author: Ciparick, J.

text:
    [908 NE2d 898, 880 NYS2d 908]
    The People of the State of New York, Appellant, v Paul Boyd, Respondent.
    Argued March 26, 2009;
    decided May 7, 2009

      POINTS OF COUNSEL

      Robert M. Morgenthau, District Attorney, New York City (David M. Cohn and Mark Dwyer of counsel), for appellant.
    The Appellate Division erred by vacating defendant’s guilty plea. (People v Louree, 8 NY3d 541; People v Cona, 49 NY2d 26; People v Catu, 4 NY3d 242; People v Lopez, 71 NY2d 662; People v Johnson, 82 NY2d 683; People v Warren, 47 NY2d 740; People v Van Deusen, 7 NY3d 744; People v Laws, 86 NY2d 769; People v Lawrence, 85 NY2d 1002; People v Autry, 75 NY2d 836.)

      Dominic J. Sichenzia, Carle Place, for respondent.
    The Appellate Division’s well-reasoned decision correctly determined that respondent’s due process rights had been violated, that the violation was clear from the face of the record and was properly raised on direct appeal, and that vacatur is the proper remedy. (People v Lopez, 71 NY2d 662; People v Louree, 8 NY3d 541; People v Catu, 4 NY3d 242; People v Ford, 86 NY2d 397; Walker v Perlman, 556 F Supp 2d 259; People v Sparber, 10 NY3d 457; North Carolina v Alford, 400 US 25; Boykin v Alabama, 395 US 238; Caputo v Henderson, 541 F2d 979; People v Van Deusen, 7 NY3d 744.)
   OPINION OF THE COURT

Ciparick, J.

On August 20, 2004, defendant pleaded guilty to two counts of robbery in the first degree (Penal Law § 160.15) in full satisfaction of two separate indictments alleging that he participated in four separate gunpoint robberies of Cosi restaurants in Manhattan. In exchange, defendant would receive concurrent determinate sentences of 12 years on each count. After defendant’s plea allocution, the People brought to Supreme Court’s attention the fact that the postrelease supervision (PRS) component of defendant’s sentences had not been mentioned, and the court replied, “I don’t, because it’s mandatory.” The judge then asked defendant “Do you understand that there is a post-release supervision that’s mandatory?” Defendant responded that he did. On September 21, 2004, when defendant appeared for sentencing, Supreme Court failed to pronounce his PRS terms in accordance with Criminal Procedure Law §§ 380.20 and 380.40.

On defendant’s appeal, the Appellate Division, with one Justice dissenting, reversed, vacated defendant’s plea and sentences and reinstated both indictments (51 AD3d 325 [2008]). The majority concluded that defendant was deprived of a complete understanding of the implications of entering a guilty plea because neither Supreme Court nor the People properly advised him of the PRS components of his sentences. Specifically, the majority determined that defendant could not knowingly, voluntarily and intelligently decide to accept the plea without knowing the duration of the PRS. Applying our recent precedents in People v Catu (4 NY3d 242 [2005]), People v Van Deusen (7 NY3d 744 [2006]), People v Louree (8 NY3d 541 [2007]) and People v Hill (9 NY3d 189 [2007]) the Appellate Division held that the appropriate remedy was vacatur of the plea. The dissent asserted that defendant’s claim was not preserved for appellate review and declined to review it in the interest of justice. A Justice of the Appellate Division granted leave and we now modify.

In Catu we stated:

“Because a defendant pleading guilty to a determinate sentence must be aware of the postrelease supervision component of that sentence in order to knowingly, voluntarily and intelligently choose among alternative courses of action, the failure of a court to advise of postrelease supervision requires reversal of the conviction” (4 NY3d at 245).

Further, we determined in People v Louree that a defendant need not preserve the objection:

“[W]here a trial judge does not fulfill the obligation to advise a defendant of postrelease supervision during the plea allocution, the defendant may challenge the plea as not knowing, voluntary and intelligent on direct appeal, notwithstanding the absence of a postallocution motion” (8 NY3d at 545-546).

Here, although Supreme Court mentioned that the sentence would include PRS at the time of the plea, the court failed to advise defendant of the specific term of PRS—a deficiency that is apparent from the record of the plea proceeding. Contrary to a dissenting colleague’s view that the comments made by the trial judge were sufficient to enable defendant to move to withdraw his plea (see Smith, J., dissenting at 396), we find a postallocution motion was not required to challenge the sufficiency of the plea. This does not complete the analysis of defendant’s claim, however.

In People v Sparber (10 NY3d 457 [2008]), we addressed the proper remedy where the sentencing court failed to pronounce the PRS component of the sentence. We noted that “the relief that defendants requested]—expungement of their PRS terms—would permit them to serve a sentence not in compliance with the statute” (id. at 471). We concluded that such a remedy was unavailable, stating: “[t]he sole remedy for a procedural error such as this is to vacate the sentence and remit for a resentencing hearing so that the trial judge can make the required pronouncement” (id. at 471). Thus, a criminal defendant has a right to hear directly from the court its pronouncement as to what the entire sentence encompasses. In Matter of Garner v New York State Dept. of Correctional Servs. (10 NY3d 358 [2008]), we reaffirmed that “the combined command of CPL 380.20 and 380.40 is that the sentencing judge—and only the sentencing judge—is authorized to pronounce the PRS component of a defendant’s sentence” (id. at 362).

In response to our decisions in Sparber and Garner, the Legislature created a statutory exception to the mandatory imposition of PRS, which was directly aimed at saving guilty pleas. On June 30, 2008, after the Appellate Division’s ruling in this case, Penal Law § 70.85 became effective; it states that

“[t]his section shall apply only to cases in which a determinate sentence was imposed between September first, nineteen hundred ninety-eight, and the effective date of this section, and was required by law to include a term of post-release supervision, but the court did not explicitly state such a term when pronouncing sentence. When such a case is again before the court pursuant to section six hundred one-d of the correction law or otherwise, for consideration of whether to resentence, the court may, notwithstanding any other provision of law but only on consent of the district attorney, re-impose the originally imposed determinate sentence of imprisonment without any term of post-release supervision, which then shall be deemed a lawful sentence.”

Indeed, the Governor’s Approval Memorandum acknowledges that the new statute would “avoid the need for pleas to be vacated when the District Attorney consents to re-sentencing without a term of PRS” (Governor’s Approval Mem, Bill Jacket, L 2008, ch 141, at 13-14, reprinted in 2008 McKinney’s Session Laws of NY, at 1653).

The People urge that even if Catu and its progeny require vacatur of defendant’s plea and sentence, the Legislature has created an alternative remedy authorizing Supreme Court to resentence defendant to his original 12-year determinate sentence without PRS and that Penal Law § 70.85 should be applied here. This corrective action should not be entertained at this time because the constitutionality of this new provision and its applicability to this case have not been sufficiently developed for our review. Although a dissenting colleague believes that Penal Law § 70.85 is unconstitutional as applied to this case (see Pigott, J., dissenting at 398), we recognize that the issue of whether the deficiency in the plea allocution can be rectified by granting defendant specific performance of the plea agreement—a determinate sentence without imposing a term of PRS—should be determined by Supreme Court in the first instance. We therefore remit this case to Supreme Court to give the People the opportunity to litigate their argument regarding the applicability of Penal Law § 70.85 and for defendant to assert any constitutional challenges to the operation of the statute.

Accordingly, the order of the Appellate Division should be modified by remitting to Supreme Court for further proceedings in accordance with this opinion and, as so modified, affirmed.

Smith, J. (dissenting). The majority holds (1) that defendant’s plea was bad under People v Catu (4 NY3d 242 [2005]) because, at the time of the plea, defendant was informed only of the fact, not the duration, of the period of postrelease supervision included in his sentence and (2) that this error can be the basis for an appeal even though defendant did not move to withdraw his plea at Supreme Court. I have no quarrel with the first part of the majority’s holding, but I dissent from the second. (I agree with the majority that, if there is a reviewable error here, remittal for further proceedings is warranted.)

The general rule is that an error may not be raised on appeal unless defendant objected at the time the error was committed. Obviously, this rule in its pure form cannot apply to guilty pleas; a contemporaneous objection to one’s own guilty plea is a contradiction in terms. We held, however, in People v Lopez (71 NY2d 662, 665 [1988]), that a preservation requirement does apply to most guilty pleas: “in order to preserve a challenge to the factual sufficiency of a plea allocution there must have been a motion to withdraw the plea ... or a motion to vacate the judgment of conviction.” We later made clear that the Lopez requirement applies to plea allocutions generally, even where the problem is not one of “factual sufficiency” (People v Clarke, 93 NY2d 904 [1999]). Under Lopez, preservation can be dispensed with only in “that rare case . . . where the defendant’s recitation of the facts underlying the crime pleaded to clearly casts significant doubt upon the defendant’s guilt or otherwise calls into question the voluntariness of the plea” (71 NY2d at 666).

