text:
    [950 NE2d 915, 927 NYS2d 311]
    In the Matter of L&M Bus Corp. et al., Respondents, v New York City Department of Education et al., Appellants, and Local 1181 of the Amalgamated Transit Union, Intervenor-Appellant.
    Argued May 3, 2011;
    decided June 14, 2011

      POINTS OF COUNSEL

      Michael A. Cardozo, Corporation Counsel, New York City (Dona B. Morris, Francis F. Caputo, Nancy F. Brodie and Michael Adler of counsel), for appellants.
    I. The Employee Protection Provisions comport with competitive bidding laws by safeguarding against disruption of contractual performance, promoting the use of a proven and competent labor force, and removing a barrier that would otherwise depress the pool of interested bidders. (Matter of American Tel. & Tel. Co. v State Tax Commn., 61 NY2d 393; Matter of Procaccino v Stewart, 32 AD2d 486, 25 NY2d 301; Matter of Positive Transp. v City of N.Y. Dept. of Transp., 183 AD2d 660; Matter of C. K. Rehner, Inc. [City of New York], 106 AD2d 268; Abco Bus Co. v Macchiarola, 52 NY2d 938, 75 AD2d 831, 454 US 822; Matter of New York State Ch., Inc., Associated Gen. Contrs. of Am. v New York State Thruway Auth., 88 NY2d 56; Matter of Council of City of N.Y. v Bloomberg, 6 NY3d 380; Matter of Conduit & Found. Corp. v Metropolitan Transp. Auth., 66 NY2d 144; Jered Contr. Corp. v New York City Tr. Auth., 22 NY2d 187; Associated Bldrs. & Contrs. v City of Rochester, 67 NY2d 854.) II. The New York City Department of Education has broad discretion in creating bid specifications for bus transportation for prekindergarten and early intervention program participants. Accordingly, the courts below improperly annulled certain rational and lawful provisions of the bid specifications. (Matter of Acme Bus Corp. v Board of Educ. of Roosevelt Union Free School Dist., 91 NY2d 51; Wells v Alexandre, 130 NY 642; New York Cent. Iron Works Co. v United States Radiator Co., 174 NY 331; HML Corp. v

      General Foods Corp., 365 F2d 77; Matter of McNutt Co. v Eckert, 257 NY 100; Hart v City of New York, 201 NY 45; Brooklyn Ash Removal Co., Inc. v O’Brien, 238 App Div 647; Matter of Suburban Restoration Co. v City of New York, 290 AD2d 378; Grace v Scott, 125 Misc 660, 214 App Div 792; Business Relocation Servs., Inc. v City of New York, 19 Misc 3d 1114[A], 2008 NY Slip Op 50681[U].)

      Meyer, Suozzi, English & Klein, P.C., New York City (Richard A. Brook, Richard N. Gilberg, Robert Marinovic and Melissa S. Woods of counsel), for intervenor-appellant.
    The Appellate Division erred by holding that the Employee Protection Provisions violate applicable competitive bidding laws. (Matter of New York State Ch., Inc., Associated Gen. Contrs. of Am. v New York State Thruway Auth., 88 NY2d 56; Matter of Council of City of N.Y. v Bloomberg, 6 NY3d 380; Matter of Kayfield Constr. Corp. v Morris, 15 AD2d 373; Matter of Albany Specialties v County of Orange, 240 AD2d 739; American Inst. for Imported Steel v Office of Gen. Servs. of State of N.Y., 47 AD2d 118, 38 NY2d 991; Matter of Warren Bros. Co., Div. of Ashland Oil & Ref. Co. v Craner, 30 AD2d 437; Gerzof v Sweeney, 16 NY2d 206; Matter of General Contrs. Assn. of N. Y. v Tormenta, 259 AD2d 177.)

      Wasserman Grubin & Rogers, LLP, New York City (John F. Grubin and James Joyce of counsel), for respondents.
    I. The courts below properly enjoined the New York City Department of Education’s utilization of specifications that prevented rational bids. (Hart v City of New York, 201 NY 45; Brooklyn Ash Removal Co., Inc. v O’Brien, 238 App Div 647; Matter of Sagamore Auto Body v County of Nassau, 104 AD2d 818; Matter of McNutt Co. v Eckert, 257 NY 100; Wells v Alexandre, 130 NY 642; New York Cent. Iron Works Co. v United States Radiator Co., 174 NY 331; Gage v City of New York, 110 App Div 403; Matter of Council of City of N.Y. v Bloomberg, 6 NY3d 380; Matter of General Contrs. Assn. of N.Y. v Tormenta, 259 AD2d 177.) II. The courts below properly struck the New York City Department of Education’s “right” to confiscate 2% of bills it pays within 30 days, a right which serves no public bidding interest and tilts the process toward big School-Age contractors. (Kerr-McGee Chem. Corp. v Harris, 442 F2d 1109.) III. The courts below properly struck Employee Protection Provisions that were imposed neither to save the public money nor to prevent favoritism, improvidence, fraud, or corruption in the award of public contracts. (Matter of New York State Ch., Inc., Associated Gen. Contrs. of Am. v New York State Thruway Auth., 88 NY2d 56;
      Matter of M. Cristo, Inc. v State of N.Y. Off. of Gen. Servs., 42 AD2d 481; Matter of Albany Specialties v County of Orange, 240 AD2d 739; Van-Go Transp. Co., Inc. v New York City Bd. of Educ., 53 F Supp 2d 278; National Woodwork Mfrs. Assn. v NLRB, 386 US 612; Matter of Council of City of N.Y. v Bloomberg, 6 NY3d 380; Matter of Empire State Ch. of Associated Bldrs. & Contrs. v Board of Educ. of City of Buffalo, 269 AD2d 801; Matter of Positive Transp. v City of N.Y. Dept. of Transp., 183 AD2d 660; Matter of Bay Harbour Elec. v County of Chautauqua, 210 AD2d 919; Matter of Long Is. Signal Corp. v County of Nassau, 51 Misc 2d 320.)
   OPINION OF THE COURT

Chief Judge Lippman.

This appeal asks us to decide whether certain specifications in the bid solicitation of the New York City Department of Education (DOE) for a school transportation contract comport with the public bidding laws. We conclude that the “Employee Protection Provisions” (EPPs) contained in the solicitation are subject to heightened scrutiny, and hold that DOE has not proven that the EPPs are designed to save the public money, encourage robust competition, or prevent favoritism. However, we apply rational basis review to the remaining disputed bid specifications and hold that DOE’s actions regarding the pricing of school transportation and discounted payment arrangements are rational business judgments that lie within DOE’s discretion.

L

Prior to 1979, the Board of Education of the City of New York (the Board) administered “Special Education” and “General Education” contracts with private bus companies for the transport of disabled children and the general population of school-aged children to their respective schools. Contracts were awarded pursuant to the competitive bidding procedure under Education Law § 305 (14) and included a provision requiring “replacement” contractors to give hiring priority, according to seniority, to employees of private bus companies who lost their jobs as a result of the change in contractor. When the Board attempted to exclude this provision from certain bid solicitations, members of Local 1181-1061, Amalgamated Transit Union, AFL-CIO (Local 1181) went on strike.

Following a court-ordered arbitration, the Board, Local 1181, and major bus companies entered a settlement, which required the 1979 contracts to include certain EPPs in the specifications. In particular, the EPPs established a master seniority list, requiring contractors with the Board to give priority in hiring to employees on the list when such employees become unemployed because of reassignment of busing contracts. The New York City Department of Transportation (DOT), however, had at the same time been administering transportation contracts for young children in the prekindergarten (Pre-K) and early intervention (El) programs by competitive, sealed bidding, without such EPPs.

In 2006, DOT transferred its Pre-K and El contracts to DOE. Local 1181, which represents approximately 325 drivers and escorts who work for Pre-K and El bus companies, requested that DOE include the EPPs in its solicitation for contract bids. DOE agreed, and the solicitation provided that

“[a]ny new contractors, i.e., those who did not provide service pursuant to contract expiring June, 2008 . . . shall give priority in employment in July, 2008 or thereafter on the basis of seniority to every operator (driver), mechanic, dispatcher and attendant (escort-matron) performing service pursuant to such contract starting from the first employee from the [master seniority list] until such [master seniority list is] exhausted” (Bid Solicitation § 4.24.1.3).

A similar provision applied to existing contractors (see id. § 4.24.1.2).

DOE invited bids for providing transportation between home and school to handicapped children participating in Pre-K and El programs. Bids were required to be submitted “on a per rider per day basis” so that DOE could track transportation costs per child for purposes of its own reimbursement. DOE solicited bids on a five-year contract to transport participants to schools, not necessarily located in the same borough, based on an estimate of the number of participants and the frequency and level of transportation required at any given time. The contract also provided DOE with a 2% discount for timely payment and vendors with increased reimbursement in the event of a reduction in the number of children transported — but only if the decrease were to exceed 30% of ridership.

Petitioners, 23 transportation vendors, commenced this CPLR article 78 proceeding to prevent DOE from implementing the allegedly illegal bid solicitation. Petitioners asserted that the requirement that bids be submitted “on a per rider per day basis” created such grave uncertainties, that potential bidders would submit speculative bids, risk substantial economic harm, or not bid at all. Moreover, petitioners urged that inclusion of EPPs would cause bidders to inflate their bids to protect against the unknown costs of giving priority to whichever employees from the master seniority list were unemployed after the DOE awarded the contracts. Likewise, petitioners claimed that the failure to include in the solicitation the addresses or boroughs of children to be bused, as had been included in DOT’s prior solicitation, prevented bidders from calculating costs. Petitioners also sought revision or removal of nine specific provisions of the solicitation. Local 1181 was granted leave to intervene and moved to dismiss for failure to state a cause of action insofar as petitioners sought to bar the inclusion of EPPs.

