text:
    [805 NE2d 1037, 773 NYS2d 735]
    Aspro Mechanical Contracting, Inc., et al., Respondents, v Fleet Bank, N.A., Appellant.
    Argued January 7, 2004;
    decided February 12, 2004

      POINTS OF COUNSEL

      Cleary, Gottlieb, Steen & Hamilton, New York City (Evan A. Davis, Mitchell A. Lowenthal and Rupa Mitra of counsel), for appellant.
    I. Defendant-appellant was not required to file a notice of lending. (United Lakeland A.C. Co. v Ahneman-Christiansen, Inc., 33 Misc 2d 606, 18 AD2d 1022; Heard v Cuomo, 80 NY2d 684; Matter of ELRAC, Inc. v White, 299 AD2d 546; Matter of Kamhi v Planning Bd. of Town of Yorktown, 59 NY2d 385.) II. The lower courts failed to construe the statute in light of all its purposes, including its purpose to strike a balance. (Matter of Judge Rotenberg Educ. Ctr. v Maul, 91 NY2d 298; Majewski v Broadalbin-Perth Cent. School Dist., 91 NY2d 577; Matter of Duell v Condon, 84 NY2d 773; Le Drugstore Etats Unis v New York State Bd. of Pharm., 33 NY2d 298; New York State Bridge Auth. v Moore, 299 NY 410.)

      Zisholtz & Zisholtz, LLP, Mineóla (Stuart S. Zisholtz of counsel), for respondents.
    I. Appellant failed to file a notice of assignment and a notice of lending. (National Sur. Corp. v Fishkill Natl. Bank, 61 Misc 2d 579, 37 AD2d 537; Lincoln Natl. Bank of City of N.Y. v Pierce Co., 228 NY 359; American Blower Corp. v James Talcott, Inc., 10 NY2d 282; Adirondack Trust Co. v Bien & Assoc., 168 Misc 2d 919; Edison Elec. Illuminating Co. of Brooklyn v Frick Co., 221 NY 1; General Ins. Co. of Am. v Tilcon N.Y., 294 AD2d 195.) II. Appellant diverted trust funds. (Canron Corp. v City of New York, 214 AD2d 115; Raisler Corp. v Uris 55 Water St. Co., 91 Misc 2d 217; Eljam Mason Supply v I.F. Assoc. Corp., 84 AD2d 720; Glens Falls Ins. Co. v Schwab Bros. Trucking, 55 Misc 2d 324; New York Natl. Bank v Primalto Dev. & Constr. Co., 270 AD2d 22; Caristo Constr. Corp. v Diners Fin. Corp., 21 NY2d 507; West-Fair Elec. Contrs. v Aetna Cas. & Sur. Co., 87 NY2d 148; Naiztat Iron Works v Tri-Neck Constr. Corp., 62 Misc 2d 228; Glazer v Alison Homes Corp., 62 Misc 2d 1017; Schwadron v Freund, 69 Misc 2d 342.) III. Appellant’s attempt to raise new issues on appeal should not be countenanced. (Sacks v Stewart, 75 AD2d 536; Fonda v Nationwide Mut. Fire Ins. Co., 99 AD2d 680; Broida v Bancroft, 103 AD2d 88.)
   OPINION OF THE COURT

Graffeo, J.

In 1989, Berry Street Corporation entered into a turnkey contract of sale with the New York City Housing Authority (NYCHA) whereby Berry Street would acquire title to three parcels of land in Brooklyn, construct residential buildings on the parcels and convey title to the improved property to NYCHA. The contract specified periodic payments from NYCHA to Berry Street and its general contractor as the improvements were completed.

Norstar Bank made a construction loan to Berry Street in 1992 as evidenced by a building and project loan agreement, building loan mortgage and project loan mortgage. The loan agreement and mortgages were filed with the Kings County City Register’s Office in accordance with section 22 of the Lien Law and the mortgages contained the requisite Lien Law § 13 covenant stating that the mortgages were subject to the trust provisions of that section.

As additional security for the loan, Berry Street simultaneously assigned all of its right, title and interest in the turnkey contract to Norstar (hereinafter referred to as Fleet, Norstar’s successor in interest and the defendant here). In conjunction with the assignment, NYCHA agreed to make payments directly to Fleet until Fleet notified NYCHA that Fleet’s loans to Berry Street were fully repaid. The filed mortgages revealed that Berry Street had assigned its turnkey contract to Fleet; however, the specific rights and responsibilities assigned were not disclosed. The assignment itself was not filed.

NYCHA purchased the three sites and their improvements from Berry Street over the course of three years. Because Berry Street had not yet fully repaid the construction loan to Fleet, NYCHA paid the purchase amounts for each improved parcel directly to Fleet. Fleet applied these amounts to the debt owed it by Berry Street under the loan agreement and eventually discharged its mortgages on the properties.

Plaintiffs—individuals and entities who had subcontracted with Berry Street to provide labor, services and materials for the project—commenced a special proceeding to recover Lien Law article 3-A trust funds allegedly diverted by Fleet and NYCHA. Fleet moved to dismiss the special proceeding, arguing that its status in the transaction was solely that of a lender-mortgagee and not a trustee subject to article 3-A of the Lien Law. Plaintiffs opposed the motion and cross-moved to amend the petition to add claims pertaining to Berry Street’s assignment of its turnkey contract rights to Fleet, which plaintiffs alleged they learned of only upon receipt of NYCHA’s answer in the special proceeding.