In People v Louree (8 NY3d 541 [2007]), we held the Lopez preservation requirement inapplicable to a plea that was deficient under Catu. The Louree holding was thought to be justified by practical necessity, as the Louree majority explained:

“We . . . conclude that where a trial judge does not fulfill the obligation to advise a defendant of post-release supervision during the plea allocution, the defendant may challenge the plea as not knowing, voluntary and intelligent on direct appeal, notwithstanding the absence of a postallocution motion. In so deciding, we cannot shut our eyes to the actual or practical unavailability of ... a motion to withdraw the plea ... If the trial judge does not mention postrelease supervision at the allocution, as happened here, a defendant can hardly be expected to move to withdraw his plea on a ground of which he has no knowledge.” (8 NY3d at 545-546.)

As Justice McGuire pointed out in his dissent in the Appellate Division, the reasoning of Louree does not apply to this case, because the trial judge here did mention postrelease supervision at the allocution. I grant that the information the judge gave— which did not include the number of years of postrelease supervision—was insufficient under Catu to make the plea knowing, voluntary and intelligent. But it was enough to enable defendant to make a motion to withdraw his plea. He knew that he would be subject to postrelease supervision, and he knew that the court had not told him the length of it. He could have moved to withdraw his plea on that ground at any time before he was sentenced, and his failure to do so should bar him from raising the Catu issue on appeal.

Pigott, J. (dissenting). I respectfully dissent. The majority concedes that the trial court’s failure to advise defendant of the duration of his postrelease supervision amounts to a Catu error (see People v Catu, 4 NY3d 242 [2005]), i.e. a violation of defendant’s constitutional rights; nevertheless, they decline to remedy it.

We have held that when a court fails to advise a defendant of postrelease supervision at his plea allocution, the defendant is entitled to reversal of his conviction (see People v Sparber, 10 NY3d 457, 469 [2008]; People v Hill, 9 NY3d 189 [2007]; People v Catu, 4 NY3d 242 [2005]), and have repeatedly enforced this principle. For instance, in People v Van Deusen (7 NY3d 744 [2006]), we vacated the defendant’s plea despite the fact that the defendant’s sentence, including postrelease supervision, was actually less than the maximum potential period of incarceration that she agreed to serve.

Similarly, in People v Hill (9 NY3d 189 [2007]), we vacated defendant’s guilty plea and rejected a trial court’s modification of his sentence made in an attempt to satisfy Catu. A majority of this Court found that since the defendant’s plea could not be deemed knowing, voluntary and intelligent when made, no later events could rescue it. The majority reiterated that a harmless error analysis is inappropriate when evaluating a Catu claim. Indeed, the Court explained:

“The dissent incorrectly believes that Catu and Van Deusen turned on the question whether ‘the defendant got the full benefit of her plea bargain’ (dissenting op at 194); thus, the dissent attempts to undo the prejudice of defendant’s involuntary guilty plea. Rather, Catu, Van Deusen and Louree made clear that the courts violated the defendant’s due process rights—not the defendant’s sentencing expectations. Therefore, we vacated the defendants’ involuntary guilty pleas to remedy the constitutional violations. Here, we are constrained to give the same relief, exposing defendant to the full penalty of at least a 25-year prison term.” (Id. at 193.)

Thus, our holdings in Catu and Van Deusen and more recently in Hill make clear that a defendant is entitled to vacatur of his plea when the court commits a Catu error. Although I dissented in Hill, we are bound by this recent precedent.

The People now argue as an alternative to vacating defendant’s plea that he be resentenced under Penal Law § 70.85. The majority concludes that this corrective action “should not be entertained at this time” (majority op at 394). For the reasons that follow, I disagree.

Under this new legislative framework, a defendant who pleads guilty to a determinate sentence without any knowledge of post-release supervision may proceed to have the court resentence him, if the District Attorney consents, to a term of imprisonment without the mandatory postrelease supervision. Specifically, the statute provides:

“This section shall apply only to cases in which a determinate sentence was imposed between September first, nineteen hundred ninety-eight, and the effective date of this section, and was required by law to include a term of post-release supervision, but the court did not explicitly state such a term when pronouncing sentence. When such a case is again before the court pursuant to section six hundred one-d of the correction law or otherwise, for consideration of whether to resentence, the court may, notwithstanding any other provision of law but only on consent of the district attorney, re-impose the originally imposed determinate sentence of imprisonment without any term of post-release supervision, which then shall be deemed a lawful sentence” (Penal Law § 70.85).

As the majority notes, the statute’s primary purpose is to remedy the sentencing errors that this Court addressed in Matter of Garner v New York State Dept. of Correctional Servs. (10 NY3d 358 [2008]) and Sparber (10 NY3d 457 [2008]). In those cases, we held that only the sentencing court—not the Department of Correctional Services or the court clerk—has the authority to impose a period of postrelease supervision to an offender’s determinate sentence, and that the period of postrelease supervision must be imposed by the court at the time of sentencing in the defendant’s presence. Those cases did not involve a Catu constitutional error, but were challenges concerning the statutory duty of the sentencing court to pronounce the terms of defendant’s sentence in open court.

I recognize that section 70.85 was also added in part as a response to our prior Catu precedent. As the legislative history explains:

“When a defendant who pleads guilty has not been informed that the sentence would include a term of PRS, the defendant may later seek for the plea to be vacated. This bill allows the District Attorney to consent to re-sentencing to the previously imposed determinate term without any term of PRS. By allowing defendants in this situation the benefit of their plea bargains, there should be no need for the pleas to be vacated” (Senate Introducer’s Mem in Support of 2007 NY Senate Bill S8714, reprinted in 2008 McKinney’s Session Laws of NY, at 1820).

Consequently, the statute permits the District Attorney to consent to a resentence to a term without any postrelease supervision in situations where the defendant has moved to vacate his plea on the ground that it was obtained in violation of his constitutional rights under Catu. Although the amendment provides a defendant with an opportunity to seek a new, more favorable sentence, when a constitutional error under Catu is involved, there must be a new plea. Neither the Court nor the Legislature can require a defendant to accept a plea that was unconstitutionally obtained.

It is therefore clear that, as applied to this case, Penal Law § 70.85 is unconstitutional because it is in direct conflict with our prior precedent. As we recently stated in Hill: “In that the constitutional defect lies in the plea itself and not in the resulting sentence, vacatur of the plea is the remedy for a Catu error since it returns a defendant to his or her status before the constitutional infirmity occurred” (9 NY3d at 191). Thus, I see no need for further litigation on the issue since defendant’s plea was unconstitutionally obtained and he therefore is entitled to a vacatur thereof.

Judges Graffeo, Read and Jones concur with Judge Ciparick; Judge Smith dissents in a separate opinion; Judge Pigott dissents separately in another opinion; Chief Judge Lippman taking no part.

Order modified, etc.

      . The PRS term that could be imposed was from 2V2 to 5 years, within the court’s discretion. Defendant was not advised at either his plea allocution or at his sentencing as to the exact duration of the PRS term.

      . On this appeal, the People asserted that they would consent to reimposing the originally imposed 12-year determinate sentence of imprisonment without any term of postrelease supervision pursuant to Penal Law § 70.85 thereby ostensibly honoring the original promise (see People v Selikoff, 35 NY2d 227, 241 [1974], citing Santobello v New York, 404 US 257, 260 [1971]).


source: Caselaw Access Project

author: Read, J.

license: Public Domain

text:
    [908 NE2d 888, 880 NYS2d 898]
    Sam Wyly, Appellant, v Milberg Weiss Bershad & Schulman, LLP et al., Respondents.
    Argued March 26, 2009;
    decided May 7, 2009

      POINTS OF COUNSEL

      Bickel & Brewer, New York City (Luke A. McGrath, William A. Brewer III, Alexander D. Widell and Robert F. Dannhauser of counsel), for appellant.
    I. The Appellate Division decision should be reversed because it conflicts with this Court’s prior decision in Matter of Sage Realty Corp. v Proskauer Rose Goetz & Mendelsohn (91 NY2d 30 [1997]). (Van Gemert v Boeing Co., 590 F2d 433; Kleiner v First Natl. Bank of Atl., 751 F2d 1193; Fulco v Continental Cablevision, Inc., 789 F Supp 45; Tedesco v Mishkin, 629 F Supp 1474; Graubard Mollen Dannett & Horowitz v Moskovitz, 86 NY2d 112; Meinhard v Salmon, 249 NY 458; Greenfield v Villager Indus., Inc., 483 F2d 824; Zackiva Communications Corp. v Milberg Weiss Bershad Specthrie & Lerach, 223 AD2d 417; Bronx Jewish Boys v Uniglobe, Inc., 166 Misc 2d 347; Matter of Cofino, 211 AD2d 298.) II. The Appellate Division decision should be reversed because of the public importance of recognizing shareholders as clients of class counsel in class action litigation. (Suffolk Roadways v Minuse, 56 Misc 2d 6; Greenfield v Villager Indus., Inc., 483 F2d 824; Matter of Sage Realty Corp. v Proskauer Rose Goetz & Mendelsohn, 91 NY2d 30; Matter of Jacqueline F., 47 NY2d 215; Matter of Wong, 275 AD2d 1; People v Rohrberg, 22 AD3d 421; Matter of Justin EE., 153 AD2d 772, 75 NY2d 704; American Broadcasting Cos. v Wolf, 76 AD2d 162, 52 NY2d 394.)

