from any Claim or Claim(s);
“(2) costs, charges and expenses or other damages incurred in connection with any investigation by any governmental body or self-regulatory organization (SRO), provided however, Loss shall not include:
“(i) fines or penalties imposed by law; or . . .
“(v) matters which are uninsurable under the law pursuant to which this policy shall be construed.”

The term “Wrongful Act” under the policy means “any actual or alleged act, error, omission, misstatement, misleading statement, neglect or breach of duty by [Bear Stearns].” A “Claim” includes both private civil actions as well as investigations and proceedings initiated by governmental bodies or SROs. The Insurers had no separate duty to defend; rather, defense costs expended by Bear Stearns could be recouped if they fell within the definition of Loss. Finally, although the policy contains an exclusion for “deliberate, dishonest, fraudulent or criminal” acts or omissions, it provides that Bear Stearns would remain “protected under the terms of this policy” unless and until a “judgment or other final adjudication” established that Bear Stearns committed such acts or omissions.

After the Insurers denied coverage for all three claims, plaintiffs J.E Morgan Securities Inc., J.E Morgan Clearing Corp. and The Bear Stearns Companies LLC (collectively, Bear Stearns) commenced this breach of contract and declaratory judgment action against the Insurers. Bear Stearns asserted that its claims all fell within the definition of Loss and alleged that a substantial portion of the SEC disgorgement payment ($140 million) represented illicit profits obtained by its hedge fund customers rather than gains enjoyed by Bear Stearns itself. The Insurers moved to dismiss the complaint pursuant to CPLR 3211 (a) (1) and (7) arguing, among other things, that Bear Stearns could not be indemnified for any portion of the SEC disgorgement payment as a matter of public policy.

Supreme Court denied the Insurers’ dismissal motions, holding that it was unable to conclude, on the basis of the SEC order alone, that the $160 million disgorgement payment was “specifically linked” to Bear Stearns’ improperly acquired funds, as opposed to profits that flowed to its customers (2010 NY Slip Op 33799[U], *10 [2010]). The Appellate Division reversed and dismissed the complaint in its entirety, holding that, as a matter of public policy, Bear Stearns could not seek recoupment of the $160 million disgorgement payment (91 AD3d 226 [1st Dept 2011]). We granted Bear Stearns leave to appeal (19 NY3d 806 [2012]).

Bear Stearns submits that the Appellate Division erred in concluding, as a matter of law, that it could not pursue coverage under its policies for any of the $160 million SEC disgorgement payment. It acknowledges that it is reasonable to preclude an insured from obtaining indemnity for the disgorgement of its own ill-gotten gains, but contends that it was not unjustly enriched by at least $140 million of the disgorgement payment because that portion was attributable to the profits of its customers. In response, the Insurers do not earnestly dispute that the claims fall within the policy’s definition of Loss. Rather, they posit that the Appellate Division correctly concluded, for public policy reasons, that Bear Stearns should not be entitled to seek indemnity for the $160 million disgorgement payment because Bear Stearns enabled its customers to make millions through its trading tactics. The Insurers also argue that there is a separately applicable public policy category that prohibits insurance coverage for intentionally-caused harm. Aside from these two public policy rationales, the Insurers also invoke two insurance policy exclusions, one applicable to all the Insurers and one limited to an excess carrier.

At the outset, the rules governing CPLR 3211 motions to dismiss are well established. In assessing the adequacy of a complaint under CPLR 3211 (a) (7), the court must give the pleading a liberal construction, accept the facts alleged in the complaint to be true and afford the plaintiff “the benefit of every possible favorable inference” (AG Capital Funding Partners, L.P. v State St. Bank & Trust Co., 5 NY3d 582, 591 [2005] [internal quotation marks and citations omitted]). Whether the plaintiff “can ultimately establish its allegations is not part of the calculus in determining a motion to dismiss” (EBC I, Inc. v Goldman, Sachs & Co., 5 NY3d 11, 19 [2005]). And to prevail on a motion to dismiss pursuant to CPLR 3211 (a) (1), the moving party (here, the Insurers) must establish that the documentary evidence “conclusively refutes” the plaintiffs allegations (AG Capital Funding, 5 NY3d at 591).

Analysis of the claims in this action begins with the basic principle that insurance contracts, like other agreements, will ordinarily be enforced as written (see White v Continental Cas. Co., 9 NY3d 264, 267 [2007]). Freedom of contract “is deeply rooted in public policy” (New England Mut. Life Ins. Co. v Caruso, 73 NY2d 74, 81 [1989]). As a result, parties to an insurance arrangement may generally “contract as they wish and the courts will enforce their agreements without passing on the substance of them” (id.; see also Slayko v Security Mut. Ins. Co., 98 NY2d 289, 295 [2002] [explaining that courts “are reluctant to inhibit freedom of contract by finding insurance policy clauses violative of public policy”]).