Supreme Court denied Fleet’s motion to dismiss and granted plaintiffs’ cross motion to file an amended petition. Ultimately, the special proceeding was dismissed without prejudice, and plaintiffs commenced this action pursuant to Lien Law § 77. In the complaint, plaintiffs alleged that they were owed monies on their subcontracts and that Fleet had diverted trust funds by paying itself prior to paying plaintiffs’ claims. Plaintiffs urged that Fleet’s failure to file a notice of assignment or a notice of lending deprived Fleet of any affirmative defenses it might otherwise have had and sought to recover for Fleet’s “violation of [its] fiduciary relationship under the trust.”

After denial of its motion to dismiss the new action, Fleet answered and raised numerous affirmative defenses. As it had contended during the special proceeding, Fleet again asserted that it was “not a statutory trustee and the funds paid to Fleet do not constitute trust assets” and that plaintiffs’ claims were barred by virtue of Fleet’s “superior mortgage interest.” Plaintiffs moved for summary judgment on the issue of liability and Fleet cross-moved for summary judgment dismissing the complaint.

Supreme Court granted plaintiffs’ motion, denied Fleet’s cross motion and ordered a trial on damages. On Fleet’s appeal, the Appellate Division affirmed, holding that Fleet’s repayment to itself of the loans made to Berry Street was a diversion of trust assets. The parties stipulated to damages and judgment was entered for plaintiffs in the amount of $1,904,923.48. Fleet now appeals the judgment, bringing up for review the Appellate Division’s order of affirmance.

In this appeal, Fleet no longer disputes that the payments it received via the assignment constituted article 3-A trust assets and. concedes its trustee status as a result of the assignment. Fleet now argues that its self-payment—at a time when it contended that the funds were not trust assets—was nevertheless permissible because it used the money to pay its properly recorded secured loans, which were superior to plaintiffs’ claims pursuant to the Lien Law’s statutory priority provisions.

The Lien Law Trust Provisions

Article 3-A of the Lien Law creates “trust funds out of certain construction payments or funds to assure payment of subcontractors, suppliers, architects, engineers, laborers, as well as specified taxes and expenses of construction” (Caristo Constr. Corp. v Diners Fin. Corp., 21 NY2d 507, 512 [1968]; see Lien Law §§ 70, 71). We have repeatedly recognized that the “primary purpose of article 3-A and its predecessors [is] ‘to ensure that “those who have directly expended labor and materials to improve real property [or a public improvement] at the direction of the owner or a general contractor” receive payment for the work actually performed’ ” (Matter of RLI Ins. Co. v New York State Dept. of Labor, 97 NY2d 256, 264 [2002] [quoting Canron Corp. v City of New York, 89 NY2d 147, 155 (1996)]; see also West-Fair Elec. Contrs. v Aetna Cas. & Sur. Co., 87 NY2d 148, 156-157 [1995]). As the Law Revision Commission noted in its 1959 Report recommending numerous amendments to the law,

“enactment of the trust fund provisions was prompted by the frequency of cases in which laborers and materialmen were in fact not paid. The trust concept was intended precisely to forbid that an owner, contractor or subcontractor act merely as entrepreneur and was intended to require that he act, instead, as fiduciary manager of the fixed amounts provided for the operation” (1959 Report of NY Law Rev Commn, at 214, reprinted in 1959 NY Legis Doc No. 65, at 30).

To ensure this end, the Lien Law establishes that designated funds received by owners, contractors and subcontractors in connection with improvements of real property are trust assets and that a trust begins “when any asset thereof comes into existence, whether or not there shall be at that time any beneficiary of the trust” (Lien Law § 70 [1], [3]; see City of New York v Cross Bay Contr. Corp., 93 NY2d 14,19 [1999]). Funds received by an owner under building loan contracts and building loan mortgages are trust assets and the statute requires owner-trustees to apply such assets for payment of the “cost of improvement” (see Lien Law § 70 [5]; § 71 [1]). Cost of improvement is defined in the Lien Law to encompass “expenditures incurred by the owner in paying the claims of a contractor, an architect, engineer or surveyor, a subcontractor, laborer and materialman, arising out of the improvement, . . . and shall also include . . . sums paid to discharge building loan mortgages whenever recorded” (id. at § 2 [5]). The use of trust assets for a nontrust purpose—that is, a purpose outside the scope of the cost of improvement—is deemed “a diversion of trust assets, whether or not there are trust claims in existence at the time of the transaction, and if the diversion occurs by the voluntary act of the trustee or by his consent such act or consent is a breach of trust” (Lien Law § 72).

The Lien Law further imposes duties upon trustees in the operation of the trust. A statutory trustee must maintain books and records of the trust including entries for trust assets receivable, trust accounts payable, trust funds received and trust payments made with trust assets, and make those records available for inspection by beneficiaries (see id. at §§ 75, 76). In addition, the records must reflect any “[transfers in repayment of or to secure advances made pursuant to a ‘Notice of Lending’ ” (id. at § 75 [3] [E]). The statute expressly vests discretion in the trustee “to determine the order and manner of payment of any trust claims and to apply any trust asset to any purpose of the trust” (id. at § 74 [1]).

Of special importance in this case, the Lien Law also incorporates a mechanism for trustees to alert beneficiaries to the distribution of trust assets to repay advances made by lenders (see Postner & Rubin, New York Construction Law Manual § 9.76, at 362). Trustees or lender-transferees may file a “Notice of Lending” to “protect the lender’s right to repayment from trust funds” (id.; see Lien Law § 73). Such notice must be filed in the county clerk’s office in the “lien docket” or other official record and indexed by the name of the trustee to whom the advances are made (see Lien Law § 73 [3] [a]). The notice is to be filed within five days of the payment and sets forth the names and addresses of the persons making the advances and to whom or on whose behalf they are made, the date of any advances made prior to the filing for which the filing is intended to be effective and “the maximum balance of advances outstanding to be permitted by the lender pursuant to the notice” (see id. at [3] [b] [6]).