      Milberg LLP, New York City (Barry A. Weprin and Todd L. Kammerman of counsel), Stull, Stull & Brody (Jules Brody of counsel), and Barroway Topaz Kessler Meltzer & Check, LLP, Radnor, Pennsylvania (Katharine Ryan and John Gross of counsel), for respondents.
    I. Absent class members are not true parties to class action litigation and are not “traditional clients” of class counsel. (Matter of Sage Realty Corp. v Proskauer Rose Goetz & Mendelsohn, 91 NY2d 30; Phillips Petroleum Co. v Shutts, 472 US 797.) II. Attorney work product is absolutely immune from discovery. (Spectrum Sys. Intl. Corp. v Chemical Bank, 78 NY2d 371; Hickman v Taylor, 329 US 495; Upjohn Co. v United States, 449 US 383; In re Grand Jury Subpoenas Dated Dec. 18, 1981 & Jan. 4, 1982, 561 F Supp 1247; Corcoran v Peat, Marwick, Mitchell & Co., 151 AD2d 443; FTC v Grolier Inc., 462 US 19; Beasock v Dioguardi Enters., 117 AD2d 1016.) III. Class counsel’s work product is not “property” of absent class members. (Matter of Sage Realty Corp. v Proskauer Rose Goetz & Mendelsohn, 91 NY2d 30; In re Network Assoc., Inc., Sec. Litig., 76 F Supp 2d 1017; In re Rent-Way Sec. Litig., 305 F Supp 2d 491; Van Gemert v Boeing Co., 590 F2d 433; Tedesco v Mishkin, 629 F Supp 1474; Kleiner v First Natl. Bank of Atl., 751 F2d 1193; Fulco v Continental Cablevision, Inc., 789 F Supp 45; Bronx Jewish Boys v Uniglobe, Inc., 166 Misc 2d 347; Matter of Cofino, 211 AD2d 298; Franks v Kroger Co., 670 F2d 71.) IV. Sam Wyly is not entitled to use the special proceeding to circumvent orderly discovery in the Federal Rules of Civil Procedure rule 60 (b) proceeding. (Matter of Sage Realty Corp. v Proskauer Rose Goetz & Mendelsohn, 91 NY2d 30.) V. Public policy does not mandate a reversal of the Appellate Division decision. (Phillips Petroleum Co. v Shutts, 472 US 797.)
   OPINION OF THE COURT

Read, J.

Petitioner Sam Wyly was an absent class member in a federal securities class action lawsuit; an absent class member is a member of a putative or certified class who is not a named party (see Hansberry v Lee, 311 US 32, 40-41 [1940]). Respondents Milberg Weiss Bershad & Schulman, LLP; Stull, Stull & Brody; and Schiffrin & Barroway, LLP (collectively, the law firms) served as class counsel in the litigation. In this appeal, we are asked whether Wyly—like a represented party in traditional individual litigation—enjoys a presumptive right of access to the law firms’ case files upon the representation’s termination (see Matter of Sage Realty Corp. v Proskauer Rose Goetz & Mendelsohn, 91 NY2d 30 [1997]). We hold that Wyly does not possess a presumptive right of access, and further conclude that the Appellate Division did not abuse its discretion when it denied Wyly access to the requested records.

I.

In April 2000, Wyly acquired 971,865 stock options in Computer Associates International, Inc. (CA), a large, publicly traded provider of information technology management software, when he sold his software business to CA. As a result of this transaction, Wyly became a major shareholder in CA.

Between 1998 and 2002, several federal securities class actions were commenced against CA in the United States District Court for the Eastern District of New York. The first 11 lawsuits, brought in 1998, were consolidated into a single class action under the auspices of District Court Judge Thomas C. Platt, who designated Milberg Weiss and Stull, Stull & Brody as co-lead class counsel. Thirteen additional class actions were begun in 2002. These lawsuits were consolidated into another single class action by the same Judge, who designated Milberg Weiss and Schiffrin & Barroway as co-lead counsel. The lawsuits alleged generally that CA and certain of its officers and directors had violated the Securities Exchange Act of 1934 by engaging in questionable accounting practices to improve the appearance of CA’s financial performance and condition.

In December 2003, after a fairness hearing (see Fed Rules Civ Pro rule 23 [e] [2]), the District Court certified the 1998 and 2002 class actions for purposes of settlement “on behalf of all persons or entities who purchased or transacted in common stock of CA or common stock options during the period January 20, 1998 through and including February 25, 2002 and who sustained damages as a result of such transactions,” and approved the proposed settlement. Wyly was a member of the settlement class. Pursuant to the settlement’s terms, CA made 5.7 million shares of its common stock available to the settlement class and certain of its officers and directors received broad releases of civil liability. The law firms were awarded 1,443,673 of these shares in fees, and $3,181,486.94 (subject to a cap of 150,000 shares) as reimbursement of expenses. The District Court retained “[exclusive jurisdiction . . . over the parties and the Settlement Class Members for all matters relating to the Actions.”

On October 18, 2004, E Kent Correll of Bickel & Brewer, representing Wyly, wrote to Barry A. Weprin of Milberg Weiss, claiming that the class action settlement was “likely procured by fraud upon shareholders, their counsel and the Court.” He noted that CA’s former general counsel—who pleaded guilty to conspiracy to commit securities fraud and obstruction of justice in September 2004—admitted that he had impeded the government’s investigation of CA’s accounting practices. Correll also asserted that Weprin had told him on October 4, 2004 “that neither you nor your firm knew” of the existence of 23 boxes of “crucial” CA documents until September 2004, when an article in the Wall Street Journal reported their sudden appearance at the offices of the outside law firm retained by CA’s board of directors. Stating that “we believe ... a motion should be filed with [the District Court Judge] pursuant to Fed.R.Civ.E 60(b) to relieve plaintiffs from the final judgment approving the settlement,” Correll asked Weprin what his position was regarding this proposed action. On November 24, 2004, Weprin informed Correll that the law firms would not move to reopen the judgment of settlement; he also subsequently declined to provide Correl with a requested affidavit.

On December 7, 2004, Bickel & Brewer filed a rule 60 (b) motion in the District Court on behalf of Wyly, Cheryl Wyly and other entities connected with Wyly (collectively, the Wyly movants), who were all members of the settlement class. The Wyly movants sought to vacate the final judgment as to them on the grounds of new evidence, misconduct and fraud upon the court. They also asked for expedited discovery in support of their motion; CA objected to their discovery requests. At the time the Wyly movants made their motion, they estimated that they were entitled to roughly 1% of the shares that were about to be distributed to class members to carry out the settlement; these shares, in total, were thought to be worth about $120 million in December 2004.

. On January 24, 2005, while the Wyly movants’ rule 60 (b) motion was pending, William A. Brewer III of Bickel & Brewer wrote to Melvyn I. Weiss of Milberg Weiss and requested

“access to and a right to review documents reflective of Class Counsel’s pre-trial investigations related to the Class Actions; all the discovery produced or taken in the Class Actions; and all requests for discovery, indices, summaries, or other materials created by Class Counsel in relation to the Class Actions.”

Brewer asserted that the Wyly movants were entitled to these documents because the law firms “had an attorney-client relationship with the Wyly Movants, as substantial members of the Settlement Class, at least through the negotiation and execution of the settlement documents, the fairness hearing, and the entry of the final judgments in the Class Actions.”

Weprin informed Brewer on January 28, 2005 that the law firms would not respond to his request until the District Court ruled on the “matters currently being briefed, including [the Wyly movants’] application for discovery.” In a February 8, 2005 letter to Weprin, Brewer reiterated that he was seeking the documents based on the Wyly movants’ attorney-client relationship with Milberg Weiss; therefore, he considered the District Court’s prospective ruling on discovery to be “irrelevant.”

In a February 28, 2005 letter to Weiss, Brewer again pressed his case, asserting that the law firms’ files were needed to counter opposition to the Wyly movants’ rule 60 (b) motion and related discovery requests. Specifically, he claimed, the opposing parties were arguing that the law firms had neglected to pursue discovery diligently in the class actions, and that this excused CA’s nondisclosure of the 23 boxes “before, during, and after the settlement negotiations.”

By that time, the District Court Judge had already referred the discovery issues related to the rule 60 (b) motion to a federal magistrate. On June 14, 2005, the Judge ordered the Wyly movants to serve CA with a notice of production making the 23 boxes of documents returnable to the court on July 1, 2005. Wyly acknowledges that, as a consequence of this federal court order, he “obtained some of the materials that he sought from Class Counsel.” But he complains that the law firms still “refused to produce the most critical category of documents within [their] Class Action Files: Class Counsel’s work product and analysis.”

On August 2, 2007, the District Court Judge denied the Wyly movants’ rule 60 (b) motions and related discovery requests. In a subsequent order dated September 12, 2007, he reiterated that they had

“failed to set forth cause to permit further discovery to be conducted in conjunction with their 60 (b) motions. This Court has repeatedly made clear that additional discovery was to be confined to the ‘fraud’ alleged to be within the ‘23 boxes.’ To date, . . . [the Wyly movants have not] produced any ‘new’ evidence of fraud upon this Court and consequently, have failed to establish that the contents of the ‘23 boxes’ allegedly withheld during discovery and prior to settlement warranted granting further discovery and the reopening of the 2003 Settlement” (In re Computer Assoc. Class Action Sec. Litig., 2007 WL 2713336, *3, 2007 US Dist LEXIS 67928, *12-13 [ED NY 2007]).