Our cases, however, have recognized two situations in which a countervailing public policy will override the freedom to contract, thereby precluding enforcement of an insurance agreement. First, an insurer may not indemnify an insured for a punitive damages award, and a policy provision purporting to provide such coverage is unenforceable (see Zurich Ins. Co. v Shearson Lehman Hutton, 84 NY2d 309, 316-317 [1994]). The rationale underlying this public policy exception emphasizes that allowing coverage “would defeat the purpose of punitive damages, which is to punish and to deter others from acting similarly” (Home Ins. Co. v American Home Prods. Corp., 75 NY2d 196, 200 [1990] [internal quotation marks omitted]). Second, as a matter of public policy, an insured may not seek coverage when it engages in conduct “with the intent to cause injury” (Town of Massena v Healthcare Underwriters Mut. Ins. Co., 98 NY2d 435, 445 [2002]; see also Austro v Niagara Mohawk Power Corp., 66 NY2d 674, 676 [1985] [“Indemnification agreements are unenforceable as violative of public policy only to the extent that they purport to indemnify a party for damages flowing from the intentional causation of injury”]).

Relying on the findings in the SEC order, the Insurers claim that the latter public policy exception for intentional injury precludes coverage of any of Bear Stearns’ claims. The Insurers note that the SEC order determined that Bear Stearns willfully violated numerous federal securities laws through its active facilitation of late trading and market timing activities on behalf of its hedge fund customers. But the public policy exception for intentionally harmful conduct is a narrow one, under which it must be established not only that the insured acted intentionally but, further, that it acted with the intent to harm or injure others (see Public Serv. Mut. Ins. Co. v Goldfarb, 53 NY2d 392, 399 [1981] [“Whether such coverage is permissible depends upon whether the insured, in committing his criminal act, intended to cause injury”]). On the limited record before us, we are unable to say, as a matter of law, that this public policy exception clearly bars Bear Stearns’ coverage claims. The SEC order, while undoubtedly finding Bear Stearns’ numerous securities laws violations to be willful, does not conclusively demonstrate that Bear Stearns also had the requisite intent to cause harm.

The Insurers also maintain—and the Appellate Division agreed—that, on a separate public policy ground, Bear Stearns is not entitled to recover any portion of the $160 million SEC disgorgement payment. Although we have not considered the issue, other courts have held that the risk of being ordered to return ill-gotten gains—disgorgement—is not insurable. Some courts reached this conclusion because, as a matter of contract interpretive principles, the return of improperly acquired funds does not constitute a “loss” or “damages” within the meaning of insurance policies (see e.g. Level 3 Communications, Inc. v Federal Ins. Co., 272 F3d 908, 910 [7th Cir 2001] [stating that “a ‘loss’ within the meaning of an insurance contract does not include the restoration of an ill-gotten gain”]; Vigilant Ins. Co. v Credit Suisse First Boston Corp., 10 AD3d 528, 528 [1st Dept 2004] [same]). Others have emphasized that public policy prohibits an insured from receiving indemnification for the disgorgement of its own illicit gains (see Bank of the W. v Superior Ct., 2 Cal 4th 1254, 1269, 833 P2d 545, 555 [1992] [“Otherwise, the wrongdoer would retain the proceeds of his illegal acts, merely shifting his loss to an insurer”]).

Bear Stearns does not disagree with these principles, but urges that they do not prohibit coverage here since the bulk of the disgorgement payment—approximately $140 million—represented the improper profits acquired by third-party hedge fund customers, not revenue that Bear Stearns itself pocketed. Put differently, Bear Stearns alleges that much of the payment, although labeled disgorgement by the SEC, did not actually represent the disgorgement of its own profits. It submits that the rule precluding coverage for disgorgement should apply only where the insured requests coverage for the disgorgement of its own illicit gains. On the record before us, we agree with Bear Stearns that the Insurers are not entitled to dismissal of its coverage claim premised on the SEC disgorgement payment.

In the context of these dismissal motions, we must assume Bear Stearns’ allegations to be true unless conclusively refuted by the relevant documentary evidence, in this case, the SEC order. Contrary to the Insurers’ position, the SEC order does not establish that the $160 million disgorgement payment was predicated on moneys that Bear Stearns itself improperly earned as a result of its securities violations. Rather, the SEC order recites that Bear Stearns’ misconduct enabled its “customers to generate hundreds of millions of dollars in profits.” Hence, at this CPLR 3211 stage, the documentary evidence does not decisively repudiate Bear Stearns’ allegation that the SEC disgorgement payment amount was calculated in large measure on the profits of others.