These filing provisions promote the legislative intent to assure “public notice of any transaction of the owner, contractor or subcontractor that may lead to depletion of funds available for future trust claims, even where the depletion merely repays advances that were in fact used to pay trust claims accruing at an earlier [d]ate” (1959 Report of NY Law Rev Commn, at 216). Such record notice provides “persons who furnish materials and services in reliance on the trust assets receivable by the trustee at a later stage of the improvement. . . notice that those assets have been anticipated for current expense” (id.).

Pursuant to section 73 of the Lien Law, the proper filing of a “Notice of Lending” is an affirmative defense to an action charging a trustee with a diversion of trust assets or an action to recover diverted assets from a transferee. In an action against a trustee, the notice of lending evidences that the alleged diversion “was made as security for or in consideration of or in repayment of advances made to him as trustee or on his behalf as trustee . . . , and that such advances were actually applied for a purpose of the trust” (id. at § 73 [2]).

Application of the Statute

Under Lien Law article 3-A, the funds NYCHA owed Berry Street under the turnkey sale contract were trust assets subject to the rights of trust beneficiaries and it is undisputed that plaintiffs, as subcontractors on the project, are trust beneficiaries (see Lien Law §§ 70, 71). Berry Street assigned its rights under the NYCHA contract to Fleet and, as a result, NYCHA’s direct payment of the sale proceeds to Fleet rendered Fleet a statutory owner-trustee. As a statutory trustee, Fleet was obligated to act “as fiduciary manager” of the funds (1959 Report of NY Law Rev Commn, at 214). Fleet therefore owed the beneficiaries a duty of loyalty and was required “to administer the trust solely in the interest of the beneficiaries” (2A Fratcher, Scott on Trusts, at § 170 [4th ed]; Restatement [Third] of Trusts § 170 [1]).

In these circumstances, Fleet’s application of the trust assets to repay its loans to Berry Street—without acknowledging its status as trustee and providing notice to trust beneficiaries of the transfer—constituted a breach of its fiduciary duty. Fleet asserts that the inclusion of the reference to the assignment in its mortgages was the equivalent of record notice to potential claimants of Fleet’s priority interest in the trust assets. There is no question that by complying with the filing and covenant requirements of Lien Law § 13 (2) and § 22, Fleet’s building loan mortgages obtained priority over subsequently filed mechanics’ liens.

This argument overlooks the important fiduciary considerations adopted by the Legislature to safeguard trust beneficiaries. Potential trust beneficiaries might have been able to ascertain Fleet’s claim of priority as a secured mortgage lender but nothing in the mortgage documents identified Fleet as a trustee of the article 3-A assets. Indeed, Fleet’s own posture during the early stages of this litigation denied that the assignment rendered it a trustee. In essence, Fleet seeks to escape the effect of the assignment by arguing that plaintiffs should have appreciated the implications that Fleet itself refuted. Even if plaintiffs had surmised Fleet’s role as the trustee by examining the mortgage documents, those filings would not have informed beneficiaries that Fleet planned to use trust assets to repay itself.

We conclude that the filing by Fleet of a notice of lending— although not necessarily the only device available—would have satisfied Fleet’s fiduciary duty to provide notice to the trust beneficiaries of its use of trust assets to discharge Berry Street’s debt. Such a filing would fulfill the legislative purposes of article 3-A and eliminate any taint of self-dealing by a trustee who is also a trust beneficiary. Notably, had Fleet filed a notice of lending regarding its use of the trust assets to repay itself, the beneficiaries could have ascertained that (1) the trust assets were being depleted and (2) Fleet was a trustee acting as both transferor and transferee of those funds (see 1959 Report of NY Law Rev Commn, at 216; Lien Law § 73). Nothing in the filings relied upon by Fleet imparted this information to trust beneficiaries. Hence, Fleet failed to file any document that served as adequate notice to beneficiaries of its status as a trustee and its depletion of trust funds to repay its loans.

Although Fleet breached its fiduciary obligation, the issue of damages for such a breach is not before us because the parties stipulated to damages prior to this appeal. Thus, we have no occasion to address the conclusion reached by the lower courts that Fleet’s repayment to itself invalidated its statutory priority as a secured mortgage lender and rendered Fleet liable to plaintiffs for the full amount of the transferred trust funds:

Accordingly, the judgment appealed from and the order of the Appellate Division brought up for review should be affirmed, with costs.

Chief Judge Kaye and Judges G.B. Smith, Ciparick, Rosenblatt and Read concur; Judge R.S. Smith taking no part.

Judgment appealed from and order of the Appellate Division brought up for review affirmed, with costs.

      . Upon plaintiffs’ motion, the action was certified as a class action.

      . Supreme Court granted NYCHA’s motion for summary judgment dismissing the claims against it so it is no longer a party in this action.