The Wyly movants subsequently appealed the Judge’s order to the United States Court of Appeals for the Second Circuit.

On April 1, 2005—while the rule 60 (b) motion was pending in the District Court—Wyly commenced this CPLR article 4 special proceeding in Supreme Court. He sought a judgment directing the law firms to “turn over their class action files (or copies thereof),” including “all e-mails, attorneys’ notes, internal memoranda, document requests, indices, privilege logs, drafts and research related to [the law firms’] representation of [Wyly] and other class members in their prosecution of the Class Actions.” Wyly contended that, as a member of the settlement class, he “enjoy[ed] all privileges and rights pursuant to the attorney-client relationship between [the law firms] and Settlement Class members.” Thus, the law firms were, Wyly argued, “obligated to . . . provide [him] with access to all documents, discovery materials, and attorney work product that was received, created, or maintained for the benefit of the entire Settlement Class.” In answer to Wyly’s petition, the law firms asserted that his claims were barred by the attorney work-product privilege.

Both parties recognized that the outcome of Wyly’s petition would likely turn on the lower court’s understanding and application of our decision in Sage Realty. There, we joined the “majority of courts and State legal ethics advisory bodies,” which take the position that “upon termination of the attorney-client relationship, where no claim for unpaid legal fees is outstanding,” a client is “presumptively accord[ed] . . . full access to the entire attorney’s file on a represented matter with narrow exceptions” (Sage Realty, 91 NY2d at 34).

The petitioners in Sage Realty retained Proskauer to represent them in a multi-million-dollar mortgage financing and a restructuring of ownership interests, all involving New York City properties. After a falling out with Proskauer, the petitioners retained a different firm to represent them in the transaction. Proskauer refused to turn over certain documents relating to its representation of the petitioners, prompting them to commence a special proceeding to recover the documents.

“Barring a substantial showing by [former counsel] of good cause to refuse client access,” we stated, a client “should be entitled to inspect and copy work product materials, for the creation of which they paid during the course of the firm’s representation” (id. at 37). We observed that, especially in complex transactions, the “client’s need for access to a particular paper cannot be demonstrated except in the most general terms, in the absence of prior disclosure of the content of the very document to which access is sought” (id. at 36). By contrast, “[t]he attorney in possession of the contents of the file is in a far better position to demonstrate that a particular document would furnish no useful purpose in serving the client’s present needs for legal advice” (id.).

In February 2007—prior to the District Court’s resolution of the Wyly movants’ rule 60 (b) motion—Supreme Court granted Wyly’s petition and ordered the law firms “to turn over their files in the consolidated class actions” to him within 45 days (later amended to 75 days) of the court’s order (Wyly v Milberg Weiss Bershad & Schulman, LLP, 15 Misc 3d 583, 592 [Sup Ct, NY County 2007]). The court specifically directed the law firms to make available “the withheld documents containing work product, except for those documents for which they provide a privilege log in compliance with CPLR 3122 (b)” (id. at 592-593).

In Supreme Court’s view, Wyly’s “relationship with [the law firms was] sufficiently similar to a traditional attorney-client relationship so as to create a presumption in favor of affording him access to [the law firms’] files in accordance with Sage Realty” (id. at 590 [emphasis added]). The court noted that, as a member of the settlement class, Wyly was “bound by the judgment obtained as a result of the settlement unless he obtain[ed] relief via his rule 60 (b) motion,” and the law firms’ files were “not only potentially relevant to that motion but also could provide a basis for a legal malpractice action against [them]” (id. at 590-591). Thus, Wyly had demonstrated “both a legitimate need and a legal basis . . . for obtaining the documents at issue” (id. at 591).

On the law firms’ subsequent appeal, the Appellate Division reversed Supreme Court. Sage Realty was distinguishable, the court reasoned, because it “involved an attorney-client relationship in the traditional sense, in that the single voice of a client governs, among other things, the lawyer’s conduct; the direction of a case, including any decision on when, if, and under what terms it should be settled; and the attorney’s continued employment,” which “differs fundamentally” from the relationship between class counsel and an absent class member (Wyly v Milberg Weiss Bershad & Schulman, LLP, 49 AD3d 85, 90 [1st Dept 2007]).

The Appellate Division acknowledged that absent class members are “entitled to some of the benefits of the attorney-client relationship, such as the right to privileged communications with class counsel and the prohibition against attempts by defendants’ counsel to communicate with [them]” (id. at 91-92), but may not “direct the course of the litigation, testify at trial, participate in discovery, or dismiss class counsel” (id. at 92). The court further noted that class members could hire their own counsel if they “wish[ ] to employ a traditional attorney-client relationship, although [their] input into the litigation would . . . [be] curtailed,” or could even “opt out of the class action altogether” (id.). The Appellate Division therefore “reject[ed] a blanket extension of Sage Realty’s presumptive-entitlement right to absent class members, and f[ound] that the better practice [was] to require absent class members to establish their entitlement to class counsel’s file on a case-by-case basis” (id.).

The Appellate Division then concluded that, in light of the facts in this case, Wyly had not established his entitlement to the law firms’ files; indeed, he was

“granted access, by the District Court, to the vast majority of the material in [the law firms’] files, including discovery materials, as well as the mysterious 23 boxes previously withheld by CA. [Wyly], armed with those volumes of documents, still offers nothing, other than mere speculation, that the work product he seeks will convince the District Court, or the United States Court of Appeals for the Second Circuit, that his rule 60 (b) motion should have been granted, and we decline to countenance [Wyly’s] use of this article 4 proceeding as a vehicle to launch a fishing expedition. Moreover, as already noted, [the District Court Judge], in his . . . orders denying [Wyly’s] rule 60 (b) motion, made it very clear that [his] moving papers failed to set forth cause to permit further discovery” (id. [internal quotation marks omitted]).

We granted Wyly’s motion for permission to appeal (11 NY3d 704 [2008]) and now affirm.

II.

A class action is an exception to the rule “that one is not bound by a judgment in personam in a litigation in which he is not designated as a party or to which he has not been made a party by service of process” (Hansberry, 311 US at 40). The class action “was an invention of equity to enable it to proceed to a decree in suits where the number of those interested in the subject of the litigation is so great that their joinder as parties in conformity to the usual rules of procedure is impracticable” (id. at 41). The absent individuals “would be bound by the decree so long as the named parties adequately represented the absent class and the prosecution of the litigation was within the common interest” (Phillips Petroleum Co. v Shutts, 472 US 797, 808 [1985]).

Modern class actions serve several important purposes, as explained by the United States Supreme Court in Phillips Petroleum: they “permit[ ] litigation of a suit involving common questions when there are too many plaintiffs for proper joinder” and “also may permit the plaintiffs to pool claims which would be uneconomical to litigate individually” {id. at 809). The statutes governing class actions are designed to achieve these goals while ensuring “proper representation of the absent plaintiffs’ interest” {id.).

The Court further elaborated on the unique status of absent class-action plaintiffs as follows:

“They need not hire counsel or appear. They are almost never subject to counterclaims or cross-claims, or liability for fees or costs. Absent plaintiff class members are not subject to coercive or punitive remedies. Nor will an adverse judgment typically bind an absent plaintiff for any damages, although a valid adverse judgment may extinguish any of the plaintiff’s claims which were litigated. . . .
“[A]n absent class-action plaintiff is not required to do anything. He may sit back and allow the litigation to run its course, content in knowing that there are safeguards provided for his protection. In most class actions an absent plaintiff is provided at least with an opportunity to ‘opt out’ of the class, and if he takes advantage of that opportunity he is removed from the litigation entirely” {id. at 810-811).

In short, “[ajbsent class members occupy a special, nontraditional status in litigation” (1 Newberg on Class Actions § 1:3, at 19 [4th ed]). As Restatement (Third) of the Law Governing Lawyers § 14, Comment f (2000) explains,

“[cjlass actions may pose difficult questions of client identification. For many purposes, the named class representatives are the clients of the lawyer for the class . . . Yet class members who are not named representatives also have some characteristics of clients. For example, their confidential communications directly to the class lawyer may be privileged . . . , and opposing counsel may not be free to communicate with them directly . . .
“Lawyers in class actions must sometimes deal with disagreements within the class and breaches by the named parties of their duty to represent class members. Although class representatives must be approved by the court, they are often initially self-selected, selected by their lawyer, or even (when a plaintiff sues a class of defendants) selected by their adversary. Members of the class often lack the incentive or knowledge to monitor the performance of the class representatives. Although members may sometimes opt out of the class, they may have no practical alternative other than remaining in the class if they wish to enforce their rights. Lawyers in class actions thus have duties to the class as well as to the class representatives.
“A class-action lawyer may therefore be privileged or obliged to oppose the views of the class representatives after having consulted with them. The lawyer may also propose that opposing positions within the class be separately represented, that subclasses be created, or that other measures be taken to ensure broader class participation. Withdrawal may be an option . . . , but one that is often undesirable because it may leave the class without effective representation. The lawyer should act for the benefit of the class as its members would reasonably define that benefit.”