Moreover, the cases upon which the Insurers rely are distinguishable (see e.g. Millennium Partners, L.P. v Select Ins. Co., 68 AD3d 420 [1st Dept 2009], appeal dismissed 14 NY3d 856 [2010]; Credit Suisse, 10 AD3d at 528). In each, the insured was barred from obtaining coverage for SEC-ordered disgorgement because the SEC’s findings “conclusively link[ed]” the disgorgement payment to improperly acquired funds in the hands of the insured (Millennium Partners, 68 AD3d at 420 [internal quotation marks omitted]; see also Credit Suisse, 10 AD3d at 529). In other words, they directly implicated the policy rationale for precluding indemnity for disgorgement—to prevent the unjust enrichment of the insured by allowing it to, in effect, retain the ill-gotten gains by transferring the loss to its carrier. In this case, in contrast, Bear Stearns alleges that it is not pursuing recoupment for the turnover of its own improperly acquired profits and, therefore, it would not be unjustly enriched by securing indemnity. The Insurers have not identified a single precedent, from New York or otherwise, in which coverage was prohibited where, as Bear Stearns claims, the disgorgement payment was (at least in large part) linked to gains that went to others. Consequently, at this early juncture, we conclude that the Insurers are not entitled to dismissal of Bear Stearns’ insurance claims related to the SEC disgorgement payment.

Finally, the Insurers rely on two policy exclusions to bar coverage. One exclusion, applicable to all the Insurers, disclaims coverage for claims “arising out of [Bear Stearns] gaining in fact any personal profit or advantage to which [Bear Stearns] was not legally entitled, including but not limited to any actual or alleged commingling of funds or accounts.” Because Bear Stearns alleges, and the SEC order does not conclusively refute, that its misconduct profited others, not itself, this exclusion does not defeat coverage under CPLR 3211. The other exclusion, which relates solely to one excess carrier (Lloyd’s), negates coverage for any claim arising from a wrongful act committed before March 21, 2000 (the effective date of the Lloyd’s policy) if any officer of Bear Stearns, by that date, “knew or could have reasonably foreseen” that such wrongful act could lead to a claim. But as Supreme Court below noted, “numerous disputed factual assertions remain concerning Bear Stearns’ knowledge of the relevant facts prior to March 21, 2000, and whether a person in Bear Stearns’ position could have reasonably foreseen that those facts might be the basis of a claim under the Policies” (2010 NY Slip Op 33799[U], *12).

In sum, although we certainly do not condone the late trading and market timing activities described in the SEC order, the Insurers have not met their heavy burden of establishing, as a matter of law on their CPLR 3211 dismissal motions, that Bear Stearns is barred from pursuing insurance coverage under its policies.

Accordingly, the order of the Appellate Division should be reversed, with costs, and defendants’ motions to dismiss the complaint denied.

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

Order reversed, with costs, and defendants’ motions to dismiss the complaint denied.

      . Late trading is the practice of placing orders to buy, redeem or exchange mutual fund shares after the 4:00 p.m. close of trading, but receiving the price based on the net asset value set at the close of trading. The practice allows traders to obtain improper profits by using information obtained after the close of trading. Market timing involves the frequent buying and selling of shares of the same mutual fund or the buying or selling of mutual fund shares to exploit inefficiencies in mutual fund pricing. Although market timing is not per se improper, it can be deceptive if it induces a mutual fund to accept trades it otherwise would not accept under its own market timing policies.

      . Defendants in SEC enforcement proceedings commonly consent to sanctions without admitting or denying guilt (see 6 Hazen, Treatise on the Law of Securities Regulation § 16.2 [1] [B] at 171 [6th ed 2009]).

      . The excess carriers are The Travelers Indemnity Company, Federal Insurance Company, National Union Fire Insurance Company of Pittsburgh, Pa., Liberty Mutual Insurance Company, Certain Underwriters at Lloyd’s, London, and American Alternative Insurance Corporation.

      . In 2008, Bear Stearns merged with JE Morgan. After the merger, Bear Stearns & Co., Inc. became J.E Morgan Securities Inc. and Bear Stearns Securities Corp. was renamed J.E Morgan Clearing Corp.

      . The Appellate Division did not separately address Bear Stearns’ claims for $40 million in defense costs or the $14 million it paid to settle the private class actions.

      . Notably, the Insurers did not predicate their dismissal motions on the exclusion in the insurance policy for “deliberate, dishonest, fraudulent or criminal” acts or omissions. The parties apparently dispute whether Bear Stearns’ conduct fell within the meaning of this language and, if so, whether the SEC order is a “judgment or other final adjudication”—a prerequisite for the application of the exclusion. We have no occasion to address these questions on this appeal.