      . Moreover, there is no information in the record indicating whether Fleet complied with the statutory record-keeping obligations of trustees (see Lien Law § 75). Such compliance seems unlikely considering Fleet’s initial posture in this litigation.


source: Caselaw Access Project

author: Chief Judge Kaye.

license: Public Domain

text:
    [806 NE2d 131, 774 NYS2d 106]
    Burnell G. Carney et al., by L. David Zube, as Chapter 11 Trustee, Appellants, v James V. Philippone, Respondent.
    Argued January 6, 2004;
    decided February 12, 2004

      POINTS OF COUNSEL

      Hinman, Howard & Kattell, LLP, Binghamton (Philip J. Kramer of counsel), for appellants.
    I. Examination of the Onondaga County Tax Act and the more significant amendments to it since 1937 leads to the conclusion that in the relevant time frame (1993-1997) the owners’ right to redeem from a tax “sale” was at least three years plus any additional time necessary to comply with the required six-month notice provisions. II. The contention raised by defendant Philippone and, to some extent, in the decision of the United States District Court that the passage of the two-year period of time for an owner to redeem set forth in section 8 of the Onondaga County Tax Act automatically takes away the owner’s title and right to redeem is without merit. (Young v Engelstein, 98 Misc 2d 843, 74 AD2d 1, 53 NY2d 973; Matter of County of Nassau [Gelb-Siegel], 24 NY2d 621; Corvetti v Fidelity Natl. Tit. Ins. Co. of N.Y., 258 AD2d 32, 94 NY2d 753; McHugh v Appler, 173 AD2d 910.) III. The argument that because the Carneys were “owners” they could not also be “occupants” as that term is used in the Onondaga County Tax Act in effect assumes the Legislature was unaware of terms such as “resident” or “person dwelling on the property.”

      Costello, Cooney & Fearon, PLLC, Syracuse {Robert J. Smith and Nicole M. Marlow of counsel), for respondent.
    I. The inconsistencies in the Onondaga County Tax Act can be reconciled, giving effect to both sections 6 and 8 and fulfilling the legislative intent by construing section 6 as a notice requirement, which does not extend the statutorily prescribed redemption periods established by section 8 of the Tax Act. (Cabell v Markham, 148 F2d 737, 326 US 404; Matter of Allstate Ins. Co. v Shaw, 52 NY2d 818; Matter of Thomas v Bethlehem Steel Corp., 95 AD2d 118, 63 NY2d 150; Matter of Cohen v Board of Appeals of Vil. of Saddle Rock, 100 NY2d 395; Matter of Long v Adirondack Park Agency, 76 NY2d 416; Mennonite Bd. of Missions v Adams, 462 US 791; Congregation Yetev Lev D’Satmar v County of Sullivan, 59 NY2d 418; Matter of McCann v Scaduto, 71 NY2d 164; Maloney v Stone, 195 AD2d 1065; Matter of Notre Dame Leasing v Rosario, 308 AD2d 164.) II. The Carneys are not occupants within the purview of section 8 of the Onondaga County Tax Act. (Witherhead v Ort, 223 App Div 626, 249 NY 567; Interno Realty Corp. v Perkins, 49 AD2d 189.)
   OPINION OF THE COURT

Chief Judge Kaye.

Two questions involving the Onondaga County Tax Act have been certified to this Court by the United States Court of Appeals for the Second Circuit. While the answers require analysis and elaboration, one conclusion is plain on its face: piecemeal amendments to the statute have resulted in seeming inconsistencies, and the Act would benefit from comprehensive legislative review. The issues now before us center on when the right to redeem property expires after a tax sale under the Act. Resolution of this issue is relevant to whether property owners Burnell G. Carney and Alice Carney can maintain a malpractice action against their lawyer, James V Philippone, for failing to advise them to file for bankruptcy before the redemption period expired.

I.

The Carneys owned valuable real estate in Manlius, New York on which they operated Sunnyside Nursing Home and Sunny-side Adult Home. In 1993, they failed to pay $61,834.29 in real estate taxes. As a result, the county proceeded with a tax sale and, pursuant to the Onondaga County Tax Act, on October 1, 1993, sold and itself purchased a tax sale certificate, which entitled the county to a tax deed and possession of the property upon the expiration of the owner’s redemption period. The following year, the Carneys again failed to pay their real estate taxes, and the county sold and purchased another tax certificate for the 1994 taxes. The county resold both certificates to Tax Certificate Associates, Inc. (TCA).

Still in financial straits, in September 1994 the Carneys borrowed $300,000 from Adirondack Capital Management, Inc. (ACM), secured by a mortgage on the property. Richard and Diane Corvetti were the principals of ACM. After the Carneys defaulted on the mortgage, ACM commenced a foreclosure action in November 1995. To settle the action, the Carneys agreed to deliver to ACM a deed to the property—to be held in escrow as security against further defaults—in lieu of foreclosure. In May or June of 1996, after again defaulting on the mortgage, the Carneys retained James V Philippone as their attorney to handle the litigation with ACM. In July 1996, Philippone negotiated a settlement with ACM whereby the Carneys agreed to transfer title to the nursing home portion of the property to a newly formed corporation, SNH Corporation, while themselves retaining title to the adult home portion of the property.

As of 1996, the Carneys had yet to pay their taxes and redeem their property. As a result, TCA—the tax certificate holder— sent the Carneys a six-month notice to redeem, pursuant to section 6 of the Onondaga County Tax Act. The notice apprised the Carneys that “[i]n the event the tax lien shall not be redeemed on or before six months from the mailing of this notice, the holder will request a deed of said property from the Commissioner of Finance.” In order to protect their own interest in the property, on December 24, 1996, the Corvettis purchased the tax sale certificates from TCA, and two days later sent a similar six-month notice to redeem to the Carneys. On June 26, 1997, the Corvettis asked the county to issue them the deed.

Approximately one month later, on July 24, 1997, on the advice of Philippone, the Carneys filed for protection under chapter 11 of the Bankruptcy Code. Because the county had not yet issued the deed to the Corvettis, the county notified them that, in light of the automatic stay resulting from the bankruptcy proceedings, it could not convey the deed (see Bankruptcy Code [11 USC] § 362). As a result, the Corvettis applied to the Bankruptcy Court, which lifted the stay, thereby permitting the county to issue the tax deed to the Corvettis, who then sold the property. The Bankruptcy Court found that under the Onondaga County Tax Act, the Carneys had two years from October 1, 1993 to redeem the property by paying all taxes and interest due and, the two-year period having long passed before they filed their bankruptcy petition, they had no further interest in the property.