The United States Court of Appeals for the Third Circuit made similar observations in its 2002 Task Force Report on Selection of Class Counsel:

“In class actions, the ordinary assumptions about the attorney-client relationship do not apply. . . .
“Counsel for a class is in a unique position. Absent class members are not individual clients. Thus, the ordinary attorney-client relationship does not exist between each class member and class counsel. Yet, there clearly is a duty imposed upon class counsel—by the rules of professional conduct and by Fed. R. Civ. E 23—to protect the entire class fairly and adequately and to work diligently to maximize class recovery” (208 FRD 340, 346-348 [Jan. 15, 2002]).

In Van Gemert v Boeing Co. (590 F2d 433, 440 n 15 [2d Cir 1978], affd 444 US 472 [1980]), the Second Circuit rejected the “argument that there is no attorney-client relationship between the absentees and class counsel.” The court stated that “[a] certification under Rule 23 (c) makes the Class the attorney’s client for all practical purposes . . . The judgment in a class action is not secure from collateral attack unless the absentees were adequately and vigorously represented” (id,., citing Developments in the Law—Class Action, 89 Harv L Rev 1321, 1592-1597 [1976]; Gonzales v Cassidy, 474 F2d 67, 75-76 [5th Cir 1973]). Similarly, in Greenfield v Villager Indus., Inc. (483 F2d 824, 832 [3d Cir 1973]), the Third Circuit emphasized that

“ [responsibility for compliance [with the procedural rules governing class actions] is placed primarily upon the active participants in the lawsuit, especially upon counsel for the class, for, in addition to the normal obligations of an officer of the court, and as counsel to parties to the litigation, class action counsel possess, in a very real sense, fiduciary obligations to those not before the court” (emphasis added).

Thus, two general propositions emerge from the case law: “class counsel do not possess a traditional attorney-client relationship with absent class members” (In re Community Bank of N. Va., 418 F3d 277, 313 [3d Cir 2005]), and they represent the interests of and owe a fiduciary duty to the entire class (see Daniels v City of New York, 199 FRD 513, 515 [SD NY 2001]; In re Shell Oil Refinery, 152 FRD 526, 528 [ED La 1989]). In sum, while absent class members are clients of class counsel, they are a unique species of client.

In our view, the class counsel-absent class member relationship is simply too unlike the traditional attorney-client relationship to support extending the Sage Realty presumption to absent class members. We justified the Sage Realty presumption in part because it “more closely conform[ed] to the position taken by the courts of this State on the client’s broad rights to the contents of the file” when the attorney is dismissed on a matter still pending (Sage Realty, 91 NY2d at 36). In a class action, however, an absent class member does not possess a “broad right[ ]” of access to the files of a class counsel dismissed by the trial court during the litigation’s pendency. Further, a class action by its very nature may involve thousands of absent parties who are geographically dispersed. As a consequence, to endorse the Sage Realty presumption in this context would create “the potential for class counsel to be unduly burdened, even after the end of litigation, by a multitude of requests from absent class members for counsel’s entire file” (Wyly, 49 AD3d at 92).

We are especially mindful of the paramount role the trial court plays in managing a class action and protecting the rights of absent class members (see Greenfield, 483 F2d at 832 [“(U)ltimate responsibility of course is committed to the district court in whom, as the guardian of the rights of the absentees, is vested broad administrative, as well as adjudicative, power”]). Indeed, in appointing class counsel in the first instance, a federal court must take into account numerous factors bearing on the adequacy of the prospective representation (see Fed Rules Civ Pro rule 23 [g]). This unusually high degree of judicial involvement and responsibility is another distinctive feature of a class action which sets it apart from traditional litigation. It both diminishes an absent class member’s need for access to class counsel’s files, and provides an alternative avenue to obtain them.

We therefore conclude that where an absent class member brings a CPLR article 4 special proceeding seeking access to class counsel’s litigation files after termination of the representation, Supreme Court must first consider how much the absent class member has at stake. If (as the parties do not dispute here) the absent class member has a substantial financial interest in the class action’s outcome, the court must then decide whether the absent class member has demonstrated a legitimate need for the requested documents.

In this case, the Appellate Division decided that Wyly had not made an adequate showing to compel the law firms to produce their files; in particular, the law firms’ work product and analysis relating to the class actions. Wyly sought these documents to support the Wyly movants’ rule 60 (b) motion and his malpractice action against the law firms, allegedly for settling the class actions too cheaply. As the Appellate Division observed, however, the District Court long ago granted Wyly access to the 23 boxes that apparently triggered his suspicions of fraud in the first place. When Wyly was unable to convince the District Court that anything in the 23 boxes, in fact, suggested fraud, the Judge declined to order further discovery or to reopen the 2003 settlement. The District Court, which supervised the class actions and has retained jurisdiction, is responsible for protecting the interests of absent class members, which includes monitoring the adequacy of class counsel’s performance. We cannot say that the Appellate Division abused its discretion by, in effect, declining to second-guess the District Court’s judgments.

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

Smith, J. (dissenting). I would hold that Wyly is entitled, as was the client in Matter of Sage Realty Corp. v Proskauer Rose Goetz & Mendelsohn (91 NY2d 30 [1997]), to review the work product he has paid a significant sum for.

I acknowledge that not every class member in a case like this has a Sage Realty right to review counsel’s file. The vast majority of class members have only a nominal interest in the case, and their contributions to the lawyers’ fees are accordingly minuscule. To allow all of them access to lawyers’ work product would be impractical, and would invite abuse. But here, class counsel received a fee consisting of CA stock worth approximately $40 million. Wyly had acquired 971,865 CA options; his counsel estimated at oral argument that Wyly’s interest represented 1% of the class. It is thus inferable that class counsel got for its efforts $400,000 of Wyly’s money.

It is true that the relationship between class counsel and class members differs from the classic attorney-client relationship at issue in Sage Realty. Wyly, unlike Sage Realty Corporation, had no right to select the lawyers who represented him, to accept or veto a settlement or to negotiate the amount of the lawyers’ fees; he had only a right to make his views on those issues known to the court, which had the power to decide them. But I do not see why those differences should destroy Wyly’s Sage Realty rights; if anything, they are a reason to give Wyly greater protection.

A recurrent danger in class action practice—a danger all too often realized—is that the lawyers’ interests and those of the class members will not be well aligned. Affording a Sage Realty right to a class member who has paid more than a de minimis amount of the lawyers’ fees could help to overcome that problem. It would be a good thing, I think, if the lawyers for a class were always aware that class members with weighty interests were entitled to scrutinize their work.

Judges Ciparick, Graffeo, Pigott and Jones concur with Judge Read; Judge Smith dissents in a separate opinion; Chief Judge Lippman taking no part.

Order affirmed, with costs.

      . The company subsequently changed its name to CA, Inc.

      . Rule 60 (b) states the grounds on which a district court may relieve a party or its legal representative from a final judgment, order or proceeding, which include newly discovered evidence and fraud.

      . Settlement shares were distributed to other class members shortly after the Wyly movants sought rule 60 (b) relief; their shares were placed in the registry of the court pursuant to court order.

      . In late 2007, Wyly also commenced a malpractice action against the law firms in Supreme Court. Invoking the All Writs Act, the law firms applied to the District Court for an injunction barring Wyly from pursuing this action; the parties ultimately agreed to stay the malpractice action pending the Second Circuit’s determination of the Wyly movants’ appeal of the District Court’s August 2007 order denying their rule 60 (b) motion. The Second Circuit heard this appeal in March 2009.


author: Pigott, J.

text:
    [909 NE2d 62, 881 NYS2d 369]
    Patricia A. Mahoney-Buntzman, Respondent, v Arol I. Buntzman, Appellant.
    Argued March 31, 2009;
    decided May 7, 2009

      POINTS OF COUNSEL

      Berman Bavero Frucco & Gouz P.C., White Plains (Howard Leitner of counsel), and Collier, Halpern, Newberg, Nolletti &

      Bock, LLP, for appellant.
    I. Because of defendant’s significant contribution to the postcommencement appreciation of the EVCI stock, the stock should have been valued as of the date of commencement for purposes of equitable distribution. (Breese v Breese, 256 AD2d 433; Barbuto v Barbuto, 286 AD2d 741; Scharfman v Scharfman, 19 AD3d 474; McSparron v McSparron, 87 NY2d 275; Grunfeld v Grunfeld, 94 NY2d 696; Ferraioli v Ferraioli, 295 AD2d 268; Trivedi v Trivedi, 222 AD2d 499; Price v Price, 69 NY2d 8; Hale v Hale, 16 AD3d 231; Heine v Heine, 176 AD2d 77, 90 NY2d 753.) II. Plaintiff should not have received a credit based on marital funds used to pay maintenance to defendant’s first wife. (Johnson v Chapin, 49 AD3d 348; O’Brien v O’Brien, 66 NY2d 576.) III. Plaintiff wife should not have received a credit in equitable distribution for defendant’s educational expenses incurred solely during their marriage. (Johnson v Chapin, 49 AD3d 348.) IV. The application of the doctrine of quasi-estoppel to preclude defendant from proving that certain property was his separate property was an unprecedented extension of that doctrine. (Zemel v Horowitz, 11 Misc 3d 1058[A], 2006 NY Slip Op 50276[U]; Naghavi v New York Life Ins. Co., 260 AD2d 252.)