      . There is authority for the SEC’s ability to hold one party liable in disgorgement for the improper profits of another (see Securities & Exch. Commn. v First Jersey Sec., Inc., 101 F3d 1450, 1475 [2d Cir 1996], cert denied 522 US 812 [1997]).


source: Caselaw Access Project

author:
Rivera, J.
      Smith, J. (dissenting).

license: Public Domain

text:
    [993 NE2d 1241, 971 NYS2d 221]
    The People of the State of New York, Appellant, v George Oliveras, Respondent.
    Argued April 25, 2013;
    decided June 6, 2013

      POINTS OF COUNSEL

      Robert T. Johnson, District Attorney, Bronx (Mary Jo L. Blanchard and Joseph N. Ferdenzi of counsel), for appellant.
    The Appellate Division erred, as a matter of law, when it found trial counsel ineffective for presenting a defense based on lay witness testimony rather than obtaining psychiatric records and presenting an expert witness where counsel explained that his actions were dictated by his client and part of a strategy to avoid a damaging battle of the experts. (Strickland v Washington, 466 US 668; Tippins v Walker, 77 F3d 682; United States v Ortiz Oliveras, 717 F2d 1; People v Benevento, 91 NY2d 708; People v Baldi, 54 NY2d 137; People v Borrell, 12 NY3d 365; People v Rivera, 71 NY2d 705; People v Bell, 48 NY2d 933; People v Zaborski, 59 NY2d 863; People v Evans, 16 NY3d 571.)

      Office of the Appellate Defender, New York City (Richard M. Greenberg and Risa Gerson of counsel), for respondent.
    Trial counsel was ineffective for failing to do what he said he would do: obtain defendant’s psychiatric and Social Security records to support the defense that the statement made by defendant after hours of interrogation was not voluntary nor reliable because defendant’s history of mental illness and intellectual deficits rendered him vulnerable to police coercion. (People v Pulecio, 237 AD2d 633; Wainwright v Sykes, 433 US 72; Jones v Barnes, 463 US 745; Strickland v Washington, 466 US 668; People v Porter, 9 NY3d 966; People v McRay, 51 NY2d 594; Singletary v Fischer, 365 F Supp 2d 328; People v Bedessie, 19 NY3d 147; People v Ciaccio, 47 NY2d 431; People v Gruden, 42 NY2d 214.)

      Milbank, Tweed, Hadley & McCloy LLP, New York City (Dorothy Heyl of counsel), for The Innocence Network, amicus curiae.
    Given the power of confession evidence, defense attorneys must provide jurors with an explanation of why their client falsely confessed; in the absence of a recorded interrogation, the best and often only explanation is defendant’s intellectual disability. (McMann v Richardson, 397 US 759; People v Benevento, 91 NY2d 708; Strickland v Washington, 466 US 668; Adams v United States ex rel. McCann, 317 US 269; Powell v Alabama, 287 US 45; People v Claudio, 83 NY2d 76; People v Hobot, 84 NY2d 1021; People v Flores, 84 NY2d 184; People v Rivera, 71 NY2d 705; Williams v Taylor, 529 US 362.)
   OPINION OF THE COURT

Rivera, J.

The People appeal an order of the Appellate Division granting defendant George Oliveras’ motion to vacate his conviction, and remanding for a new trial on the ground that defendant was deprived adequate assistance of counsel (90 AD3d 563 [1st Dept 2011]). We affirm and reject the People’s argument that defendant received adequate assistance where trial counsel failed to conduct an appropriate investigation of records critical to the defense.

I. Facts and Procedural History

A. Defendant’s Interrogation and Inculpatory Statements

New York City Police Department detectives suspected defendant of the November 24, 1999 shooting and murder of Marvin Thompson. Upon defendant’s voluntary appearance at the police station two days after the shooting, detectives immediately arrested and placed defendant in a windowless interrogation room. Prior to the interrogation, defendant’s mother, who had gone to the station with him, informed the detectives that defendant had been hospitalized for mental illness as a child.

Detectives proceeded to interrogate defendant over the next 6V2 hours. During the course of the interrogation, defendant made three statements. His first statement, made within the first 30 minutes of the interrogation, asserted his innocence and that he was at his girlfriend’s home when the shooting occurred. The officers then left defendant alone for several hours. When they returned to resume their questioning, defendant appeared tired and upset and explained to the detectives he felt overwhelmed. At 12:50 a.m. the detectives recorded defendant’s second statement, that he had killed the victim because he had reached into his coat pocket as if to pull out a gun to shoot defendant. At approximately 2:00 a.m., defendant made a third statement repeating he had shot the victim when he saw him reach in his pocket for what he thought was a gun. He made this statement in the presence of an Assistant District Attorney who had joined the interrogation and asked defendant questions about the shooting, including if the gun he used was an automatic or a revolver, to which defendant replied “I think revolver. I’m not sure.”