As relevant to this appeal, Supreme Court granted the petition to the extent of declaring the following bid specifications unlawful: (i) section 4.24, “Employee Protection Provisions”; (ii) section 1.100 (B), regarding DOE’s right to change the service requirements in the Contractor’s Manual at any time without prior notice; (iii) section 4.10, to the extent it permitted DOE to add entire schools and programs in the vendors’ service requirements without adjusting the vendors’ prices; (iv) section 4.10, to the extent it provided for a price adjustment only in the event of a loss of ridership in excess of 30%; (v) section 1.48, “Liquidated Damages”; and (vi) section 1.35, 2% discount for DOE for “prompt payment” (2008 NY Slip Op 33597[U]). Supreme Court additionally ordered DOE to include in the specifications the addresses of children who currently participated in Pre-K/EI busing.

The Appellate Division affirmed the relevant aspects of Supreme Court’s order (Matter of L&M Bus Corp. v New York City Dept. of Educ., 71 AD3d 127 [1st Dept 2009]). Discussing the uncertainty inherent in various provisions of the bid specifications, the court observed that the solicitation “presents a considerable challenge to potential bidders due to the complexity in ascertaining the extent of the transportation services to be supplied” (id. at 132) and that further difficulty arises in “the uncertainty surrounding the individual contractor’s responsibility for labor costs” (id. at 133). In striking the EPPs, the court reasoned, “the anticompetitive impact resulting from the restriction of the vendors’ autonomy to hire nonunion workers subjects these arrangements to the same scrutiny applied to [project labor agreements]” (id. at 135).

We granted leave to appeal (15 NY3d 889 [2010]) and now modify the Appellate Division order.

II

General Municipal Law § 103 (1) mandates that “all contracts for public work ... be awarded ... to the lowest responsible bidder.” Education Law § 305 (14) and Family Court Act § 236 (3) (b), which governs the busing of children participating in El programs, similarly require that transportation contracts be awarded to the lowest responsible bidder. Dual aims underlie these requirements: “(1) protection of the public fisc by obtaining the best work at the lowest possible price; and (2) prevention of favoritism, improvidence, fraud and corruption in the awarding of public contracts” (Matter of New York State Ch., Inc., Associated Gen. Contrs. of Am. v New York State Thruway Auth., 88 NY2d 56, 68 [1996] [hereinafter New York State Chapter]).

DOE contends that the Appellate Division erred by applying to EPPs the heightened standard of review used to evaluate Project Labor Agreements (PLAs). A PLA is “a prebid contract between a construction project owner and a labor union (or unions) establishing the union as the collective bargaining representative for all persons who will perform work on the project” and typically “provides that only contractors and subcontractors who sign a prenegotiated agreement with the union can perform project work” (id. at 65). Consistent with the goals of public bidding laws, we held in Matter of Council of City of N.Y. v Bloomberg (6 NY3d 380 [2006] [hereinafter Council v Bloomberg]) that “PLAs and other procedures having an anti-competitive effect on the bidding process can be justified only by proof that they are designed to save the public money by causing contracts to be performed at smaller cost or without disruption” (id. at 392).

In New York State Chapter (88 NY2d at 65), we ruled that the features of PLAs that trigger heightened scrutiny are their atypical nature and comprehensive scope:

“Generally, when a public entity adopts a specification in the letting of public work that impedes the competition to bid for such work, it must be rationally related to these twin purposes. Where it is not, it may be invalid [citing Associated Bldrs. & Contrs. v City of Rochester, 67 NY2d 854, 855 (1986)].
“As applied particularly to PLAs, which are clearly different from typical prebid specifications in their comprehensive scope, more than a rational basis must be shown. The public authority’s decision to adopt such an agreement for a specific project must be supported by the record; the authority bears the burden of showing that the decision to enter into the PLA had as its purpose and likely effect the advancement of the interests embodied in the competitive bidding statutes. Judicial review, although limited, is not without importance in that it safeguards the interests protected by the competitive bidding mandate. PLAs may not be approved in a pro forma manner” (New York State Chapter, 88 NY2d at 68-69 [emphasis added]).

Hence, we distinguish between common specifications that, while challenged as having an anticompetitive effect, are not anticompetitive on their face, and atypical ones that are patently restrictive. Even common specifications, like construction materials or design criteria (see id. at 65) may impede competition by excluding those who cannot meet them. For example, a bid specification that requires that a contractor only use a certain shade of paint may not be anticompetitive on its face. But, if a bidder challenges the requirement on the ground that only one store in the area sells the particular shade of paint and the store exclusively sells that paint to one of the bidders, then the public entity will have to show a rational basis on review in order for the specification to withstand the challenge. Unlike a specification designating the color of paint to be used in a public works project or the time frame for completion of a project, EPPs are precisely the sort of atypical, restrictive and comprehensive prebid specifications that invoke the heightened scrutiny standard set forth in New York State Chapter and Council v Bloomberg.

In the first place, EPPs are unique. DOE has not pointed to any other municipality in the nation that has imposed a requirement that successor contractors retain the employees who were laid off when the previous contractor lost the bid at the same salary and benefit levels that the predecessor contractor provided.

With regard to the comprehensiveness of EPPs as compared to PLAs, EPPs are permanent and PLAs are job-specific. A PLA pertains to a single construction project and ends when the project is completed. By contrast, the EPPs that DOE introduced to its School-Age contracts in 1979 impact the entire industry of pupil transportation services provided under contract with DOE. They apply to all contracts for pupil transportation for all public schools throughout the City and, in practice, have remained in place continually from 1979 to 2011. Moreover, the consequences of EPPs are at least as far-reaching as those of PLAs. In the case of a new contractor, the EPPs proscribe the use of the contractor’s work force altogether, as long as a single employee of the predecessor contractor is available for employment. EPPs dictate who the contractor must hire and what salary and benefits they must provide and makes these matters nonnegotiable.

Accordingly, we hold that EPPs are comparable to PLAs in their status as atypical, patently restrictive, comprehensive prebid specifications and in their potential for anticompetitive consequences. We therefore employ the more stringent review and turn to an assessment of whether, pursuant to Council v Bloomberg, DOE has demonstrated “proof that [EPPs] are designed to save the public money by causing contracts to be performed at smaller cost or without disruption” (6 NY3d at 392).

III.

Appellants fail to refute the facially anticompetitive features of the EPPs, which tend to invite cost-inflation and discourage new bidders from attempting to compete with the long-term contract holders. As the Appellate Division noted,

“[t]he EPP provisions at issue raise the prospect that a vendor will be required to assume a competing contractor’s labor costs, requiring that the vendor’s bid reflect not only the known expense of compensating its own employees but also the unknown and potentially much greater expense of compensating a competitor’s employees” (71 AD3d at 134).

Even if a new bidder can ascertain the pay scale of the existing contractor, the bidder does not know how many of the predecessor’s employees will need to be retained or the salaries of the individual employees, which vary by seniority and other factors. In these circumstances, prudent bidders might inflate their bids to cover the contingency of having to pay unspecified salaries for a large number of a predecessor’s work force, and the small-scale operations that currently hold the Pre-K/EI contracts might avoid the contest altogether for fear of losing the gamble.

A brief look at the history of New York City’s public busing contracts since 1979 suggests that, in practice, the EPPs have had anticompetitive and cost-inflating effects. The existence of EPPs has resulted in the School-Age transportation contracts being performed by the same companies with roughly the same employees, year after year. By contrast, Pre-K/EI transportation, which lacks EPPs, has proceeded with competitive bidding by a variety of small-scale companies, without serious reports of corruption or labor disruption, and without threats from the unions to strike or pressure to introduce EPPs. In short, the introduction of EPPs to the Pre-K/EI bid specifications might eliminate the cost-saving, pro-competition advantages Pre-K/EI busing has enjoyed and would likely introduce the same problems of favoritism and monopolization of the market by large contractors that has beset the School-Age contracts.

DOE counters the charges that EPPs are expensive and anti-competitive with claims that the failure to introduce EPPs into Pre-K/EI contracts will cause labor strikes, which will in turn lead to disruption of contract performance. As the courts below noted, the likelihood of a strike disrupting Pre-K/EI operations is not at all clear. It would appear questionable that employees of School-Age transportation vendors would strike in order to introduce EPPs into the Pre-K/EI bids, especially since most of the current Pre-K/EI vendors are not unionized.

An additional rationale proffered for the inclusion of EPPs is to promote a skilled, safety-conscious work force comprised of veteran bus drivers. While anti-displacement provisions might be viewed as socially beneficial, the bidding laws are not the proper avenue for achieving such goals (see Associated Bldrs. & Contrs. v City of Rochester, 67 NY2d 854, 856 [1986] [holding that apprenticeship training to foster a skilled work force “while a desirable end, was not intended by the State Legislature to affect the qualification of an otherwise responsible low bidder”]). Indeed, this goal could be achieved by substantially less restrictive measures, such as the imposition of an experience requirement in the bidding specifications.

Based on the foregoing, we find that DOE has not met its burden of demonstrating how EPPs reduce costs or prevent disruption of service.

IV

All but one of the remaining disputed bid specifications is broadly related to DOE’s implementation of a modified “requirements contract” in its Pre-K/EI pricing scheme, and the last is a specification granting DOE a 2% discount for prompt payment of its bills. These specifications are not facially anticompetitive; rather they reflect the difficulty of soliciting bids to meet the vast, constantly changing demands on DOE to provide transportation to New York City school children. Accordingly, we apply the ordinary rational basis review for article 78 proceedings in assessing the validity of these specifications. Under this standard, petitioners have the burden of demonstrating that the contracting agency’s determination is unlawful or improper (see e.g. Matter of Acme Bus Corp. v Board of Educ. of Roosevelt Union Free School Dist., 91 NY2d 51, 55 [1997]).