Three years later, in May 2000, the Carneys’ chapter 11 Trustee brought an action against Philippone claiming that he committed malpractice by not advising his clients to seek bankruptcy protection until July 24, 1997—after the period for redemption had run. The Trustee claimed that the period of redemption expired June 26, 1997—six months after the Corvettis and TCA served the Carneys with redemption notices— and that had the Carneys filed under chapter 11 before that time, they might have retained their property rights. Philippone sought summary judgment or dismissal of the Trustee’s action, contending that the period of redemption had expired before he was retained to represent the Carneys.

The United States District Court for the Northern District of New York granted Philippone summary judgment dismissing the complaint (Carney v Philippone, US Dist Ct, ND NY, Scullin, Ch. J., 5:01-CV-557 [June 5, 2002]). The court concluded that it was collaterally estopped by the Bankruptcy Court’s finding that the Carneys had lost their interest in the property by October 1, 1995, months before they hired Philippone, and that any alleged malpractice therefore could not have been a proximate cause of their losses. Even if not bound by collateral estoppel, the District Court agreed with the Bankruptcy Court’s interpretation of section 6 of the Act: that the statutory redemption period was two years, measured from the tax certificate sale, unless shortened by a six-month notice of redemption. The court rejected as “nonsensical” the Carneys’ argument that a six-month notice of redemption is absolutely required:

“Were that true, § 6 would render § 9 inoperative. Section 9 clearly states: '[N]o other, further or different notice of the expiration of the time to expire shall be required to be published, served upon or given to any person whatever.’ § 9. The Court finds that § 9 makes it very clear that the six-month notice of redemption is not the exclusive method for a tax certificate holder to obtain absolute title. Running of the applicable two- or three-year time limit is also sufficient.”

On the Trustee’s appeal, the United States Court of Appeals for the Second Circuit observed that collateral estoppel did not apply and that the Carneys’ right of redemption was governed by sections 6, 8 and 9 of the Act. But the court found “textual ambiguities” and “nettlesome inconsistencies” in these sections, which it was “unable to harmonize” (332 F3d 163, 165, 169, 171 [2d Cir 2003]):

“Section 8 permits an ‘owner’ to redeem within two years of a tax sale, whereas an ‘occupant’ can redeem within three years of such a sale ‘and not thereafter.’ Section 6, however, can be read to provide that, even if two or three years pass after a tax sale, a certificate holder must still serve a notice to redeem upon the owner and occupant before the county can convey title. Section 6 also implies that, following service of this notice, the owner and occupant will have another six months to redeem the property. Thus, under one section of the statute— Section 8—the right to redeem appears to be cleanly cut off after three years, in the case of occupants, and two years, in the case of owners. However, another section of the same statute—Section 6—ap-parently provides that a right to redeem is never terminated until six months after a notice to redeem has been served. If the six-month notice is never served, does a right to redeem exist in perpetuity? To complicate matters, the Tax Act does not define ‘occupant.’ Consequently, it is unclear whether this term applies to the Carneys, who ran a nursing home and an adult home on their property, or whether ‘occupant’ is synonymous with ‘resident’ ” (id. at 169).

The court posited three different dates under the Act when the Carneys’ right to redeem might expire: first, six months after they received notice from the Corvettis; second, two years after the October 1, 1993 tax sale; and third, if the Carneys were “occupants,” three years after the tax sale (id. at 171). If the first or third option applied, then Philippone was the Carneys’ lawyer during the relevant time period, and a malpractice action might lie. Finding it difficult to determine which of these three interpretations of a state statute to adopt, the court certified two questions to us:

“(1) Under the Onondaga County Tax Act, is an owner’s right to redeem his property, after its sale for taxes, strictly limited to two years even when the tax sale purchaser fails to send the owner a notice to redeem during that period? Or does the right of redemption survive until six months after the tax sale purchaser sends a notice to redeem, even if that six-month period ends more than two years after the tax sale?
“(2) Does the term ‘occupant’ in section 8 of the Onondaga County Tax Act include an individual who operates a business on a property but does not reside there? If an individual is both an owner and an occupant, does he have three years following a tax sale in which to redeem the property?” (332 F3d at 172.)

II.

Our answers to the certified questions are guided by two overarching principles. First, our role is to discern and implement the will of the Legislature and attempt—by reasonable construction—to reconcile and give effect to all of the provisions of the subject legislation. Second, statutes authorizing tax sales are to be liberally construed in the owner’s favor because tax sales are intended to collect taxes, not forfeit real property (see 13 Warren’s Weed, New York Real Property, Tax Sales § 1.03 [4th ed]).

The Period of Redemption

As noted by the Second Circuit, three sections of the Act are relevant to fixing the period of redemption: sections 6, 8 and 9.

Section 8 (entitled “Redemption”) provides tax-delinquent owners and occupants with a right of redemption for real property purchased at tax sales:

“The owner, or any other person at any time within two years from the last day of [the tax] sale, and the occupant or holder of any mortgage duly recorded at the time of the sale thereof at any time within three years after the sale and not thereafter, may redeem any property sold for taxes ... by paying to the county commissioner of finance, for the use of the county, or if such purchaser be a private purchaser for the use of such purchaser or those claiming under him, as the case may be, the sum mentioned in the certificate of sale with interest thereon at the rate of twelve percent per annum to be calculated from the date of such certificate.”