      Farrauto & Berman, Yonkers (John P. Farrauto of counsel), and Gretchen Mullins Kim, PC. (Gretchen Mullins Kim of counsel), for respondent.
    I. The trial court’s decision as to the valuation dates to be used for equitable distribution of appellant’s EVCI stock and options was not erroneous. (McSparron v McSparron, 87 NY2d 275, 88 NY2d 916; Greenwald v Greenwald, 164 AD2d 706, 78 NY2d 855; Grunfeld v Grunfeld, 94 NY2d 696, 96 NY2d 894; Breese v Breese, 256 AD2d 433; Barbuto v Barbuto, 286 AD2d 741; Scharfman v Scharfman, 19 AD3d 474; Price v Price, 69 NY2d 8; Filkins v Filkins, 303 AD2d 934; Murphy v Murphy, 193 AD2d 1068; Soule v Soule, 252 AD2d 768.) II. The Appellate Division properly reversed the trial court’s decision not to credit respondent with one half of the monies paid during the marriage by appellant as maintenance to appellant’s first wife. (Dewell v Dewell, 288 AD2d 252; Micha v Micha, 213 AD2d 956; Gaccione v Gaccione, 212 AD2d 574; Jonas v Jonas, 241 AD2d 839; Feldman v Feldman, 204 AD2d 268; Newman v Newman, 35 AD3d 418; Markopoulos v Markopoulos, 274 AD2d 457; Carney v Carney, 202 AD2d 907; Johnson v Chapin, 49 AD3d 348; Hartog v Hartog, 85 NY2d 36.) III. The Appellate Division properly reversed the trial court’s decision not to credit respondent with one half of appellant’s student loan debt. (Corless v Corless, 18 AD3d 493; Helen

      A.S. v Werner R.S., 166 AD2d 515; Basos v Basos, 243 AD2d 932; Jonas v Jonas, 241 AD2d 839; Lewis v Lewis, 6 AD3d 837; McKeever v McKeever, 8 AD3d 702; Kuhn v Kuhn, 134 AD2d 900; Godfryd v Godfryd, 201 AD2d 927; Dashnaw v Dashnaw, 11 AD3d 732; Chamberlain v Chamberlain, 24 AD3d 589.) IV. The trial court and the Appellate Division properly determined that the doctrine of estoppel against inconsistent positions and/or quasi-estoppel barred appellant from asserting that the $1.8 million received during the marriage was from his sale of stock owned prior to the marriage. (Zemel v Horowitz, 11 Misc 3d 1058[A], 2006 NY Slip Op 50276[U]; Naghavi v New York Life Ins. Co., 260 AD2d 252; Di Costanzo v Allstate Ins. Co., 68 AD2d 834, 50 NY2d 832; Thomas v Scutt, 127 NY 133; Braten v Bankers Trust Co., 60 NY2d 155; Price v Price, 69 NY2d 8; Ford Motor Credit Co. v Colonial Funding Corp., 215 AD2d 435; Environmental Concern v Larchwood Constr. Corp., 101 AD2d 591; Crespo v Crespo, 309 AD2d 727; Perkins v Perkins, 226 AD2d 610.)
   OPINION OF THE COURT

Pigott, J.

In this divorce action, we are asked to resolve several equitable distribution issues. For the reasons that follow, we hold that plaintiff wife is not entitled to a 50% credit for payments made during the marriage towards defendant’s maintenance obligation to his first wife nor for payments made towards husband’s student loan, and thus we modify.

The parties were married in New York on September 24, 1993 and have two daughters. Wife has an adult child from a previous relationship. Husband was married once before, and has two adult children from that marriage. Pursuant to a divorce judgment, husband was obligated to pay his first wife maintenance.

During the present marriage, husband and another individual formed Educational Video Conferencing Inc. (EVCI), a New York corporation that went public in 1999. At the time of the instant action, husband owned a number of shares and options of EVCI stock, all of which were acquired during marriage.

Prior to his marriage to plaintiff, husband had an interest in Arol Development Corporation (ADC), a real estate development company he founded with his father in 1971. In 1983, husband founded another company, Big Apple Industrial Buildings, Inc., 80% of which he sold to ADC in 1989. In 1998, husband entered into an agreement with his father whereby he agreed to relinquish his stock ownership in both corporations in exchange for a lump sum payment. The agreement provided that the payment would be reported on a “1099” form issued to him by the purchasing company. In order to account for the increased tax liability that husband would incur as a consequence of treating the payment as ordinary income rather than as a sale of stock, the payment was increased by 17%. This money, amounting to $1.8 million, was received by husband during the marriage and reported on the parties’ joint income tax return as self-employment business income.

In May 1996, husband obtained a doctorate in education from Fordham University for which he had taken out a student loan that was repaid two years later.

On May 19, 2003, wife commenced the instant divorce action and an 18-day trial ensued.

Supreme Court granted wife a divorce on the grounds of abandonment and in a detailed decision, dated October 3, 2006, considered and distributed the various assets and debts of the parties’ marriage (13 Misc 3d 1216[A], 2006 NY Slip Op 51852[U] [Sup Ct, Westchester County 2006]).

As it pertained to the EVCI stock and options, the court found that husband played a substantial role in changing the direction of the company and in its expansion. Nevertheless, the court rejected husband’s claims that the appreciation in the value of the EVCI stock was due solely to his efforts, holding that there were significant contributions of others to the operations of EVCI and no evidence directly linking the increase in the value of its stock solely to husband. Consequently, the court used the date of trial for valuation purposes of the EVCI stock and options.

With respect to maintenance paid by husband to his first wife during the marriage, the court declined to give wife credit for one half of that amount. The court noted that both parties had used marital assets to assist other relatives. For instance, wife had used marital sums to provide support for her daughter and her father. The court stated “neither party may be heard to complain about the other’s use of marital funds to pay for their own obligations or to aid other family members, when that approach was evidently an accepted part of their lifestyle” (2006 NY Slip Op 51852[U] at *70).

For the same reasons, the court declined to give wife a credit for monies used to repay the student loan.

Supreme Court further held that husband is estopped from arguing that the funds received from the sale of his corporate interests to his father were proceeds from the sale of stock and thus, separate property, because he had reported the funds as business income on the parties’ joint tax returns. The court also noted that in his 1993 judgment of divorce from his first wife, husband represented that he owned no stock at the time.

On appeal, the Appellate Division modified the judgment of Supreme Court by, among other things, holding that wife was entitled to an equitable distribution credit of one half of the amount of court-ordered maintenance paid by husband to his former wife from marital funds (51 AD3d 732 [2008]). The court held that the maintenance obligation to his first wife constituted debt incurred by him prior to the parties’ marriage and is therefore his sole responsibility. The Appellate Division also awarded wife a 50% credit—or $24,081.45—for the student debt incurred by husband during the marriage to attain his degree, concluding that because a court-appointed expert had determined that husband’s advanced degree did not enhance his earnings, wife received no benefit from it, and therefore, the student loan was incurred to satisfy husband’s separate property interest making the loan his sole obligation. As modified, the Appellate Division affirmed.

We granted leave (11 NY3d 706 [2008]) and now modify the order of the Appellate Division.

The Domestic Relations Law recognizes that the marriage relationship is an economic partnership. As such, during the life of a marriage spouses share in both its profits and losses. When the marriage comes to an end, courts are required to equitably distribute not only the assets remaining from the marriage, but also the liabilities. A trial court considering the factors set forth in the Domestic Relations Law has broad discretion in deciding what is equitable under all of the circumstances. Indeed, when it comes to the equitable distribution of marital property, Domestic Relations Law § 236 (B) (5) (d) (13) authorizes the trial court to take into account “any other factor which the court shall expressly find to be just and proper.” Consequently, the trial court has substantial flexibility in fashioning an appropriate decree based on what it views to be fair and equitable under the circumstances.

However, during the life of any marriage, many payments are made, whether of debts old or new, or simply current expenses. If courts were to consider financial activities that occur and end during the course of a marriage, the result would be parties to a marriage seeking review of every debit and credit incurred. As a general rule, where the payments are made before either party is anticipating the end of the marriage, and there is no fraud or concealment, courts should not look back and try to compensate for the fact that the net effect of the payments may, in some cases, have resulted in the reduction of marital assets. Nor should courts attempt to adjust for the fact that payments out of separate property may have benefitted both parties, or even the nontitled spouse exclusively. The parties’ choice of how to spend funds during the course of the marriage should ordinarily be respected. Courts should not second-guess the economic decisions made during the course of a marriage, but rather should equitably distribute the assets and obligations remaining once the relationship is at an end. With this holding in mind, we review the four issues raised on this appeal.

Prior Maintenance

In this case, wife seeks to recoup money that was expended during the marriage to pay husband’s obligation to his former spouse for maintenance. We hold that wife is not entitled to such recoupment. Expenditures made during the life of the marriage towards maintenance to a former spouse, as well as payments made pursuant to a child support order, are obligations that do not enure solely to the benefit of one spouse. Payments made to a former spouse and/or children of an earlier marriage, even if made pursuant to court order, are not the type of liabilities entitled to recoupment.