DOE maintains that the “per rider per day” scheme that it seeks to implement in place of the “price per vehicle per day” scheme, which the Pre-K/EI contracts have utilized for 15 years, is equivalent to a requirements contract. This new scheme, DOE asserts, will motivate contractors to be efficient and hold down unnecessary costs. Petitioners counter that uncertainties as to where each child will have to be bused to and from and how many schools will open or close during the contract period, as well as legal restrictions that limit the amount of time a child can be on a bus for each trip, make the per rider per day scheme different from any ordinary requirements contract. With so many variables at work, petitioners insist that they will be forced to inflate bids in order to cover the most costly scenarios.

The lower courts did not strike down the per rider per day pricing scheme, but did strike the bid specifications that gave DOE: (1) “power and sole discretion to add, delete, revise, update, reissue and/or otherwise change any or all rules, procedures, and/or requirements contained in the Contractor’s Manual at any time without prior notice to the Contractor”; (2) power to delete entire schools and programs in the vendors’ service requirements without an adjustment in the vendors’ unit prices; (3) power to require a contractor to service any new school after the contract is entered into, at the same unit price originally bid; and (4) the advantage of not having to adjust prices except in the event of a loss of ridership in excess of 30%.

We now reverse the Appellate Division’s order as it pertains to these bid specifications and hold that petitioners have failed to meet their burden to show that DOE’s decisions regarding its implementation of the per rider per day pricing scheme are irrational. We decline to second-guess DOE’s business judgment that the public interest and the aims of the bidding laws are served by a system that allocates the risks of the inevitable changes in the needs of the busing system over the length of the contract to the vendors, rather than to DOE.

Likewise, we reverse that part of the Appellate Division order that struck DOE’s inclusion of a 2% discount for all payments made within 30 days of receipt of the vendor’s invoice. The Appellate Division reasoned that the provision encouraged vendors to inflate their bids by 2% in anticipation of the deduction and, as such, contravened the goal of securing the lowest possible bids. Yet, DOE has offered the rational explanation that these discounts encourage DOE to make prompt payments, which in turn benefits vendors, who might otherwise be compelled to borrow to cover ongoing expenses. Furthermore, since the prompt payment provision applies equally to all bidders, there is no anticompetitive aspect of this specification. Again under rational basis review, we find the 2% discount to represent a legitimate exercise of DOE’s business judgment, which should not be disturbed.

Accordingly, the order of the Appellate Division, insofar as appealed from, should be modified, without costs, in accordance with this opinion and, as so modified, affirmed.

Judges Ciparick, Graffeo, Read, Smith, Pigott and Jones concur.

Order, insofar as appealed from, modified, etc.

      . In the original bid specifications, DOE did not provide any information about the location of current participating students’ addresses. Petitioners sought this information in the courts below and Supreme Court ordered that DOE provide the addresses. The Appellate Division modified the order and instead required DOE to provide the cross streets of the participating children (see 71 AD3d 127, 138-139 [1st Dept 2009]). The parties have since settled this dispute; accordingly the issue is no longer before this Court.

      . Because Pre-K contracts are awarded together with El contracts, they are equally subject to the competitive bidding laws.


source: Caselaw Access Project

author:
Graffeo, J.
      Pigott, J.

license: Public Domain

text:
    [951 NE2d 369, 927 NYS2d 821]
    Commodity Futures Trading Commission, Respondent, v Stephen Walsh et al., Defendants, and Janet Walsh, Appellant; Securities and Exchange Commission, Respondent, v WG Trading Investors, L.P., et al., Defendants, and Janet Walsh, Appellant, et al., Relief Defendant.
    Argued May 31, 2011;
    decided June 23, 2011

      POINTS OF COUNSEL

      Law Offices of Steven L. Kessler, New York City (Steven L. Kessler and Eric M. Wagner of counsel), for appellant.
    I. The first certified question should be answered in the affirmative under the facts of this case. (Wildenstein & Co. v Wallis, 79 NY2d 641; Burns v Burns, 84 NY2d 369; Price v Price, 69 NY2d 8; Fields v Fields, 15 NY3d 158; DeJesus v DeJesus, 90 NY2d 643; Majauskas v Majauskas, 61 NY2d 481; Musso v Ostashko, 468 F3d 99; Rainbow v Swisher, 72 NY2d 106; Doe v Doe, 29 Misc 3d 483; Vandelli v Vandelli, 266 AD2d 280.) II. The second certified question should be answered in the affirmative under the facts of this case. (Halsey v Winant, 258 NY 512, 287 US 620; Joslin v Lopez, 309 AD2d 837; Matter of American Inv. Bank v Marine Midland Bank, 191 AD2d 690; United States v McCombs, 30 F3d 310; Marine Midland Bank v Murkoff, 120 AD2d 122, 69 NY2d 875; Southern Indus. v Jeremias, 66 AD2d 178; Federal Deposit Ins. Co. v Malin, 802 F2d 12; Marine Midland Bank-N.Y. v Batson, 70 Misc 2d 8; Orbach v Pappa, 482 F Supp 117; Safie v Safie, 24 AD2d 502, 17 NY2d 601.)

      Nancy R. Doyle, Assistant General Counsel, Commodity Futures Trading Commission, of the District of Columbia bar, admitted pro hac vice, Dan M. Berkovitz, Washington, D.C., and Gloria P. Clement, for Commodity Futures Trading Commission, respondent.
    I. “Marital property” within the meaning of Domestic Relations Law § 236 does not include the proceeds of fraud. (Commodity Futures Trading Commn. v Kimberlynn Cr. Ranch, Inc., 276 F3d 187; Sharp v Kosmalski, 40 NY2d 119; In re First Cent. Fin. Corp., 377 F3d 209; Republic of Philippines v Marcos, 806 F2d 344; Securities & Exch. Commn. v Cavanagh, 155 F3d 129; Eberhard v Marcu, 530 F3d 122; Chicago Tit. & Trust Co. v Fox Theatres Corp., 69 F2d 60; Securities & Exch. Commn. v Unifund SAL, 910 F2d 1028; Levi Strauss & Co. v Sunrise Intl. Trading Inc., 51 F3d 982; Federal Trade Commn. v Southwest Sunsites, Inc., 665 F2d 711.) II. A spouse does not pay “fair consideration” according to the terms of Debtor and Creditor Law § 272 when she relinquishes in good faith a claim to the proceeds of fraud. (Butner v United States, 440 US 48; O’Brien v O’Brien, 66 NY2d 576; United States v Red Stripe, Inc., 792 F Supp 1338; Matter of Shelly v Doe, 249 AD2d 756; Kasinski v Questel, 99 AD2d 396; Federal Deposit Ins. Co. v Malin, 802 F2d 12; HBE Leasing Corp. v Frank, 61 F3d 1054.) III. This Court should not accept Ms. Schaberg’s invitation to resolve in her favor unsupported or disputed factual assertions. (In re Nortel Networks Corp. Sec. Litig., 539 F3d 129; United States v Monsanto, 924 F2d 1186; Nickel v Bank of Am. Natl. Trust & Sav. Assn., 290 F3d 1134; Matter of Rothko, 43 NY2d 305; Securities & Exch. Commn. v Better Life Club of Am., Inc., 995 F Supp 167; Securities & Exch. Commn. v Infinity Group Co., 993 F Supp 324; Securities & Exch. Commn. v Colello, 139 F3d 674.)

      Allan A. Capute, of the District of Columbia bar, admitted pro hac vice, Mark Cahn, Washington, D.C., Anne K. Small and Jacob H. Stillman, for Securities and Exchange Commission, respondent.
    I. Proceeds of fraud are not marital property within the meaning of Domestic Relations Law § 236. (Solomon v Solomon, 307 AD2d 558, 1 NY3d 546; LaPaglia v LaPaglia, 134 Misc 2d 1030; McMerty v Herzog, 702 F2d 127; Wrightsman v Commissioner of Internal Revenue, 111 F2d 227; Eigenbrodt v Eigenbrodt, 217 AD2d 752; Matter of State of New York v Goldstein, 170 AD2d 789; Capasso v Capasso, 129 AD2d 267; Kohl v Kohl, 24 AD3d 219; SEC v Capital Gains Research Bureau, Inc., 375 US 180; Rogers v Rogers, 63 NY2d 582.) II. Under Debtor and Creditor Law § 272, a spouse does not pay “fair consideration” — which must be a “fair equivalent” value — when she relinquishes a claim to the proceeds of fraud, regardless of whether she does so in good faith. (Lippe v Bairnco Corp., 249 F Supp 2d 357; United States v Loftis, 607 F3d 173; BFP v Resolution Trust Corporation, 511 US 531; United States v Glen-eagles Inv. Co., Inc., 565 F Supp 556; United States v Tabor Ct. Realty Corp., 803 F2d 1288; Federal Deposit Ins. Co. v Malin, 802 F2d 12; Safie v Safie, 24 AD2d 502, 17 NY2d 601; United States v Barrier Indus., Inc., 991 F Supp 678; Century Ctr. v Davis, 100 AD2d 564; McMerty v Herzog, 702 F2d 127.)