B. Trial Counsel’s Pretrial Motions

In early 2000, trial counsel moved for a psychiatric examination pursuant to CPL article 730. Two reports from psychiatric experts concluded defendant was fit to stand trial, but also noted he has a learning disability and certain mental health issues. Specifically, both psychiatric experts separately noted that defendant demonstrated a mild impairment of concentration and memory and was previously evaluated for auditory hallucinations. They both noted that defendant’s intelligence was in the low average range. Supreme Court eventually found defendant fit to stand trial.

At the psychological evaluation hearing, trial counsel also announced his intention to present his client’s psychiatric records to an expert in order to challenge the voluntariness of the admissions. The court issued judicial subpoenas for those records.

Months later, by early 2001, trial counsel had neither sought to execute the subpoenas nor otherwise reviewed these or other documents related to defendant’s mental illness or condition. Nevertheless, without supporting witnesses and relying solely on the existing CPL article 730 report, trial counsel moved to suppress the incriminating statements based on involuntariness. Supreme Court denied the motion, concluding that the CPL article 730 report did not support the defense claim that defendant was unable to knowingly and voluntarily waive his Miranda rights due to mental illness. The court specifically noted the failure to produce defendant’s psychiatric records.

After another nine months, trial counsel belatedly moved under CPL 250.10 for permission to serve and file late notice of intent to proffer psychiatric evidence. In response, the People objected and requested by motion in limine a ruling precluding trial counsel from raising any psychiatric or psychological issues during the trial. Supreme Court denied defendant’s motion, predicating its denial on trial counsel’s failure to proffer a reasonable explanation for the notification delay, and the failure to produce the aforementioned records in support of the motion. The court observed that the medical records “were never delivered to the Police Department” and were never seen by trial counsel. The court then observed that “we don’t know what the abnormality is and we don’t have any records and we don’t have any consultation report to go on.” The court ultimately found that trial counsel was “just fishing” for any useful information. Supreme Court granted the People’s motion, holding that CPL 250.10 notice “is required in all sorts of different situations, including situations where . . . the defense might wish to call a lay person to testify about psychiatric difficulties.” In response to trial counsel’s assertions at the hearing that he intended to present defendant’s mental health history through testimony of defendant’s mother but “not in an expert format,” the court ruled that defendant’s mother could give “non-expert” testimony, if relevant to the issue in the case, provided that she did not allude “to psychiatric records or the contents thereof,” or otherwise give “the patina of psychological expertise” to her testimony.

C. Trial and Sentence

At the trial, the People’s case consisted of testimony from a witness who saw the shooter running from the scene and who called 911 to report the incident; testimony from the detective who collected bullet casings from the crime scene; testimony from a medical examiner who reviewed the autopsy records describing the victim’s wounds; testimony of the police officer who arrested, interrogated, and obtained defendant’s inculpatory statements; and the submission into evidence of the defendant’s statements. However, other than defendant’s statements to the police, no other evidence directly connected defendant with the murder. The 911 caller’s description of the perpetrator did not match defendant’s ethnicity or attire, and the ballistic evidence recovered from the scene of the crime did not link defendant to the homicide.

Trial counsel called one witness, defendant’s mother, who testified that her son attended special education classes as a child, was committed to the Bronx Children’s Psychiatric Center as a teen, and receives Social Security disability benefits as an adult. However, the court’s limiting instruction precluded trial counsel from asking the mother about defendant’s psychiatric history, mental issues, and the basis for his receipt of government benefits.

After several requests to review the evidence and for a clarification on Miranda, the jury found defendant guilty of murder in the second degree. The court sentenced him to 25 years to life.

D. Defendant’s Motion to Vacate the Conviction

Defendant obtained new counsel who moved to vacate the conviction pursuant to CPL 440.10, arguing that defendant’s trial counsel was ineffective based on several enumerated failures and errors. The motion raised trial counsel’s failure to provide timely notice pursuant to CPL 250.10, to present evidence of defendant’s psychiatric history, to obtain defendant’s psychiatric records, to consult an expert to explain the relationship between defendant’s psychiatric history and the voluntariness and reliability of his statements, and trial counsel’s ignorance of the law regarding the CPL 250.10 notice.