Section 9 (“Unredeemed land”) provides for notice by publication to tax-delinquent owners and occupants. The County Commissioner of Finance shall,

“at least three months before the expiration of the time allowed for the redemption of lands sold by him for taxes, cause a notice to be published once in each week for two weeks successively in at least one newspaper published in said county, containing a list of the lands in such county sold for taxes and unredeemed specifying particularly every parcel unredeemed, and the amount necessary to redeem the same, calculated to the last day in which such redemption can be made, and stating that, unless such lands are redeemed by a specified day, they will be conveyed to the county, or if such purchaser be a private purchaser, to such private purchaser.”

Under section 9, until notice of the expiration of the time to redeem is published, the time to redeem does not expire. Additionally, section 9 provides that “[n]o other, further or different notice of the expiration of the time to redeem shall be required to be published, served upon or given to any person whatever.”

Finally, section 6 (“Publication”) provides:

“Before making such application the owner of a tax sale certificate acquired subsequent to the effective date of this act shall serve a notice to redeem by certified or registered mail, return receipt requested, upon the record owner, mortgagee, if any, and occupant, if any, of the real property affected by said tax sale certificate.”

Notice pursuant to section 6 must describe the property, declare the amount due, specify the relevant interest rates and fees, and contain a “statement that in order to redeem said property the total amount due must be paid to the Onondaga county commissioner of finance within six months from the date of mailing of said notice.” (§ 6 [d].)

Background of the Act

The history of the Act illuminates the issues. The Onondaga County Tax Act was adopted in 1937 to provide for the collection of taxes and procedures for handling tax delinquent property in the county (see L 1937, ch 690). The initial redemption period for owners, occupants or any other person was two years after the last day of the tax sale; mortgage holders were given one year after the recording of the conveyance to redeem their property (see L 1937, ch 690, § 8). Only notice by publication was required.

In 1964, the Act was amended to bring the redemption periods for occupants and mortgage holders into alignment with the Real Property Tax Law (see Mem for the Governor, Bill Jacket, L 1964, ch 768, at 1). The time for redemption for occupants and mortgage holders increased to three years after the last day of the tax sale (compare L 1964, ch 768, § 2, with RPTL 1022, 1024 [McKinney’s Cons Laws of NY, Book 49A, 1960 ed]). The 1964 amendments did not, however, mirror the Real Property Tax Law in all respects. Most significantly, the Legislature did not include a provision of the Real Property Tax Law that had the effect of shortening the redemption period for an occupant or mortgage holder if personally served with a notice to redeem before expiration of the statutory period (see Mem for the Governor, Bill Jacket, L 1964, ch 768, at 2-3). In amending the Onondaga County Tax Act, the Legislature appears to have considered—and rejected—this option (see Letter from County of Onondaga Dept of Law, Apr. 2, 1964, Bill Jacket, L 1964, ch 768, at 9 [“In Onondaga County we are not interested in shortening the redemption period and therefore do not provide for personal service”]).

In 1971, section 6 of the Act was amended to provide for personal service of a notice to redeem. “Great inequities and substantial enrichment ha[d] occurred, especially in Onondaga County, because the actual owner, even though an occupier of the land, did not realize that the taxes were unpaid, and consequently lost their property” (see Letter from Senator Tarky Lombardi, Jr., May 17, 1971, Bill Jacket, L 1971, ch 1092, at 2). The bill “intended to prevent taxpayers from losing their property or mortgagees from losing their security interest without notice or knowledge of the possibility” (id.). It sought to afford due process by setting up procedures for notice to taxpayers beyond “mere publication” of a list of the affected properties in a local newspaper, requiring “the purchaser of a tax sale certificate to make a diligent search for the identity and whereabouts of the people who are interested in the property and to give such persons notice of the tax lien, the right to redeem and the consequences of failure to do so” (Letter from County of Onondaga Dept of Law, May 19, 1971, Bill Jacket, L 1971, ch 1092, at 7).

Reading the words of the Act against this statutory background, we are persuaded that the Legislature’s primary purpose in its most recent relevant amendment to the Act was to provide actual notice to property owners, consonant with the requirements of due process. Thus, we conclude that a tax certificate holder must give an owner or occupant a six-month notice to redeem, as provided in section 6, and that without such notice there can be no transfer of the property to the tax certificate holder. The provision of section 9, that no other notice of the time to redeem shall be required, was implicitly amended by the later, clearly deliberate requirement of personal service of a notice to redeem.

But how does this requirement fit within the balance of the Act? When must personal service of the mandatory six-month notice to redeem be made?

Section 8 of the Act provides that owners may redeem within two years and occupants within three years—“and not thereafter.” The section 8 redemption periods were not amended in 1971 when the requirement of personal service of a six-month notice to redeem was added. What is clear from the statute’s history, however, is that the Legislature was most definitely not interested in shortening the redemption period—it earlier rejected that opportunity. Thus, the provision for personal service of the six-month notice to redeem cannot shorten the two- and three-year time frames prescribed by section 8. By the same token, in order to give effect to the phrase “and not thereafter” in section 8, the six-month notice requirement cannot lengthen the two- and three-year redemption periods. Accordingly, we conclude that an owner must be served with a notice to redeem six months before expiration of the two-year redemption period; an occupant must be served with a notice to redeem six months before expiration of the three-year redemption period.

The Second Circuit’s understandable concern that the right to redeem might exist in perpetuity, or that a cloud on title could endlessly hover over the property, is addressed by application of the time periods clearly specified in section 8. Morever, as a final outside date, section 6 of the Act provides that “[i]f application for a conveyance is not made within five years from the last day of the tax sale, the tax sale certificate . . . shall become void and no claim may thereafter be maintained on such certificate” (L 1967, ch 677, § 1).