      Elliott Scheinberg, Staten Island, Nancy Kellman, White Plains, Allan Mayefsky, New York City, Michael Stutman and Aaron Weitz, amici curiæ.
    I. Janet Schaberg’s three contentions fail individually and are also internally contradictory. II. Janet Schaberg’s desperate interpretation that stolen property becomes part of the marital estate corrupts principles of equity. III. The stolen monies never entered the marital estate. IV. Spousal agreements, as contracts, require lawful consideration: the Schaberg-Walsh agreement is void because neither was possessed of lawfully obtained assets, thereby voiding the agreement for want of consideration. (Rainbow v Swisher, 72 NY2d 106; Matter of Boden v Boden, 42 NY2d 210; Village of Upper Nyack v Christian & Missionary Alliance, 143 Misc 2d 414, 155 AD2d 530; Sayres v Decker Auto. Co., 239 NY 73; Sweinhart v Bamberger, 166 Misc 256.) V. Janet Schaberg asserts that part of her consideration was her waiver of the right to seek additional equitable distribution: she could never have sought distribution of illicit assets. (LaPaglia v LaPaglia, 134 Misc 2d 1030.) VI. Spousal rights to property acquisition and distribution arise exclusively under the Domestic Relations Law and no other statutory scheme, such as the Debtor and Creditor Law. (Hoops v Hoops, 292 NY 428; Pajak v Pajak, 56 NY2d 394; Matter of Seitz v Drogheo, 21 NY2d 181; Price v Price, 69 NY2d 8; Murphy v Murphy, 56 Misc 2d 946; Eccles v Hutchinson, 28 Misc 2d 412; Enthoven v Enthoven, 167 Misc 686, 256 App Div 813; Bowler v Bowler, 46 Misc 2d 821; Tuitt v Tuitt, 36 Misc 2d 418.) VII. Janet Schaberg improperly seeks protection under the Debtor and Creditor Law. VIII. “Bona fide purchaser,” under the Debtor and Creditor Law, focuses only on the transferee’s intent. Janet Schaberg was also a transferor because she held dual possessory interests in the properties, both as joint owner and as partner in the marital estate, rendering her ineligible for transferee status. (O’Brien v O’Brien, 66 NY2d 576.) IX. Under the Debtor and Creditor Law, Janet Schaberg was a transferor who gave and received illicit consideration and could therefore not transfer the jointly held assets to herself and Stephen Walsh. (In re Sharp Intl. Corp., 403 F3d 43; Morse v Howard Park Corp., 50 Misc 2d 834; Bankers Sec. Life Ins. Socy. v Shakerdge, 49 NY2d 939.) X. The canons of statutory construction require that the first certified question be answered in the negative: the Domestic Relations Law does not deem proceeds of fraud marital property. (Blickstein v Blickstein, 99 AD 2d 287; Hasegawa v Hasegawa, 290 AD2d 488; Maharam v Maharam, 245 AD2d 94.) XI. A matrimonial court could not have distributed the Walsh estate. (Janke v Janke, 47 AD2d 445, 39 NY2d 786.) XII. The Second Circuit misapplied Price v Price (69 NY2d 8 [1986]). XIII. The canons of statutory construction underscore extraordinary caution to avoid any construction which (1) is unjust to third parties, such as creditors; (2) is unreasonable; (3) is absurd; or (4) creates hardships. (People ex rel. United States Aluminium Print. Plate Co. v Knight, 174 NY 475; People v Equitable Trust Co. of New London, Conn., 96 NY 387; People v Home Ins. Co., 92 NY 328.) XIV. New York, albeit by only a trial court, and other states reject property distribution of stolen assets to spouses not involved in the illegality; constructive trusts are imposed on such assets. (Sharp v Kosmalski, 40 NY2d 119; Bankers Sec. Life Ins. Socy. v Shakerdge, 49 NY2d 939; Simonds v Simonds, 45 NY2d 233; LaPaglia v LaPaglia, 134 Misc 2d 1030; McMerty v Herzog, 702 F2d 127.) XV. Janet Schaberg advances an absurd theory which was handily rejected by the First Department elsewhere. (Litvak v Litvak, 63 AD3d 691; Fehring v Fehring, 58 AD3d 1061; Wiener v Wiener, 57 AD3d 241; LeRoy v LeRoy, 274 AD2d 362.)
   OPINION OF THE COURT

Graffeo, J.

Stephen Walsh is a defendant in related actions brought by plaintiffs Commodity Futures Trading Commission and Securities and Exchange Commission (the Agencies) alleging violations of the anti-fraud provisions of the Commodity Exchange Act and the Securities Exchange Act. The Agencies claim that between 1996 and 2009, Walsh and his codefendant, Paul Greenwood, misappropriated more than $550 million from funds they managed for various public and private institutional investors.

The Agencies also pursued disgorgement efforts against Janet Schaberg, the former spouse of Walsh, seeking to recover any proceeds she held of the fraud perpetuated by Walsh. Although there is no indication that she was aware of or participated in any wrongdoing related to her ex-husband’s fraudulent scheme, the Agencies allege that a sizable amount of property derived from Walsh’s illegal securities activities went into Schaberg’s possession under the parties’ separation agreement and divorce decree.

The United States Court of Appeals for the Second Circuit asks us two questions to assist it in discerning whether Schaberg has a legitimate claim to those funds, which would prevent the Agencies from obtaining disgorgement from her. These questions involve the interplay of the Domestic Relations Law and the Debtor and Creditor Law and implicate significant public policy considerations.

Background

Walsh and Schaberg were married in 1982 and have two children. Over the course of their 25-year marriage, Walsh was a substantial shareholder in or a management partner of a number of successful business enterprises, such as Champion Sportswear and Tánger Malls/Prime Outlets. As a couple, they acquired a number of homes, including condominiums in Florida and New York City, and a house in Port Washington, New York. Schaberg did not have outside employment during the marriage, but she volunteered at a number of charitable organizations.

In 2004, Schaberg and Walsh separated and divorce proceedings were initiated in early 2005. They entered into a “Stipulation of Settlement and Agreement” in November 2006 pursuant to Domestic Relations Law § 236 (B) (3). Under the terms of the agreement, Schaberg conveyed her ownership interest in the Port Washington marital residence (with an alleged value of about $7.5 million) to Walsh and she received sole ownership of the condominiums in New York City and Florida (with an alleged value of approximately $6.7 million). The agreement also provided that Schaberg would retain nearly $5 million held in several checking accounts and Walsh waived all claims to such monies. Walsh further agreed to pay Schaberg a distributive award of $12.5 million, payable in biannual installment payments through 2020. As part of the settlement, Schaberg further waived any claim for maintenance based on the parties’ lengthy marriage and, except as otherwise provided in the agreement, relinquished her right “to a distributive award or an award of equitable distribution with respect to any property acquired by [Walsh] either before or during the marriage.” In April 2007, the settlement agreement was incorporated, but not merged, into the parties’ final judgment of divorce. Schaberg moved to Florida in 2007 and remarried a year later.

Nearly two years after entry of the judgment of divorce, the Agencies filed separate complaints in the United States District Court for the Southern District of New York alleging large-scale fraud by Walsh, Greenwood and various investment entities they controlled. Both complaints sought monetary penalties from the named defendants and disgorgement of ill-gotten gains from the defendants and relief defendants alike. Schaberg was named as a relief defendant, along with other parties believed to be in possession of proceeds from the fraudulent securities scheme.

The District Court granted the Agencies’ requests for preliminary injunctions freezing six of Schaberg’s brokerage and bank accounts containing approximately $7.6 million. The court also prohibited Schaberg from transferring any real property, jewelry or artwork without court approval, thereby effectively freezing the bulk of her assets. Schaberg appealed, arguing that the District Court erred in issuing the injunctions because the property targeted by the injunctions was not subject to disgorgement.

The Second Circuit recognized that federal district courts have the power to order disgorgement from a relief defendant upon a finding that the party “(1) is in possession of ill-gotten funds and (2) lacks a legitimate claim to those funds” (618 F3d 218, 225 [2d Cir 2010]). In this case, the Second Circuit has determined that the question as to whether the injunctions were properly issued turns on whether the District Court correctly found, as a matter of law, that Schaberg lacked a legitimate claim to the funds. Acknowledging Schaberg’s assertion that she has a valid claim to the funds because “she acquired her assets pursuant to the separation agreement she executed with Walsh in their divorce proceedings, and that by executing this agreement she became a good faith purchaser for value of the assets” (id. at 226), the court held that resolution of Schaberg’s contention implicated open issues of New York law. The Second Circuit therefore certified the following two questions to us:

“(1) Does ‘marital property’ within the meaning of New York Domestic Relations Law § 236 include the proceeds of fraud?
“(2) Does a spouse pay ‘fair consideration’ according to the terms of New York Debtor and Creditor Law § 272 when she relinquishes in good faith a claim to the proceeds of fraud?” (Id. at 231-232.)

The Second Circuit also invited this Court to “reformulate these questions as it sees fit, or expand them to address any other issues of New York law pertinent to these appeals” (id. at 232).

Marital Property

Schaberg asserts that she validly acquired certain assets pursuant to the settlement agreement, and that by entering into this agreement she became a good faith purchaser for value of the distributed property. The Agencies respond that monies derived from the securities fraud were not part of the marital estate in the first instance and, consequently, cannot be retained or transferred through equitable distribution of marital assets under Domestic Relations Law § 236. The parties’ legal arguments raise difficult policy questions, requiring us to weigh the competing interests of the original owners of funds stolen in a fraudulent scheme against the innocent former spouse of the defrauder.

We begin with the language and purpose of Domestic Relations Law § 236, which codifies New York’s Equitable Distribution Law. Under the terms of the statute, section 236 “contemplates only two classes of property: marital property and separate property” (O’Brien v O’Brien, 66 NY2d 576, 583 [1985]). Marital property is defined as “all property acquired by either or both spouses during the marriage and before the execution of a separation agreement or the commencement of a matrimonial action, regardless of the form in which title is held” (Domestic Relations Law § 236 [B] [1] [c]), and this broad definition “includes a wide range of tangible and intangible interests” (Fields v Fields, 15 NY3d 158, 162 [2010], rearg denied 15 NY3d 819 [2010] [internal quotation marks and citation omitted]). Separate property, in contrast, is narrowly limited to four discrete categories, none of which are applicable to this case.