At the hearing, trial counsel testified about his representation of defendant, and explained his decision to not obtain defendant’s records. He stated that while he initially intended to obtain defendant’s psychiatric records to show that defendant’s inculpatory statements were involuntary, he did not pursue this approach because of defendant’s objections. He testified that defendant said he was innocent, and “shut [him] down” from pursuing a psychiatric defense. According to trial counsel, defendant “did not want to be portrayed as someone suffering from a psychiatric mental illness.” He said he believed that defendant did not want to “end up in a mental institution.” He further stated that it was his understanding that defendant “didn’t want psychiatric mumbo jumbo, whatever you want to call it, because he felt it would paint him in a bad way.”

Trial counsel explained that he then decided to present defendant’s mental capacity without the records and as a result decided to forgo obtaining them. Trial counsel claimed that he “stood to gain nothing by getting those records . . . unless [he] was headed towards [putting on] a psychiatric defense.” Counsel further claimed: “And my feeling is and has been, and I’ve done it in many cases, is that you’re better off. . . without having so many experts on the witness stand and getting bogged up in that, and just giving the jury a good gut feeling.” Thus, trial counsel sought to secure his client’s acquittal by demonstrating to the jury that his client was “not playing with a full deck” and arguing on summation that the police took advantage of him.

Trial counsel said he intended to convince the jury that defendant’s will was overborne by the police due to his mental history and the affects of the interrogation. According to trial counsel, he wanted to “build” this idea “in the minds of the jury” by demonstrating that defendant “had no work history,” “was on SSI,” “had a grade school education at the most,” “was in special ed,” “had some hospitalizations,” and was someone “whose mind could be played with.” Trial counsel sought to have this history introduced by defendant’s mother, who would discuss her son’s educational, institutional, and occupational history.

At the hearing, trial counsel admitted that he developed this defense approach without the full benefit of defendant’s psychiatric and government records. He stated that he never saw defendant’s psychiatric records or Social Security Administration records, and that he did not know the diagnosis contained in those records. Trial counsel also admitted that he did not get the records because he believed that he would have to turn them over to the People, even if he never introduced them at trial or presented a formal psychiatric defense.

“And you know, yes, the strategy was born in the blind without those [records], but I felt that number one, if I have the records, I got to turn them over. Number two, I don’t gain anything by having those records. The fact that he was—his history is what it was should have been good enough.”

In an attempt to explain his late filed CPL 250.10 motion, trial counsel stated that he initially declined to file a CPL 250.10 application because he believed at the time that no such application was required where an attorney seeks to present psychiatric evidence through a layperson. Concerned that he might have made an error, he decided to submit a late motion.

Supreme Court denied the motion to vacate, holding that trial counsel pursued a legitimate trial strategy, despite the seemingly insurmountable obstacles posed by defendant.

E. Appellate Division Decision

On appeal, the Appellate Division reversed the denial of the motion to vacate and remanded the matter for a new trial. The majority held that trial counsel’s failure to obtain and review the psychiatric records deprived defendant of meaningful representation under federal and state law. As relevant here, the majority determined that trial counsel misapprehended the law pertaining to criminal discovery, and further held that his failure to review the relevant records could not be deemed a reasonable trial strategy. The dissent argued that trial counsel’s conduct was not so egregious and prejudicial as to deprive defendant of the right to a fair trial because trial counsel’s decision not to obtain the psychiatric records was a reasonable and legitimate trial strategy. The People appeal to this Court by permission of a dissenting Justice of the Appellate Division.

II. Analysis

The right to effective assistance of counsel in a criminal matter is guaranteed by the Federal and State Constitutions (see US Const 6th Amend; NY Const, art I, § 6). In determining whether a defendant has been deprived of effective assistance, a court must examine whether “the evidence, the law, and the circumstances of a particular case, viewed in totality and as of the time of the representation, reveal that the attorney provided meaningful representation” (People v Baldi, 54 NY2d 137, 147 [1981]).

Essential to any representation, and to the attorney’s consideration of the best course of action on behalf of the client, is the attorney’s investigation of the law, the facts, and the issues that are relevant to the case (see Strickland v Washington, 466 US 668, 690-691 [1984]). An attorney’s strategy is shaped in significant part by the results of the investigation stage of the representation. Thus, “[a] defendant’s right to representation does entitle him to have counsel conduct appropriate investigations, both factual and legal, to determine if matters of defense can be developed, and to allow himself time for reflection and preparation for trial” (People v Bennett, 29 NY2d 462, 466 [1972] [internal quotation marks omitted]; see also People v Droz, 39 NY2d 457, 462 [1976] [“it is elementary that the right to effective representation includes the right to assistance by an attorney who has taken the time to review and prepare both the law and the facts relevant to the defense”]).