Thus, we answer the Second Circuit’s first question as follows. An owner’s right to redeem is limited to two years. Eighteen months into that period, a tax sale purchaser—before it can request a deed for the property—must give notice to the owner.

Occupant or Owner

Addressing the second certified question, section 8 of the Act prescribes different redemption periods based on an individual’s interest in the property. This distinction was introduced in 1964, in order to bring the Act more into line with the Real Property Tax Law (see L 1964, ch 768, § 2). At the time, “occupant” was defined in the Real Property Tax Law as “a person who has lawfully entered and is in possession of the real property to the exclusion of every other person” (RPTL 1022 [7] [McKinney’s Cons Laws of NY, Book 49A, 1960 ed]). This definition appears to include a person who operates a business on the property but does not reside there. There is no indication that the Legislature intended the term occupant to be synonymous with residency.

While the statutory history does not set forth the rationale for the distinction between owners and occupants, a reasonable explanation for allowing a longer period for occupants is that tax notices routinely are directed to the property owner; significant additional time may pass before a mere occupant discovers a tax delinquency. Applying that rationale, we conclude that an owner should be held to the two-year period to redeem property, whether or not that person is also an occupant. Thus, as to the Second Circuit’s two-part second question, we answer the first part in the affirmative, and the second part in the negative.

Finally, were there a shred of doubt as to the desirability of a comprehensive review of the statute by the Legislature, we trust that this writing, together with the writings of the Bankruptcy Court, the District Court and the Second Circuit, are sufficient to dispel it.

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

Judges G.B. Smith, Ciparick, Rosenblatt, Graffeo and Read concur; Judge R.S. Smith taking no part.

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 500.17 of the Rules of Practice of the Court of Appeals (22 NYCRR 500.17), 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.

      . SNH was formed by ACM and Richard Corvetti for the purpose of taking title to the nursing home parcel. The parties intended that SNH would sell the nursing home property in order to satisfy the mortgage, and the Carneys and ACM would each receive 50% of the net proceeds.

      . RPTL 1022 permitted holders of tax sale certificates or anyone claiming under them after expiration of one year from date of sale to reduce this period of redemption by serving written notice on the person occupying the property either personally or by leaving the same at the residence of the occupant. The notice stated (1) the sale and conveyance of the property, (2) the person to whom made, (3) the amounts required for redemption and (4) that unless such amounts are paid to the county treasurer for the benefit of the grantee or those claiming under him within six months after filing notices of the service, the conveyance in question would become absolute and the occupant and all others be forever barred from redeeming the property (see RPTL 1022 [McKinney’s Cons Laws of NY, Book 49A, 1960 ed]).

      . The 1964 amendments were passed after a similar bill was vetoed by the Governor (see Senate Intro 3398, Print 3661 [1963]), because it shortened the period of redemption for an occupant or owner from two years to one year.

      . The Trustee contends that additional 1971 amendments to section 6 eliminated the two- and three-year redemption periods provided in section 8. The relevant amendments provide that the Commissioner of Finance may sell and assign any certificate of sale of lands bid in for the county at any time before the expiration of “three years after the date of the tax sale” (L 1971, ch 1092, § 1). If any parcel sold for taxes is not redeemed within “said three year time limit in the manner set forth in section eight,” the Commissioner shall execute to the purchaser a conveyance (id.). The Trustee argues that this amendment makes clear that the time when a tax certificate holder can apply for a deed is no longer tied to the two- and three-year redemption period in section 8—it is now three years, regardless of the interest in the property. This argument is unsupported by the legislative history, and unpersuasive. The amendment merely suggests that three years is the outer limit within which redemption may occur under section 8. The amendment sought to remedy an anomaly in the law that prevented the county from selling a tax sale certificate on a vacant lot between the second and third year after the tax sale (see Letter from Senator Lombardi, May 17, 1971, Bill Jacket, L 1971, ch 1092, at 2-3).

      . In 1994, the New York State Legislature adopted the Uniform Delinquent Tax Enforcement Act, which provided for a uniform system of tax collection throughout the state (see RPTL 1100-1186). Onondaga County opted out of the Real Property Tax Law in April 1994, by Local Law No. 4 (1994), which authorized the continuation of the enforcement of the collection of real property taxes according to the Onondaga County Tax Act.


author: Rosenblatt, J.

text:
    [806 NE2d 138, 774 NYS2d 113]
    In the Matter of Donald P. Guido, Appellant, v Glenn S. Goord, as Commissioner of Correctional Services, et al., Respondents.
    Argued January 8, 2004;
    decided February 12, 2004

      POINTS OF COUNSEL

      New York State Defenders Association, Albany (Alfred O’Connor of counsel), for appellant.
    Petitioner is entitled to 411 days of additional jail time credit pursuant to Penal Law § 70.30 (3) because New York authorities lodged a warrant against him during the pendency of his pretrial incarceration in Florida on charges that culminated in acquittal and dismissal. (Matter of Hawkins v Coughlin, 72 NY2d 158; People v Cerilli, 80 NY2d 1016; Matter of Auerbach v Board of Educ., 86 NY2d 198; Matter of Peterson v New York State Dept. of Correctional Servs., 100 AD2d 73; Matter of Keffer v Reid, 100 AD2d 549; Matter of Chang v Goord, 295 AD2d 231; Matter of Bentley v Demsky, 250 AD2d 886; Matter of Birden v Department of Correctional Servs., 134 AD2d 843; People v Vitale, 80 Misc 2d 36; Matter of Vitale v Wilkes, 49 AD2d 702.)