Domestic Relations Law § 236 requires that a trial court equitably distribute marital property between the parties upon the dissolution of the marriage, while separate property remains with the original spousal owner (see Domestic Relations Law § 236 [B] [5]). In making its distributive determination, the court is to consider a variety of statutory factors, including the duration of the marriage, the age and health of the parties, the income of each party, the extent of any maintenance award, the probable future financial circumstances of each party, and the nontitled spouse’s direct or indirect contributions to the marriage, including “services as a spouse, parent, wage earner and homemaker” (Domestic Relations Law § 236 [B] [5] [d]). New York’s Equitable Distribution Law also permits the parties — as happened here — to contract out of the elaborate statutory scheme and instead agree to a division or distribution of property, provided financial disclosure and the statutory requirements for a valid separation agreement are satisfied (see Domestic Relations Law § 236 [B] [3]).

The Legislature adopted the Equitable Distribution Law in 1980 to replace the existing system of distribution, which had depended, in large measure, on the traditional common-law title theory of property. In recognition that marriage represents “an economic partnership to which both parties contribute as spouse, parent, wage earner or homemaker,” the Equitable Distribution Law was designed on “an entirely new theory which considered all the circumstances of the case and of the respective parties to the marriage” (O’Brien, 66 NY2d at 585). The comprehensive regime

“reflects an awareness that the economic success of the partnership depends not only upon the respective financial contributions of the partners, but also on a wide range of nonremunerated services to the joint enterprise, such as homemaking, raising children and providing the emotional and moral support necessary to sustain the other spouse in coping with the vicissitudes of life outside the home” (Price v Price, 69 NY2d 8, 14 [1986] [internal quotation marks and citations omitted]).

Consistent with this purpose, and implicit in the statutory framework as a whole, is the concept that “upon dissolution of the marriage there should be a winding up of the parties’ economic affairs and a severance of their economic ties by an equitable distribution of the marital assets” (O’Brien, 66 NY2d at 585).

Against this legislative backdrop, we must decide whether the dictates of Domestic Relations Law § 236 and the purposes of equitable distribution permit the transfer of marital assets to a recipient spouse who is unaware that some or all of those assets were illegally acquired by the other spouse. The statute expansively defines marital property to encompass “all property acquired” by either spouse during the course of the marriage and there is a presumption that “all property, unless clearly separate, is deemed marital property” (Fields, 15 NY3d at 163 [internal quotation marks and citation omitted]). Furthermore, the term “acquired” does not require that property be segregated by its methods of acquisition; it merely means that a person gains possession (see Black’s Law Dictionary 26 [9th ed 2009]). Given that we have repeatedly held that the scope of marital property is to be “construed broadly” (see e.g. Mesholam v Mesholam, 11 NY3d 24, 28 [2008] [internal quotation marks and citation omitted]), we conclude that the proceeds of fraud can constitute marital property as defined in Domestic Relations Law § 236 and answer the first certified question in the affirmative. It is therefore possible under the Domestic Relations Law to transfer assets derived from fraud to an innocent and unknowing spouse in a divorce proceeding.

Nevertheless, the Agencies argue that, putting aside the language of Domestic Relations Law § 236 and focusing on public policy considerations favoring the return of stolen property to its rightful owner, we should carve out an exception to the broad definition of marital property for the proceeds of fraud. They suggest that where, as here, it is alleged that the property transferred in a divorce proceeding was itself derived from stolen funds, a court should not reach the issue of fair consideration (the topic of the Second Circuit’s second certified question) because it is simply irrelevant whether fair consideration was given. In their view, the original owner — a victim of embezzlement and not a mere creditor — should have an absolute right to seek disgorgement of the previously distributed property from the transferee-spouse. Although these contentions have appeal, we are unable to agree.

It has long been the law of this State that “money obtained by fraud or felony cannot be followed by the true owner into the hands of one who has received it bona fide and for a valuable consideration in due course of business” (Stephens v Board of Educ. of Brooklyn, 79 NY 183, 186 [1879]). This principle is premised on the recognition that, in contrast to chattels, “money has no earmark” and “cannot be identified” (Hatch v Fourth Natl. Bank of City of N.Y., 147 NY 184, 192 [1895]). At its core, our rule favoring innocent transferees of stolen funds over defrauded owners is rooted in New York’s “concern for finality in business transactions” (Banque Worms v BankAmerica Intl., 77 NY2d 362, 372 [1991]). We have explained that

“to permit in every case of the payment of a debt an inquiry as to the source from which the debtor derived the money, and a recovery if shown to have been dishonestly acquired, would disorganize all business operations and entail an amount of risk and uncertainty which no enterprise could bear” (id. [internal quotation marks and citation omitted]).

Similar concerns are relevant in the matrimonial realm. Ex-spouses have a reasonable expectation that, once their marriage has been dissolved and their property divided, they will be free to move on with their lives. To hold that the proceeds of fraud acquired by one spouse unbeknownst to the other cannot be subject to equitable distribution or conveyed through a settlement agreement as marital property would undermine one of the fundamental policies underlying the equitable distribution process, namely finality. The exception proposed by the Agencies would effectively undo court orders and settlement agreements for an indeterminate time after the “winding up of the parties’ economic affairs” (O’Brien, 66 NY2d at 585), and “subvert the policy of upholding settled domestic relations . . . in divorce cases” (Rainbow v Swisher, 72 NY2d 106, 111 [1988]; see also Boronow v Boronow, 71 NY2d 284, 290-291 [1988]).

Moreover, as a practical matter, where the innocent spouse and matrimonial court are unaware of the tainted nature of particular assets, distribution of marital assets under Domestic Relations Law § 236 (or pursuant to an opt-out settlement agreement) would become unworkable, particularly where the illegal activity of one spouse is not revealed for a number of years subsequent to the divorce, as occurred in this case. Analogizing to the rule articulated in Stephens and Hatch in the business setting, we conclude that monies obtained by fraud cannot be followed by the original owner into the hands of an innocent former spouse who now holds them (or assets derived from them) as a result of a divorce proceeding where that spouse in good faith and without knowledge of the fraud gave fair consideration for the transferred property. That being said, whether Schaberg acted in good faith and paid fair consideration for the tainted property that came into her possession pursuant to the settlement agreement is another matter and is at the heart of the Second Circuit’s second question, to which we now turn.

Fair Consideration

Schaberg contends that the District Court erred in holding, as a matter of law, that she lacked a legitimate claim to the frozen funds. She argues that she provided fair consideration in exchange for the allegedly fraudulent proceeds and thereby became a good faith purchaser for value through her execution of an arm’s length separation agreement. She also claims that there is no evidence that she had knowledge of her ex-husband’s illegal conduct, particularly since he had a history of being a successful entrepreneur and securities trader, nor did she engage in collusion in the divorce proceeding to deprive the defrauded parties recovery of their investments. The Agencies counter that, as a matter of law, Schaberg could not have given fair consideration because, in exchange for acquiring assets that were later determined to be derived from fraud, she only gave up a claim to a larger portion of the marital estate, which also consisted of Walsh’s proceeds of fraud and, as such, her consideration was illusory. Again, both parties raise compelling arguments.

Debtor and Creditor Law § 278 provides that a creditor whose claim has matured may have a fraudulent conveyance set aside “against any person” other than a good faith purchaser for value, defined as “a purchaser for fair consideration without knowledge of the fraud” (Debtor and Creditor Law § 278 [1]). Fair consideration is given for property “[w]hen in exchange for such property, ... as a fair equivalent therefor, and in good faith, property is conveyed or an antecedent debt is satisfied” (Debtor and Creditor Law § 272 [a]). It is well settled that an evaluation of whether fair consideration is given for property under Debtor and Creditor Law § 272 must “be determined upon the facts and circumstances of each particular case” (Halsey v Winant, 258 NY 512, 523 [1932]).

In assessing whether a spouse pays fair consideration within the meaning of Debtor and Creditor Law § 272 in connection with a property distribution made pursuant to a separation agreement incorporated into a judgment of divorce, a court must examine a number of factors. Since consideration cannot be predicated on a spouse’s relinquishment of a claim to a greater share of the proceeds of fraud, the first step is to determine whether the spouse relinquished rights to other untainted assets in the marital estate. Clearly, this would constitute fair consideration.

Second, a court needs to look beyond the tangible marital property at issue because New York recognizes other forms of legitimate consideration, including nonmonetary consideration. For example, New York courts have found fair consideration where a spouse releases a claim for maintenance (see Federal Deposit Ins. Co. v Malin, 802 F2d 12, 20 [2d Cir 1986]; In re Fair, 142 BR 628, 631 [ED NY 1992]; Darling v Darling, 22 Misc 3d 343, 358 [Sup Ct, Kings County 2008]) or where consideration is predicated on “legally cognizable aspects of [the transferor’s] child support obligation” (see First Fed. Sav. & Loan Assn. of Rochester v Kasmer, 140 AD2d 826, 828 [3d Dept 1988]). Similarly, the waiver of inheritance rights and the relinquishment of other “rights and remedies otherwise conferred by law” are also relevant to the determination of fair consideration (Marine Midland Bank-N.Y. v Batson, 70 Misc 2d 8, 10 [Sup Ct, Nassau County 1972]). It is also possible that child custody or visitation concessions could be viewed as a valuable form of consideration. Indeed, based on the myriad types of consideration that arise in the unique context of marital dissolution, courts have repeatedly stated that “transfers made pursuant to a valid separation agreement incorporated into a divorce decree are presumed to have been made for fair consideration” (Durand v Ackerman, 2010 WL 3834587, *7, 2010 US Dist LEXIS 101755, *21 [ED NY 2010]; see also In re Cersosimo, 2009 WL 3182989, *4, 2009 Bankr LEXIS 2009, *13-14 [ED NY 2009]; Darling, 22 Misc 3d at 358-359).