The People argue that trial counsel made a reasonable choice not to use defendant’s psychiatric records even though trial counsel had elected to portray defendant as a person with mental problems that made him vulnerable to police interrogation tactics. The People further assert that trial counsel strategically chose not to obtain the documents in order to prevent the People from obtaining certain information concerning defendant’s purportedly violent tendencies. More specifically, the People claim that trial counsel’s approach to the case was based on his assessment of the options available to him after defendant had precluded him from presenting a psychiatric defense. Under these circumstances, the People argue, trial counsel made a proper choice to introduce critical aspects of defendant’s mental state through the mother rather than the records.

The record reveals that trial counsel sought to build a defense based on defendant’s mental weakness undermining the voluntariness of his admissions of guilt. Despite the focus on defendant’s mental abilities, trial counsel chose to forgo any investigation of the critical documents concerning defendant’s mental condition, and instead, sought to present this defense through the testimony of defendant’s mother, an obviously biased witness. Regardless of whether the decision to present defendant’s condition through his mother’s testimony was a valid strategy, it was, as trial counsel admitted at the post-conviction hearing, a “strategy” “born in the blind”—one he admittedly pursued without benefit of the contents of defendant’s records.

This is not simply a case of a failed trial strategy (see Baldi, 54 NY2d at 146 [“trial tactics which terminate unsuccessfully do not automatically indicate ineffectiveness”]). Rather, this is a case of a lawyer’s failure to pursue the minimal investigation required under the circumstances. Given that the People’s case rested almost entirely on defendant’s inculpatory statements, trial counsel’s ability to undermine the voluntariness of those statements was crucial. The strategy to present defendant’s mental capacity and susceptibility to police interrogation could only be fully developed after counsel’s investigation of the facts and law, which required review of records that would reveal and explain defendant’s mental illness history, and defendant’s diagnosis supporting his receipt of federal Supplemental Security Income benefits.

The People’s argument that the contested records would not have helped the defense, regardless of trial counsel’s choices, misconstrues the central issue in this case. The issue is not whether trial counsel’s choice to have certain documents excluded from the record constitutes a legitimate trial strategy, but whether the failure to secure and review crucial documents, that would have undeniably provided valuable information to assist counsel in developing a strategy during the pretrial investigation phase of a criminal case, constitutes meaningful representation as a matter of law. The utter failure to obtain these documents constituted denial of effective assistance.

Trial counsel did not fully investigate the case and did not collect the type of information that a lawyer would need in order to determine the best course of action for his or her client. It simply cannot be said that a total failure to investigate the facts of a case, or review pertinent records, constitutes a trial strategy resulting in meaningful representation. There is simply no legitimate explanation for this purported strategy (see generally People v Benevento, 91 NY2d 708, 712 [1998]; see also People v Caban, 5 NY3d 143, 152 [2005]; People v Rivera, 71 NY2d 705, 709 [1988]). At a bare minimum, trial counsel should have obtained and reviewed the relevant records, and, after considering the pertinent information contained in the records, considered the contents of those records and pursued a strategy informed by both the available evidence and defendant’s concerns. This failure seriously compromised defendant’s right to a fair trial (see generally People v Hobot, 84 NY2d 1021, 1022 [1995]). Based on the foregoing, the order of the Appellate Division should be affirmed.

Smith, J. (dissenting).

I agree with the majority that counsel’s performance was deficient, in that he should have subpoenaed defendant’s psychiatric records, and examined them, before trial. As it turns out, however, if the records had been available they would have been worse than useless to defendant—they would have hurt his case. Since a claim of ineffective assistance requires not only a showing of deficient performance, but also a showing that counsel’s errors prejudiced defendant’s right to a fair trial (People v Stultz, 2 NY3d 277, 283-284 [2004]; People v Benevento, 91 NY2d 708, 713-714 [1998]), I conclude that ineffectiveness has not been established.

As the majority opinion explains, the case against defendant rested heavily on his confession, and the essence of his defense at trial was that the confession was false. This was not a hopeless defense. The confession was short on detail and some of the details, as the majority opinion points out, were incorrect (see majority op at 342 n 3). Defense counsel sought to bolster his attack on the confession by showing that defendant was a mentally limited and disturbed man, vulnerable to manipulation by the police who interrogated him. To this end, counsel elicited the following testimony from defendant’s mother:

“Q And was he in any particular educational program during his schooling?
“A Yes.
“Q What was that?
“A Special Education. . . .
“Q How far did he get in school?
“A Eight.
“Q And where did he go or what did he do after eighth grade?
“A After eighth grade he was in a hospital for five months.
“Q And do you know the name of the hospital?
“A The Bronx Children’s Psychiatric Center.
“Q And between the time that he got out of that particular hospital until the time of his arrest, did George have a work history?
“A No.
“Q How did he support himself?
“A SSI.
“Q Is that Social Security Disability?
“A Yes.”