This is not to say that every expenditure of marital funds during the course of the marriage may not be considered in an equitable distribution calculation. Domestic Relations Law § 236 (B) (5) (d) (13) expressly and broadly authorizes the trial court to take into account “any other factor which the court shall expressly find to be just and proper” in determining an equitable distribution of marital property. There may be circumstances where equity requires a credit to one spouse for marital property used to pay off the separate debt of one spouse or add to the value of one spouse’s separate property (see e.g. Micha v Micha, 213 AD2d 956, 957-958 [3d Dept 1995]; Carney v Carney, 202 AD2d 907 [3d Dept 1994]). Further, to the extent that expenditures are truly excessive, the ability of one party to claim that the other has accomplished a “wasteful dissipation of assets” (Domestic Relations Law § 236 [B] [5] [d] [11]) by his or her expenditures provides protection. The payment of maintenance to a former spouse, however, does not fall under either of these categories.

Student Loan

Nor is wife entitled to a credit for payments made during the marriage towards husband’s student loan. Husband incurred the student loan during the parties’ marriage, and had his degree conferred an economic benefit, wife would have been entitled to a share in its value (see O’Brien v O’Brien, 66 NY2d 576 [1985]). Thus, the loan, which was both incurred and fully paid for during the marriage, was a marital obligation for which responsibility was to be shared between the parties.*

EVCI Stock

We further hold that the trial court providently exercised its discretion by setting the valuation date for the EVCI stock and options as the date of trial (see generally McSparron v McSparron, 87 NY2d 275 [1995]).

Estoppel

Similarly, the trial court properly exercised its discretion when it classified the money received by husband pursuant to the settlement agreement as marital property, given the fact that husband made representations that the money was business income for tax purposes. A party to litigation may not take a position contrary to a position taken in an income tax return (see Meyer v Insurance Co. of Am., 1998 WL 709854, 1998 US Dist LEXIS 15863 [SD NY 1998]; Naghavi v New York Life Ins. Co., 260 AD2d 252 [1st Dept 1999]; Zemel v Horowitz, 11 Misc 3d 1058[A], 2006 NY Slip Op 50276[U], 5 [Sup Ct, NY County 2006]). Here, husband does not dispute that, in accordance with his settlement agreement, he reported the $1,800,000 in settlement proceeds as business income on his federal income tax return, in which he swore that the representations contained within it were true. We cannot, as a matter of policy, permit parties to assert positions in legal proceedings that are contrary to declarations made under the penalty of perjury on income tax returns.

Accordingly, the order of the Appellate Division should be modified, without costs, by remitting to Supreme Court for further proceedings in accordance with this opinion and, as so modified, affirmed.

Judges Ciparick, Graffeo, Read, Smith and Jones concur; Chief Judge Lippman taking no part.

Order modified, etc.

       If the student loan debt was still outstanding, however, it may have been appropriate for the trial court to conclude that defendant alone was required to bear the obligation of repayment of the balance of his student loan.


author: Jones, J.

text:
    [911 NE2d 813, 883 NYS2d 751]
    In the Matter of Daniel Peckham, Appellant, v Judith A. Calogero, as Commissioner of the State of New York’s Division of Housing and Community Renewal, et al., Respondents.
    Argued April 1, 2009;
    decided May 5, 2009

      POINTS OF COUNSEL

      Nixon Peabody LLP, New York City (Eileen M. Cunningham and Matthew C. Peluso of counsel), for appellant.
    I. Chelsea Partners, LLP did not have standing to appeal the decision of the Supreme Court. (Sohn v Calderon, 78 NY2d 755; Matter of Rockaway One Co., LLC v Wiggins, 35 AD3d 36; Matter of Porter v New York State Div. of Hous. & Community Renewal, 51 AD3d 417; Matter of Hakim v Division of Hous. & Community Renewal, 273 AD2d 3, 95 NY2d 887; Matter of Sherwood 34 Assoc. v New York State Div. of Hous. & Community Renewal, 309 AD2d 529.) II. The Division of Housing and Community Renewal acted arbitrarily and capriciously by failing to set forth and apply a standard for determining whether an owner intends to “demolish the building” pursuant to the Rent Stabilization Law and Code. (Matter of Gilman v New York State Div. of Hous. & Community Renewal, 99 NY2d 144; Matter of Montauk Improvement v Proccacino, 41 NY2d 913.) III. The Division of Housing and Community Renewal acted arbitrarily and capriciously in its decision regarding the financial capacity of Chelsea Partners, LLC. (Sohn v Calderon, 78 NY2d 755.)

      Belkin Burden Wenig & Goldman, LLP, New York City (Magda L. Cruz, Sherwin Belkin and Kristine L. Grinberg of counsel), for Chelsea Partners, LLC, respondent.
    I. The owner had standing to appeal the lower court’s judgment or, in the alternative, the Appellate Division properly granted the owner leave to appeal sua sponte. (Matter of Spedicato v New York State Div. of Hous. & Community Renewal, 241 AD2d 343; Matter of Mid-Is. Hosp. v Wyman, 15 NY2d 374; Llantin v Doe, 30 AD3d 292; Serradilla v Lords Corp., 12 AD3d 279; Matter of Price v City of New York, 298 AD2d 113; Matter of DeJesus v Roberts, 296 AD2d 307; Banks v New York State & Local Employees’ Retirement Sys., 271 AD2d 252; Matter of McFarland v New York State Div. of Human Rights, 241 AD2d 108; Bhandary v Bhandary, 50 AD3d 612; Natoli v Milazzo, 35 AD3d 823.) II. The Appellate Division correctly held that the Division of Housing and Community Renewal had properly granted the owner’s application. (Catlin v Sobol, 77 NY2d 552; Matter of Pell v Board of Educ. of Union Free School Dist. No. 1 of Towns of Scarsdale & Mamaroneck, Westchester County, 34 NY2d 222; Matter of Ansonia Residents Assn. v New York State Div. of Hous. & Community Renewal, 75 NY2d 206; Matter of Mid-State Mgt. Corp. v New York City Conciliation & Appeals Bd., 112 AD2d 72, 66 NY2d 1032; Rent Stabilization Assn. of N.Y. City v Higgins, 83 NY2d 156, 512 US 1213; Matter of Versailles Realty Co. v New York State Div. of Hous. & Community Renewal, 76 NY2d 325; NLRB v Hearst Publications, Inc., 322 US 111; Sohn v Calderon, 78 NY2d 755; Matter of Gaines v New York State Div. of Hous. & Community Renewal, 90 NY2d 545; Matter of Tommy & Tina, Inc. v Department of Consumer Affairs of City of N.Y., 95 AD2d 724, 62 NY2d 671.) III. The Appellate Division correctly held that the Division of Housing and Community Renewal’s determination that the owner demonstrated its financial ability to complete the project was rational. (Matter of East Harlem Bus. & Residence Alliance v Empire State Dev. Corp., 273 AD2d 33; Matter of Rozmae Realty v State Div. of Hous. & Community Renewal, Off. of Rent Admin., 160 AD2d 343; Matter of Yonkers Gardens Co. v State of N.Y. Div. of Hous. & Community Renewal, 51 NY2d 966; Matter of Muller v New York State Div. of Hous. & Community Renewal, 263 AD2d 296; Matter of Jemrock Realty Co. v New York State Div. of Hous. & Community Renewal, 245 AD2d 92; Matter of Wembly Mgt. Co. v New York State Div. of Hous. & Community Renewal, 203 AD2d 118; Matter of Lynch v New York City Employees’ Retirement Sys., 103 AD2d 695; Matter of Fanelli v New York City Conciliation & Appeals Bd., 90 AD2d 756; Matter of Klaus v Joy, 85 AD2d 603; Matter of Mahoney v Altman, 63 Misc 2d 1062.) IV. The Appellate Division correctly determined that the lower court’s remand directive was improper. (Matter of Pantelidis v New York City

      Bd. of Stds. & Appeals, 43 AD3d 314; Matter of Police Benevolent Assn. of N.Y. State Troopers v Vacco, 253 AD2d 920; Matter of Montauk Improvement v Proccacino, 41 NY2d 913; Matter of Board of Educ. of Pleasantville Union Free School Dist. v Ambach, 132 AD2d 257; Matter of Booke v Joy, 88 AD2d 569; Matter of Ligreci v Honors, 162 AD2d 1010; Matter of Porter v New York State Div. of Hous. & Community Renewal, 51 AD3d 417; Matter of Hakim v Division of Hous. & Community Renewal, 273 AD2d 3; Matter of Sherwood 34 Assoc. v New York State Div. of Hous. & Community Renewal, 309 AD2d 529.)
   OPINION OF THE COURT

Jones, J.

Respondent Chelsea Partners, LLC (Owner) owns a three-story, 40-foot-deep building with a basement and eight residential units in Manhattan. Petitioner Daniel Peckham, the sole remaining occupant of the building, resides in an apartment subject to the Rent Stabilization Law and Code.

In May 2004, Owner filed an “Owner’s Application for Order Granting Approval to Refuse Renewal of [Petitioner’s] Lease and/or to Proceed for Eviction” (application) with the New York State Division of Housing and Community Renewal (DHCR). Owner plans to demolish the building and construct a six-story, 70-foot-deep building with 12 dwelling units in its place. According to Owner’s plan, “[t]he Demolition will entail the removal of (a) the roof, (b) entire interior of the Building, (c) all partitions, (d) floor joints, (e) subfloors, and (f) building systems. In addition, much of the facade, and the entire rear wall of the Building will be removed.” Petitioner opposed Owner’s application, arguing that (1) Owner advised the New York City Department of Buildings (DOB) that the job involves “a reconstruction or an alteration” and (2) the evidence of financial ability could not be relied upon because the only thing it established was that the funds in question were held in the name of an entity other than Owner. On December 13, 2005, the Rent Administrator granted Owner’s application, stating that “the owner has satisfied the conditions set forth under Section 2524.5 (a) (2) (i) of the New York City Rent Stabilization Code.”