In certifying the second question to us, the Second Circuit implicitly presumed that the only consideration Schaberg could have given in exchange for the tainted property she received was her release of a claim to other proceeds of the fraud — if that is the case, her claim would be illusory. Despite Schaberg’s claim to the contrary, we must accept for purposes of answering this question the Second Circuit’s assumption that the marital estate here “consisted almost entirely of the proceeds of fraud” (618 F3d at 230). Yet, as we’ve discussed, there are other valid forms of consideration that are relevant to the determination of fair consideration, even where the bulk of a marital estate consists of ill-gotten gains. We therefore reformulate the second question to read as follows: “Is a determination that a spouse paid ‘fair consideration’ according to the terms of New York Debtor and Creditor Law § 272 precluded, as a matter of law, where part or all of the marital estate consists of the proceeds of fraud?” As reformulated, and under our analysis, we answer this question in the negative.

Of course, the ultimate determination as to whether Schaberg gave fair consideration pursuant to Debtor and Creditor Law § 272 under the facts and circumstances of this case is a matter for the federal courts to resolve. But we note, on this limited record, that Schaberg contends that she surrendered more than her right to claim through equitable distribution a greater portion of fraudulently obtained funds constituting the marital estate. She alleges that she waived a claim for maintenance under Domestic Relations Law § 236 (B) (6), the calculation of which is based on a variety of considerations, including the length of the marriage; she released her right to inherit from Walsh’s estate; and she dispensed with her interest in the multimillion-dollar marital residence located in Port Washington, which she claims was not acquired with moneys derived from Walsh’s fraudulent activities. Furthermore, even where a spouse does not relinquish a “fair equivalent” for the aggregate of assets, it is possible that fair consideration may be exchanged for at least some of the assets (cf. Corporation of Lloyd’s v Funk, 246 AD2d 570, 572 [2d Dept 1998], lv dismissed 91 NY2d 1002 [1998]).

In sum, we are not unsympathetic to the interests of parties who were fraudulently deprived of their investments and who, understandably, seek the return of a portion of their stolen monies. Most definitely, the victims of fraud are entitled to pursue disgorgement where it is demonstrated that the transferee-spouse was aware of or participated in the fraud or otherwise failed to act in good faith. One example of bad faith would be where the parties entered into a collusive divorce arrangement designed to conceal stolen money from its rightful owner. And even where the recipient executed a settlement agreement in good faith and without knowledge of the source of the ill-gotten gains, the defrauded parties may still recover if the spouse did not give fair consideration for the property under Debtor and Creditor Law § 272. But we believe that an innocent spouse who received possession of tainted property in good faith and gave fair consideration for it should prevail over the claims of the original owner or owners consistent with this State’s strong public policy of ensuring finality in divorce proceedings.

Accordingly, the first certified question and, as reformulated, the second certified question should be answered in accordance with this opinion.

Pigott, J.

(dissenting in part). I agree with the majority’s analysis and conclusion relative to the first certified question. I also agree with much of what the majority says in its discussion of the second question, but find its reformulation of that question unnecessary. The Second Circuit posed a narrowly tailored question that is relatively simple to answer, namely, “Does a spouse pay ‘fair consideration’ according to the terms of New York Debtor and Creditor Law § 272 when she relinquishes in good faith a claim to the proceeds of fraud?” (Commodity Futures Trading Commn. v Walsh, 618 F3d 218, 231-232 [2d Cir 2010].) I would answer that question in the negative.

Debtor and Creditor Law § 278 states that a creditor with a matured claim may have a conveyance set aside against anyone “except a purchaser for fair consideration without knowledge of the fraud at the time of the purchase” (Debtor and Creditor Law § 278 [1] [a]). “Fair consideration is given for property, or obligation, . . . [w]hen in exchange for such property, or obligation, as a fair equivalent therefor, and in good faith, property is conveyed or an antecedent debt is satisfied” (Debtor and Creditor Law § 272 [a]).

The second certified question posed by the Second Circuit assumes that almost all of the proceeds in the marital estate consisted of the proceeds of fraud, the position taken by the Commodity Futures Trading Commission and the Securities and Exchange Commission (see 618 F3d at 230 [noting that “in her separation from Walsh, Schaberg relinquished future claims to an equitable distribution of marital property that — it is alleged — consisted almost entirely of the proceeds of fraud”]). The Second Circuit also notes that “there is no reason to question Schaberg’s good faith in relinquishing her claim to what she believed was a legitimate interest in a substantial fortune” (id. at 230). Taking these facts into account, the question is, assuming that the marital estate consists almost entirely of the proceeds of fraud, does an “innocent spouse” like Schaberg, by virtue of relinquishing future claims to those proceeds, pay fair consideration? The answer is, of course, “no,” as the majority essentially acknowledges: “consideration cannot be predicated on a spouse’s relinquishment of a claim to a greater share of the proceeds of fraud” (majority op at 175).

Schaberg’s forbearance from “ ‘seek[ing] through court proceedings or otherwise a distributive award or an award of equitable distribution with respect to’ any other property acquired by [Walsh] over the course of their marriage” (Walsh, 618 F3d at 229) does not constitute “fair consideration” where, as the Second Circuit has asked us to assume here, the Walsh proceeds were obtained as the result of fraud. One cannot reasonably argue that a spouse — even an innocent one with no knowledge of her husband’s fraud — could be said to have given “fair equivalent” value by giving up future claims to the equitable distribution of proceeds in which she has no legitimate interest. In such a case, the innocent spouse “has not given value for the misappropriated property, but rather has gained an interest in the property simply by virtue of being married to the person who misappropriated” it (see generally In re Marriage of Allen, 724 P2d 651, 659 [Colo 1986] [citing cases]). Accordingly, I would answer the second certified question in the negative.

Chief Judge Lippman and Judges Ciparick, Read and Jones concur with Judge Graffeo; Judge Pigott dissents in part in a separate opinion in which Judge Smith concurs.

Following certification of questions by the United States Court of Appeals for the Second Circuit and acceptance of the questions by this Court pursuant to section 500.27 of the Rules of the Court of Appeals (22 NYCRR 500.27), and after hearing argument by counsel for the parties and consideration of the briefs and the record submitted, certified questions answered in accordance with the opinion herein.

      . Greenwood pleaded guilty to securities fraud charges in 2010. Walsh’s criminal prosecution remains pending.

        . Schaberg had received $3 million in installment payments when Walsh ceased making the payments in 2009 as a result of a restraining order imposed on his assets.

      . The Second Circuit reserved judgment as to whether, under the first prong of the test, “some of her assets were purchased with funds that are not alleged to be the proceeds of fraud, and thereby would not be subject to disgorgement” (618 F3d at 226 n 4).

      . Specifically, separate property means:
      “(1) property acquired before marriage or property acquired by bequest, devise, or descent, or gift from a party other than the spouse;
      “(2) compensation for personal injuries;

        “(3) property acquired in exchange for or the increase in value of separate property, except to the extent that such appreciation is due in part to the contributions or efforts of the other spouse;
      “(4) property described as separate property by written agreement of the parties pursuant to subdivision three of this part” (Domestic Relations Law § 236 [B] [1] [d]).

      . By comparison, an owner may seek recovery of identifiable stolen property, such as a piece of artwork, from an innocent good faith purchaser for value (see Solomon R. Guggenheim Found. v Lubell, 77 NY2d 311, 317 [1991]).

      . Of course, an entirely different situation is presented if it is known that both spouses participated in or were aware of the fraud or illegal conduct. In such cases, courts have held that it would be contrary to public policy to encourage “illegal activity by making an equitable distribution of the fruits of a criminal enterprise” (LaPaglia v LaPaglia, 134 Misc 2d 1030, 1032 [Sup Ct, Kings County 1987]).

      . Here, as the Second Circuit noted, “it is essentially undisputed that Schaberg had no notice that the money she received in her divorce was derived from fraud” (618 F3d at 229 n 8), and “there is no reason to question Schaberg’s good faith” (id. at 230) in her execution of the settlement agreement. Hence, the only relevant element of Debtor and Creditor Law § 272 is whether she gave “fair consideration” for the allegedly tainted assets she received through the parties’ property settlement.

      . In particular, Schaberg asserts that the Port Washington property was purchased in 1999 with funds derived from the sale of their previous marital residence, which in turn had been bought with legitimate funds in the early 1980s, long before Walsh’s allegedly fraudulent conduct took place. Notably, Walsh was apparently permitted to sell the Port Washington home and use a portion of the untainted proceeds from that sale to pay legal fees incurred in connection with his criminal prosecution (see Commodity Futures Trading Commn. v Walsh, 2010 WL 882875, *3, 2010 US Dist LEXIS 21992, *9 [SD NY 2010]).

      . The Agencies suggest that disgorgement should be allowed because, upon turning the funds over to them, Schaberg could move to vacate the settlement agreement in state court on fraud grounds and seek a redistribution of any untainted assets Walsh may have received. But such an exercise would likely be fruitless, particularly where it appears that, years after the property division, Walsh liquidated the only purportedly “clean” asset he owned — the Port Washington house.


author: Graffeo, J. Pigott, J.

text:
    [951 NE2d 743, 928 NYS2d 221]
    Brad H. et al., on Behalf of Themselves and All Others Similarly Situated, Appellants, v City of New York et al., Respondents.
    Argued May 31, 2011;
    decided June 28, 2011

      POINTS OF COUNSEL

      Debevoise & Plimpton LLP, New York City (Christopher K. Tahbaz, Matthew S. Hackell, Julie M. Calderon Rizzo and Cari Almo Wint of counsel), New York Lawyers for the Public Interest, Inc. (Roberta Mueller of counsel), and Urban Justice Center (Jennifer J. Parish and Douglas Lasdon of counsel), for appellants.
    I. The Appellate Division erred in concluding that the settlement terminated prior to the filing of plaintiffs’ motion for a preliminary injunction. (Matter of Westmoreland Coal Co. v Entech, Inc., 100 NY2d 352; Williams Press v State of New York, 37 NY2d 434; Matter of Cromwell Towers Redevelopment Co. v City of Yonkers, 41 NY2d 1; Reiss v Financial Performance Corp., 279 AD2d 13; Carthage Tissue Paper Mills v Village of Carthage, 200 NY 1; Old Colony Trust Co. v Omaha, 230 US 100; Evans v Famous Music Corp., 1 NY3d 452; Federal Ins. Co. v Americas Ins. Co., 258 AD2d 39.) II. The Appellate Division erred in concluding that defendants should not be estopped from asserting that the settlement expired prior to May 26, 2009. (Triple Cities Constr. Co. v Maryland Cas. Co., 4 NY2d 443; La Porto v Village of Philmont, 39 NY2d 7; Romano v Metropolitan Life Ins. Co., 271 NY 288; Matter of Moritz v Board of Educ. of Gowanda Cent. School Disk, 60 AD2d 161; Matter of New York State

      Med. Transporters Assn. v Perales, 77 NY2d 126; Matter of McLaughlin v Berle, 71 AD2d 707; Brennan v New York City Hous. Auth., 72 AD2d 410; Matter of 1555 Boston Rd. Corp. v Finance Adm’r of City of N.Y., 61 AD2d 187.)