The gist of defendant’s argument here is that, because of his counsel’s failings, he did not have more and better evidence than this—specifically, he did not have the records of his psychiatric history. In theory those records could have shown, or provided an expert with a basis for opining, that he was, for example, submissive to authority, or easily misled and confused, or perhaps even that he had a history of admitting to things he did not do. Counsel certainly should have subpoenaed the records, looked for such evidence and preserved his right to offer it at trial, and I offer no excuse for his failure to do so.

But the records of defendant’s stay when he was 15 years old at the Bronx Children’s Psychiatric Center, which were finally obtained by successor counsel and presented on a motion pursuant to CPL article 440 to vacate the judgment of conviction, do not say what defense counsel would have wanted them to say. They do show that he had learning difficulties (as the jury, knowing that he had been in special education and that his schooling ended in eighth grade, presumably inferred) and that his IQ was low. An expert retained by defendant for his posttrial motion prepared a report dwelling on these facts, and others that the expert thought might predispose defendant to making a false confession.

The records also contained, however, facts that the defense expert understandably did not dwell on. They showed that defendant’s psychiatric problems included violent—indeed, homicidal—impulses and fantasies. A doctor who interviewed him found a “strong streak of paranoia,” and added:

“He feels that people were against him at school and didn’t treat him with the respect that he deserved and therefore he had to carry a gun and act very tough in order to demand respect. He says that he wouldn’t hesitate to beat people up in order to get the respect he deserves.”

Later in the same examination, the doctor noted: “What he would like to do in the future is to join the army and travel around the world and kill people. He says that would be quite enjoyable and exciting.” Eight days later, the doctor assessed the adolescent defendant by saying: “George’s weak superego certainly will allow him to kill somebody with no remorse if he felt appropriately aggrieved.”

It hardly seems necessary to argue that these psychiatric records would not have improved defendant’s chances of acquittal. Indeed, his counsel, though perhaps more through luck than skill, achieved what seems the best of all possible worlds from his point of view: the jury knew that defendant had psychiatric problems requiring hospitalization, but never found out what those problems were. As it happens, the jury convicted defendant anyway, but it is hard to imagine a trial that gave him a better chance of acquittal.

In arguing that he was indeed prejudiced by his counsel’s failure to obtain and offer psychiatric evidence, defendant suggests that he would have been allowed to offer at trial the favorable parts of the records, and exclude all reference to the unfavorable parts. I think that highly unlikely; such a trial would not have been the fair one to which defendant was entitled, but one decidedly unfair to the People. I do not recommend to the counsel who represents defendant on his retrial the strategy of relying on part of the psychiatric records, in the hope that the jury will never find out about the rest. To pursue that strategy would be to invite an ineffective assistance claim much better, in my judgment, than the one the Court upholds today.

Chief Judge Lippmajnt and Judges Graffeo, Read and Pigott concur with Judge Rivera; Judge Smith dissents in an opinion; Judge Abdus-Saiaam taking no part.

Order affirmed.

      . A police officer read defendant his Miranda rights and recorded defendant’s waiver of those rights prior to the first interview (Miranda v Arizona, 384 US 436 [1966]).

      . The Assistant District Attorney re-Mirandized defendant on the record before asking him any questions.

      . The two inculpatory statements were inconsistent and contradicted the evidence which established that the victim was not wearing a coat and the gun used in the shooting was not a revolver.

      . The court also instructed the jury during the charge that “there [was] no evidence concerning any psychological or psychiatric issues.”

      . Based on its ruling on the motion to vacate, the Appellate Division dismissed, as academic, defendant’s appeal from the judgment of conviction and sentence.

      . The American Bar Association has set forth standards articulating this duty to investigate:
      “Defense counsel should conduct a prompt investigation of the circumstances of the case and explore all avenues leading to facts relevant to the merits of the case and the penalty in the event of conviction. The investigation should include efforts to secure information in the possession of the prosecution and law enforcement authorities. The duty to investigate exists regardless of the accused’s admissions or statements to defense counsel of facts constituting guilt or the accused’s stated desire to plead guilty” (American Bar Association, ABA Standards for Criminal Justice, Prosecution Function and Defense Function, standard 4-4.1 at 181 [3d ed 1993], available at http://www.americanbar.org/ content/dam/aba/publications/criminal _justice_standards/ prosecution_defense_function.authcheckdam.pdf [accessed May 21, 2013]).