One month later, petitioner filed a petition for administrative review (PAR) of the Rent Administrator’s order, arguing, in part, that Owner failed to provide adequate proof of its financial ability to complete the undertaking. DHCR disagreed and, by order issued July 27, 2006, denied petitioner’s EAR. Subsequently, petitioner commenced this CPLR article 78 proceeding against DHCR and Owner, seeking reversal of DHCR’s order denying petitioner’s PAR. For the first time, petitioner challenged DHCR’s standards regarding what constitutes a “demolition” and what an apartment building owner has to show in order to demonstrate its “financial ability” to perform a particular undertaking. Despite DHCR’s arguments that the order denying petitioner’s PAR was properly supported, Supreme Court granted the petition to the extent of remanding the matter to DHCR “to clarify the standard used to determine a ‘demolition’ and whether this project is a ‘demolition,’ and to clarify the financial ability of Chelsea [Partners] to complete the project” (2007 NY Slip Op 32087[U], *18).

Following Supreme Court’s order and judgment, DHCR agreed to abide by the court order remanding the matter. Owner appealed to the Appellate Division pursuant to that court’s leave grant. At the Appellate Division, DHCR sought an affirmance of Supreme Court’s order. DHCR argued that (1) “articulation of a standard for demolition applications will allow for more meaningful court review and give both owners and tenants guidance in a controversial area of rent regulation that has created uncertainty and confusion” and (2) more evidence of Owner’s “financial ability” is needed.

In a 3-2 decision, the Appellate Division reversed Supreme Court, concluding that the granting of the petition and remand of the matter to DHCR were improper (54 AD3d 27 [2008]). According to the court, Owner was entitled to treat DHCR’s determination as final. Further, the court ruled that Supreme Court erred in finding that DHCR lacked a conclusive definition of “demolition,” that DHCR’s order denying petitioner’s PAR was not based upon an incomplete factual record, arbitrary, capricious, irrational or contrary to law, that DHCR properly determined that Owner had the financial ability to complete the undertaking, and that Owner established its intent to demolish and replace the building in question. The court also noted that petitioner’s argument regarding DHCR’s lack of appropriate “demolition” standards was not properly before Supreme Court. The dissenting Justices argued in support of Supreme Court’s remand to DHCR by pointing out that the agency should be allowed to exercise its legislatively granted authority to develop rent regulations and accompanying standards. Specifically, they explained that given DHCR’s concessions that there is no definition of demolition in the Rent Stabilization Law or Code, that its demolition determinations have been made on a case-by-case basis and that it did not address the weakness of the evidence regarding Owner’s financial ability, Supreme Court’s remand would give DHCR the opportunity to create standards courts could employ in determining whether DHCR’s determinations are rationally based. Petitioner appeals as of right, pursuant to CPLR 5601 (a), and we now affirm.

Petitioner argues that Owner did not have standing to appeal Supreme Court’s decision. We disagree and hold that the Appellate Division did not act in excess of its powers in granting Owner leave to appeal.

In addition, petitioner challenges DHCR’s lack of a specific definition for the term “Demolition.” This argument was not raised before the Rent Administrator or at petitioner’s PAR. It was raised for the first time in the article 78 proceeding. As it is well settled that an argument “may not be raised for the first time before the courts in an article 78 proceeding” (Matter of Yonkers Gardens Co. v State of N.Y. Div. of Hous. & Community Renewal, 51 NY2d 966, 967 [1980]), this argument is not properly before us.

Petitioner further argues that the evidence of financial ability Owner submitted pertains to a different entity (Three Stars Associates, LLC) and that such evidence does not necessarily inure to the benefit of Owner. Although this argument was raised before the Rent Administrator, it was never repeated at the PAR or in the instant petition. Accordingly, we may not consider this argument.

However, petitioner’s general arguments that DHCR’s actions were arbitraiy and capricious are before us. We hold that these arguments lack merit because there was a rational basis for DHCR’s determination. “In reviewing an administrative agency determination, [courts] must ascertain whether there is a rational basis for the action in question or whether it is arbitrary and capricious” (Matter of Gilman v New York State Div. of Hous. & Community Renewal, 99 NY2d 144, 149 [2002] [citation omitted]). An action is arbitrary and capricious when it is taken without sound basis in reason or regard to the facts (see Matter of Pell v Board of Educ. of Union Free School Dist. No. 1 of Towns of Scarsdale & Mamaroneck, Westchester County, 34 NY2d 222, 231 [1974]). If the court finds that the determination is supported by a rational basis, it must sustain the determination even if the court concludes that it would have reached a different result than the one reached by the agency (id.). Further, courts must defer to an administrative agency’s rational interpretation of its own regulations in its area of expertise (see Kurcsics v Merchants Mut. Ins. Co., 49 NY2d 451, 459 [1980]).

Here, DHCR’s determination denying petitioner’s PAR is consistent with its own rules and precedents; accordingly, there is a rational basis for the determination. It is of no moment that there is no precise or expansive definition of “demolition” in the Rent Stabilization Law and Code. Numerous terms and concepts lack such a definition (see e.g. Rent Stabilization Law [Administrative Code of City of NY] § 26-504 [a] [1] [f] [does not contain a precise definition of “primary residence”]). Further, over the years, DHCR and its predecessor, the Conciliation and Appeals Board of the City of New York (CAB), have not required the proponent of a demolition application to show that it intends to “raze the structure to the ground” (the dictionary definition of “demolition”) in order to be successful. An intent to gut the interior of the building, while leaving the walls intact, has been held as sufficient (see e.g. Matter of Villas of Forest Hills, CAB Op No. 15,680, at 13-14 [1981]; Matter of Mazzia, DHCR Admin Review Docket No. PF410002OE [Sept. 27, 2002]; Matter of Schneider, DHCR Admin Review Docket No. TB420052RT, at 7 [Mar. 16, 2006]). Courts reviewing this interpretation of the term “demolition” have held likewise (see e.g. Application of Gioeli, 221 NYS2d 568 [Sup Ct, NY County 1961]; Matter of Mahoney v Altman, 63 Misc 2d 1062, 1064 [Sup Ct, NY County 1970]; Matter of 412 W. 44th St. Corp., NYLJ, Oct. 19, 1971, at 2, col 5). Here, Owner’s demolition plan comports with DHCR’s long-held interpretation of “demolition.”

Regarding the “financial ability” that must be shown before a demolition application is granted, DHCR has stated that “[e]vidence of financial ability to complete the project may include a Letter of Intent or a Commitment Letter from a financial institution, or such other evidence as DHCR may deem appropriate under the circumstances” (DHCR Operational Bulletin 2002-1). Here, Owner submitted (1) a printout from JP-Morgan Chase Bank verifying that a bank account had been opened and funded in the amount of $4,800,000 and (2) a letter indicating that these funds were to be applied toward Owner’s demolition/construction project. Although the letter was addressed to Three Stars Associates, LLC, there was ample basis for DHCR to infer that this entity and Owner were affiliates; that is, the addressee of the letter (Mr. Larry Tauber) is the principal and agent of both entities. Further, according to the letter, Mr. Tauber indicated how the funds in the bank account would be used. In accordance with DHCR’s procedure, therefore, Owner has demonstrated the requisite financial ability.

As there is a rational basis for DHCR’s order denying petitioner’s PAR, we hold that Owner is entitled to treat this determination as final. Because Owner has satisfied DHCR’s requirements and obtained the necessary approvals, it should be able to proceed with its demolition project without the threat of having to revisit the entire administrative process. To be sure, DHCR has a great deal of authority to modify the orders it renders and the regulations—along with accompanying standards—it administers. However, the question here is not whether DHCR can change its regulations, standards or orders (it certainly can), but when. Here, DHCR may not get what amounts to a second chance to rule on Owner’s application after setting and applying a new standard regarding what constitutes a “demolition.” DHCR may, of course, modify its standards, but it must apply them on a going forward basis.

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

Chief Judge Lippman and Judges Cipakick, Graffeo, Read, Smith and Pigott concur.

Order affirmed, with costs.

      . Rent Stabilization Code (9 NYCRR) § 2524.5 provides:
      “(a) The owner shall not be required to offer a renewal lease to a tenant . . . and shall file on the prescribed form an application with the DHCR for authorization to commence an action or proceeding to recover possession in a court of competent jurisdiction after the expiration of the existing lease term, upon any one of the following grounds: . . .
      “(2) Demolition.
      “(i) The owner seeks to demolish the building. Until the owner has submitted proof of its financial ability to complete such undertaking to the DHCR, and plans for the undertaking have been approved by the appropriate city agency, an order approving such application shall not be issued.”

      . DHCR has agreed to abide by the Appellate Division order and has not appealed to this Court.

      . Under DHCR’s proposed demolition regulations, which will amend Rent Stabilization Code § 2524.5 (a) (2), “demolition” is defined in a manner consistent with DHCR’s application in this case.