      Michael A. Cardozo, Corporation Counsel, New York City (Drake A. Colley, Jeffrey S. Dantowitz and Edward F.X. Hart of counsel), for respondents.
    I. Compliance monitoring began as early as May 6, 2003 and no later than May 28, 2003. Accordingly, the settlement terminated prior to the filing of plaintiffs’ preliminary injunction motion on May 22, 2009. (W.W.W. Assoc. v Giancontieri, 77 NY2d 157; Laba v Carey, 29 NY2d 302; Muzak Corp. v Hotel Taft Corp., 1 NY2d 42; Graphic Scanning Corp. v Citibank, 116 AD2d 22; Hudson Val. Props. & Rentals v Ursuline Provincialate, E. Province of U.S., 221 AD2d 507; Ronnen v Ajax Elec. Motor Corp., 88 NY2d 582.) II. The Appellate Division correctly found that monitoring activities did not begin with the implementation date of the settlement. (H.K.S. Hunt Club v Town of Claverack, 222 AD2d 769, 89 NY2d 804; W.W.W. Assoc. v Giancontieri, 77 NY2d 157.) III. The Appellate Division correctly found that defendants should not be estopped from asserting that the five-year period is not triggered by the implementation date of the settlement. (Matter of New York State Med. Transporters Assn. v Perales, 77 NY2d 126; Matter of McLaughlin v Berle, 71 AD2d 707, 51 NY2d 917.)
   OPINION OF THE COURT

Graffeo, J.

This case involves a dispute over the status of a negotiated settlement agreement pertaining to New York City’s duty to provide mental health services to certain inmates in its jails. We are asked whether the term of the agreement expired before plaintiffs filed a motion in Supreme Court seeking to extend the City’s obligations. Applying our State’s traditional principles of contract interpretation, we hold that plaintiffs sought relief prior to termination of the settlement agreement and their motion was therefore timely filed.

I

Plaintiffs initiated this action in 1999, seeking injunctive and declaratory relief for themselves and other mentally ill inmates in New York City jails. According to plaintiffs, the City had failed to satisfy its duty under the State Constitution and Mental Hygiene Law to provide adequate “discharge planning” services for mentally ill persons completing their terms of incarceration. More particularly, plaintiffs requested that the City establish discharge planning that included continuing access to medication, community-based mental health treatment, housing and public benefits. Plaintiffs were certified as a class and granted a preliminary injunction (185 Misc 2d 420 [Sup Ct, NY County 2000], affd for reasons stated below 276 AD2d 440 [1st Dept 2000]).

Protracted negotiations culminated in a settlement agreement that was approved by Supreme Court on April 4, 2003. Because the agreement required the City to substantially comply with the settlement requirements 60 days later, the “implementation date” of the settlement — i.e., the day compliance by the City became obligatory — was June 3, 2003.

The City’s fundamental obligation under the negotiated settlement was to provide plaintiffs with individualized, clinically adequate and appropriate “discharge planning.” The goal was to ensure that mentally ill inmates would receive medical treatment and other services immediately upon release or transfer from a City jail by transitioning them into community-based mental health treatment and support services. In furtherance of this objective, the agreement included detailed provisions setting forth the City’s responsibilities in this regard.

The parties further agreed that two “compliance monitors” would be appointed to oversee the City’s efforts by evaluating “the provision of Discharge Planning in City Jails and [the City’s] compliance with the terms of’ the settlement. The monitors were to be appointed and “begin the performance of their duties ... no later than the Implementation Date.” The agreement also described the means by which the compliance monitors would evaluate and report on the City’s fulfillment of its obligations. The monitors’ first report to the court was due in September 2003, three months after the specified implementation date.

The key provision of the agreement at issue in this appeal is the termination clause. The parties stated that the agreement would “terminate at the end of five years after monitoring by the Compliance Monitors begins pursuant to [section] IV” of the settlement agreement. If, however, plaintiffs could demonstrate before the agreement expired that the City had failed to adequately discharge its responsibilities for two years, they could ask Supreme Court to extend the settlement for an additional two-year period so that violations could be corrected before the agreement terminated. Thus, the only way to determine when the settlement was set to expire — and whether a motion by plaintiffs to extend the terms of the settlement was timely filed — is to establish the date when monitoring began.

The two monitors were appointed by Supreme Court on May 6, 2003. According to the first report they issued in September 2003, the monitors “began to engage in some limited reviews of draft policies and procedures” on May 19th, met with City attorneys to discuss the draft policies on May 22nd, and observed a training session on May 28th of persons who would conduct the individualized discharge planning for inmates. The City’s new discharge planning policies and procedures went into effect on June 3rd — in compliance with the implementation date set forth in the settlement agreement. The monitors, however, did not begin their work monitoring the City’s activities “in earnest” until June 25, 2003 and, even as of the filing of the September 2003 report, they were unable to provide an opinion regarding the City’s compliance with the agreement.

In 2009, the parties were unable to resolve a notice to cure noncompliance issued by plaintiffs and, on May 22, 2009, plaintiffs moved for a temporary restraining order and a preliminary injunction requiring the City to abide by its duties under the settlement agreement. The City cross-moved to dismiss, claiming that the settlement commenced not on the implementation date, but upon the appointment of the monitors on May 6, 2003. Consequently, the City contended that plaintiffs’ motion was untimely because the settlement had expired in April 2009 (taking into account the agreed-to extensions).

Supreme Court denied the City’s cross motion, concluding that the five-year term began on the implementation date and that the expiration date occurred on May 25 or 26, 2009, thereby rendering plaintiffs’ motion timely (2009 NY Slip Op 31561[U]). The Appellate Division reversed in a three to two decision, holding that the five-year term commenced when the monitors engaged in their first affirmative act on either May 19th or 28th in 2003, which produced a termination date of either May 10th or 19th in 2009, both of which were prior to the filing date of plaintiffs’ motion (77 AD3d 103, 107 [1st Dept 2010]). The dissenters concluded that the agreement was ambiguous and, as such, the parties’ course of conduct — treating the commencement date of the five-year period as no earlier than the implementation date of June 3, 2003 — should be used to calculate the termination date. After we dismissed plaintiffs’ appeal as of right for lack of finality (15 NY3d 937 [2010]), the Appellate Division granted leave to appeal and certified a question of law to us, which we now answer in the negative.

II

Plaintiffs assert that their May 2009 motion premised on the City’s alleged noncompliance was filed before expiration of the settlement agreement because the parties’ agreement unambiguously provides that monitoring was not to begin before the implementation date of June 3, 2003. According to plaintiffs, the purpose of the settlement was to institute adequate discharge planning and the agreement did not obligate the City to provide that service until the implementation date. The City, in contrast, claims that monitoring began no later than May 28, 2003 (when a monitor observed a training session) because it was possible for the monitors to begin evaluating the City’s plans for compliance before the implementation date. The City also argues that if the parties intended the five-year period to start on the implementation date, the termination provision would have specifically referred to that event rather than the commencement of monitoring activities.

The settlement agreement is a contract and its meaning must be discerned under several cardinal principles of contractual interpretation. A written agreement that is clear, complete and subject to only one reasonable interpretation must be enforced according to the plain meaning of the language chosen by the contracting parties (see e.g. Vintage, LLC v Laws Constr. Corp., 13 NY3d 847, 849 [2009]; Samuel v Druckman & Sinel, LLP, 12 NY3d 205, 210 [2009]; Greenfield v Philles Records, 98 NY2d 562, 569 [2002]). To determine whether a writing is unambiguous, language should not be read in isolation because the contract must be considered as a whole (see e.g. Consedine v Portville Cent. School Dist., 12 NY3d 286, 293 [2009]; Bailey v Fish & Neave, 8 NY3d 523, 528 [2007]; Vermont Teddy Bear Co. v 538 Madison Realty Co., 1 NY3d 470, 475 [2004]). Ambiguity is determined within the four corners of the document; it cannot be created by extrinsic evidence that the parties intended a meaning different than that expressed in the agreement and, therefore, extrinsic evidence “may be considered only if the agreement is ambiguous” (Innophos, Inc. v Rhodia, S.A., 10 NY3d 25, 29 [2008] [internal quotation marks omitted]; see e.g. Goldman v White Plains Ctr. for Nursing Care, LLC, 11 NY3d 173, 176 [2008]; Van Kipnis v Van Kipnis, 11 NY3d 573, 577 [2008]). Ambiguity is present if language was written so imperfectly that it is susceptible to more than one reasonable interpretation (see e.g. Evans v Famous Music Corp., 1 NY3d 452, 458 [2004]; Nissho Iwai Europe v Korea First Bank, 99 NY2d 115, 121-122 [2002]).

In this case, the provision at issue in the settlement agreement — the clause that establishes termination of the settlement — reads: “five years after monitoring by the Compliance Monitors begins.” But when did monitoring begin? In our view, the answer to this question becomes clear and unambiguous if the agreement is read as an integrated whole with a focus on the two fundamental purposes that the monitors were intended to serve.

Paragraph 108 of the agreement states that their function was “to monitor [1] the provision of Discharge Planning in City Jails and [2] Defendants’ compliance with the terms of this Agreement.” The Appellate Division believed that it was possible for the monitors to undertake their first responsibility prior to the implementation date because the development of the discharge planning process necessarily occurred before any inmates were actually evaluated. Paragraph 1 (bb), however, explicitly states that “Discharge Plan” refers to “the plan describing the manner in which an individual will be able to receive a clinically appropriate level of continuing mental health treatment” and other assistance “immediately upon his or her release from or transfer out of a City Jail” — not the preliminary planning and the organizational steps the City needed to take before the program could be initiated. Thus, paragraph 108’s reference to discharge planning does not include the initial development of substantive and procedural discharge planning guidelines undertaken before the actual implementation and evaluations of inmates occurred on or after June 3, 2003. Indeed, the City now concedes that the individualized discharge planning process did not commence until the implementation date arrived. Because these services were not available to inmates earlier than that date, it necessarily follows that there were no discharge plans for the monitors to oversee until June 3, 2003.

The monitors’ second objective — to assess the City’s compliance with the settlement — also leads to the conclusion that the five-year term began on the implementation date. It is true, as the City observes, that in various sections of the settlement document there is an indication that the monitors could perform certain duties in anticipation of the implementation date. Paragraph 127 of the agreement, for example, suggests that the monitors could review drafts of manuals, training materials and other documents before the implementation date. In fact, the monitors conducted such a review on May 19, 2003. The City also notes that the monitors had access to staff and facilities, and a monitor attended a training session on May 28th. Such attendance was listed in the agreement as one of the means by which the monitors could discharge their responsibilities.

But the fact that the monitors began preparatory work before the implementation date is not dispositive. The termination provision was triggered five years after the commencement of monitoring, not the start of planning or preparatory work. And compliance could not be monitored before it was required by the agreement or attempted by the City. It simply was not possible for the monitors to review whether the City was in “compliance with the terms of th[e] Agreement” before June 3, 2003 because it is undisputed that the City had not yet begun the individualized inmate discharge planning process and it was not contractually obligated to be in compliance until the implementation date (see ¶ 160 [“Defendants and their contractors shall be in substantial compliance with the terms of this Settlement Agreement at all times after the Implementation Date”]; see also ¶ 105 [the City “shall complete the implementation of all aspects of this Settlement Agreement no later than the Implementation Date”]). Stated differently, the monitors could review whether the City abided by the terms of the settlement agreement only after the City began to issue discharge plans for inmates or compliance became obligatory, whichever occurred first.

The settlement, in essence, did not give plaintiffs five years of involvement with monitoring; it gave them five years of mental health service discharge planning for inmates that was to be monitored for compliance. As a result, these two concepts— discharge planning and oversight of the program — were necessarily interrelated. To read the agreement as creating monitoring before compliance was necessary or discharge planning and services were actually available to inmates is inconsistent with the language of the settlement, would undermine its overarching purpose and is foreclosed by our precedent on contractual interpretation.

Because discharge plans for eligible inmates and the monitoring of the City’s compliance obligations did not begin until June 3, 2003, we hold that the monitoring functions occurred no earlier than that date and the agreement did not terminate until at least five years and 356 days later on May 25 or 26, 2009. Since plaintiffs filed their motion for a temporary restraining order and a preliminary injunction on May 22, 2009, Supreme Court did not lack jurisdiction over the case and it properly denied the City’s cross motion to dismiss.

Accordingly, the order of the Appellate Division should be reversed, with costs, the order of Supreme Court reinstated and the certified question answered in the negative.

Pigott, J.

(dissenting). Because there is nothing in the record to support the theory that monitoring began on or after June 3, 2003, I would affirm the order of the Appellate Division (77 AD3d 103 [2010]) and answer the certified question in the affirmative, holding that monitoring began on May 19, 2003. For that reason, I respectfully dissent.

The stipulation of settlement provided, in paragraph 193, that it would “terminate at the end of five years after monitoring by the Compliance Monitors begins pursuant to [section] IV” We are called upon to determine, as a matter of law, when monitoring began. The majority opts for the settlement agreement’s implementation date — June 3, 2003. This would have been an easy date for the parties to choose to mark the beginning of the five years; after all, the implementation date is defined in the agreement. But the parties elected not to do so. In fact, the theory that monitoring began on or after the implementation date flies in the face of unambiguous language in section IV of the agreement, and the undisputed activities of the monitors themselves.

Plaintiffs have two principal arguments in opposition to defendants’ contention that the agreement had expired when they filed their motion — that monitoring logically could not begin before the implementation date, and that monitoring in fact did not begin before the implementation date. Both arguments are contrary to the record.

There is no doubt that the settlement agreement contemplated the possibility that the compliance monitors would begin monitoring before the implementation date; the stipulation made sure that the compliance monitors would be appointed in time “so that they can begin the performance of their duties pursuant to [the] Settlement Agreement no later than the Implementation Date” (¶ 113 [emphasis added]). The implementation date was simply a deadline. As the majority puts it, “if the City had begun discharge planning at some earlier point in time, the monitors could have started their compliance review on a date earlier than June 3, 2003” (majority op at 188 n 4).

Section IV paragraph 108 of the stipulation gave the compliance monitors a single task, “to monitor,” and specified two objects of that monitoring: “the provision of Discharge Planning in City Jails and Defendants’ compliance with the terms of [the Settlement].” Pursuant to the stipulation, both monitoring of discharge planning and monitoring of compliance could begin before the implementation date.

The majority attempts to defend the position that, under the stipulation, it was impossible for the compliance monitors to monitor discharge planning until after the implementation date. They cite paragraph 1 (bh) of the stipulation, which defines a “Discharge Plan” as a “plan describing the manner in which an individual” will receive mental health treatment and other assistance immediately upon release or transfer from a City jail. According to the majority, the term “Discharge Planning” in paragraph 108 refers to such discharge plans, which were not available for monitoring until after the implementation date. However, that argument ignores paragraph 1 (cc) of the stipulation, which defines “Discharge Planning” as “the process of formulating and implementing the Discharge Plan” (emphasis added). Because the settlement agreement expressly contemplated monitoring of the creation of discharge plans, there is no basis for the assertion that monitoring did not embrace the initial development of discharge planning guidelines before the actual implementation. Indeed, under paragraph 127 of the settlement agreement, defendants had to provide the compliance monitors with materials related to “the provision of Discharge Planning” that were “in existence on the date on which the Compliance Monitors are appointed” — i.e. discharge planning materials that existed before the implementation date.

It is also clear that monitoring did as a matter of fact begin before the implementation date. According to the compliance monitors’ First Report, they began on May 19, 2003 to engage in reviews of defendants’ draft policies and procedures, and to participate in meetings. One monitor observed a training session of persons who would conduct discharge planning — a task that the stipulation expressly listed as a “principal means of monitoring” (¶ 118).

In the same Report, the monitors provided a table outlining “the major monitoring activities” (emphasis added) they had engaged in. The table begins with the training observation, which occurred on May 28, 2003. Moreover, an invoice, dated November 3, 2003, charges for the monitors’ services at an hourly rate, with the first charge incurred on May 19, 2003, the same date that the monitors said they began work. Clearly, the monitors considered themselves to have begun monitoring before the June 3, 2003 implementation date. There is no reason for disregarding the monitors’ own assessments of when they commenced monitoring.

If plaintiffs had wished to ensure five years of monitoring after the implementation date, they could easily have done so. Instead they made the agreement terminate five years after monitoring began, presumably because at the time of the stipulation that date remained uncertain. It may be that they expected that there would be delays in the appointment of the compliance monitors. Perhaps plaintiffs wanted to guarantee five years of monitoring, even if the monitors started their duties some time after the implementation date. But when plaintiffs decided they would be filing an enforcement action, it was incumbent on them to bear in mind that the monitors had in fact started their monitoring duties before the implementation date.

Chief Judge Lippman and Judges Ciparick and Jones concur with Judge Graffeo; Judge Pigott dissents and votes to affirm in a separate opinion in which Judges Read and Smith concur.

Order reversed, etc.

      . The complaint named a number of defendants who we will collectively refer to as “the City.”

      . Over the course of the agreement, the parties consented to extensions that tolled the expiration date by 356 days. Therefore, the expiration date is to be calculated using five years plus 356 days.

      . Paragraph 1 (cc) of the agreement, relied on in the dissent, is entirely consistent with this result. It defines “Discharge Planning” as the “process of formulating and implementing the Discharge Plan,” and from this clause the dissent concludes that the agreement “contemplated monitoring of the creation of Discharge Plans” (dissenting op at 190). We do not disagree -with this point. However, the flaw in the dissent’s reasoning is that it fails to recognize that a “Discharge Plan” (as that term is defined in paragraph 1 [bb]) refers to evaluation of the needs of individual inmates. Such personalized evaluation was not available until June 3, 2003.

        . Certain portions of the settlement agreement indicate that it was possible for the City to begin discharge planning before the implementation date, but the fact remains that it did not do so. That possibility also explains why the parties did not establish a specific implementation date in the termination clause — if the City had begun discharge planning at some earlier point in time, the monitors could have started their compliance review on a date earlier than June 3, 2003, thereby triggering the commencement of the five-year settlement period. It is evident that the parties contemplated this scenario because they stipulated that monitoring should begin “no later than the Implementation Date.”

      . In light of this determination, the other issue raised by plaintiffs is academic.