      Eliot Spitzer, Attorney General, Albany {Denise A. Hartman, Caitlin J. Halligan, Daniel Smirlock and Nancy A. Spiegel of counsel), for Glenn S. Goord, respondent.
    The Department of Correctional Services has credited petitioner with all the jail time to which he is entitled. (Matter of Bottom v Goord, 96 NY2d 870; Middleton v State of New York, 54 AD2d 450, 43 NY2d 678; Matter of Torres v Bennett, 271 AD2d 830; Matter of Peterson v New York State Dept. of Correctional Servs., 100 AD2d 73; Matter of Chang v Goord, 295 AD2d 231; Matter of Bentley v Demskie, 250 AD2d 886, 92 NY2d 884, 525 US 1044; Matter of Birden v Department of Correctional Servs., 134 AD2d 843; Matter of Witteck v Superintendent of Wallkill Correctional Facility, 65 AD2d 249, 48 NY2d 858; Bingham v New York City Tr. Auth., 99 NY2d 355; People ex rel. Fredericks v Mann, 219 AD2d 763, 87 NY2d 803.)
   OPINION OF THE COURT

Rosenblatt, J.

Penal Law § 70.30 (3) entitles an inmate to jail time credit against a New York sentence for a period spent in custody on charges culminating in an acquittal or dismissal. The narrow question before us is whether the same credit must be accorded for periods of time spent in another state’s custody, when the New York charge was not the sole cause of the inmate’s out-of-state detention.

On March 9, 1989, petitioner was arrested in Pinellas County, Florida, on charges in that county and on outstanding arrest warrants for other charges in Sarasota County, Florida. Seven days later and while petitioner was being detained in the Pinellas County Jail, New York lodged a warrant against him in connection with charges in Herkimer County, New York. On March 12, 1990, a jury acquitted petitioner on the Pinellas County charges. Authorities then transferred petitioner, who was still in detention, to Sarasota County, where he remained in custody until the Sarasota charges were dismissed on April 22, 1990. On April 23, 1990, petitioner was extradited to New York to stand trial on the Herkimer charges. Herkimer County held petitioner as a detainee through the pendency of his trial. Upon petitioner’s conviction for the Herkimer County crimes, the trial court sentenced him to concurrent indeterminate terms of imprisonment of 12V2 to 25 years and 3V2 to 7 years.

After receiving him into its custody on March 5, 1991, the Department of Correctional Services (DOCS) credited petitioner with the 316 days of jail time he spent in Herkimer County’s custody following his extradition. On May 15, 2000, petitioner wrote the inmate records coordinator at Elmira Correctional Facility, seeking an additional 411 days of jail time credit for the period of his Florida detention. The inmate records coordinator replied that DOCS could not credit petitioner for any jail time that had not been certified by the sheriff in the county of conviction. After requesting such certification from the Herkimer County Sheriff and receiving no response, petitioner commenced this CPLR article 78 proceeding to compel the Herkimer County Sheriff and the Commissioner of DOCS to grant him 411 days of jail time credit.

Supreme Court dismissed the petition, reasoning that petitioner was entitled to credit under Penal Law § 70.30 (3) only if the New York warrant was the sole cause of petitioner’s Florida detention. The Appellate Division affirmed. We granted petitioner leave to appeal, and now reverse.

Penal Law § 70.30 (3) specifies the conditions under which DOCS may award jail time credit to New York inmates. In pertinent part, the provision states:

“In any case where a person has been in custody due to a charge that culminated in a dismissal or an acquittal, the amount of time that would have been credited against a sentence for such charge, had one been imposed, shall be credited against any sentence that is based on a charge for which a warrant or commitment was lodged during the pendency of such custody” (emphasis added).

Petitioner contends that the plain language of Penal Law § 70.30 (3) entitles him to jail time credit for the 411 days he spent in Florida custody, before his extradition to New York. DOCS counters thát the statute authorizes credit only for time spent in New York custody and for time spent in another jurisdiction’s custody when a New York detainer is the sole cause of the detention. In advancing this interpretation of Penal Law § 70.30 (3), DOCS relies almost exclusively on a line of Appellate Division cases, beginning with Matter of Peterson v New York State Dept. of Correctional Servs. (100 AD2d 73 [2d Dept 1984]).

In Peterson, the petitioner sought to apply jail time (accrued during a pretrial detention on federal charges for which he was eventually convicted and sentenced) against two subsequent New York' sentences that were to run concurrently with the federal sentence. The Appellate Division rejected the petition on the ground that the New York detainer was not the sole cause of the federal detention {see id. at 80). It held that a New York inmate was entitled to jail time credit for the federal detention only if (1) bail was set on the federal charge, (2) the inmate had the financial ability to meet the bail set on the federal charge, and (3) the inmate’s failure to post bond or otherwise secure his or her release resulted solely from the lodging of a New York detainer (see id.). Likewise, in Matter of Keffer v Reid (100 AD2d 549 [2d Dept 1984]), the Appellate Division applied Peterson’s reading of Penal Law § 70.30 (3) to an inmate who sought jail time credit for a New Jersey detention. In Keffer, as in Peterson, the inmate’s New York sentence ran concurrently with the out-of-state sentence.

Over the last two decades, Peterson and Keffer have engendered a robust progeny. The Appellate Division has applied the Peterson test to both concurrent sentences and detentions culminating in acquittal or dismissal (see Matter of Chang v Goord, 295 AD2d 231 [1st Dept 2002]; Matter of Bentley v Demskie, 250 AD2d 886 [3d Dept 1998]; Matter of Birden v Department of Correctional Servs., 134 AD2d 843 [4th Dept 1987]).

Notwithstanding the widespread acceptance garnered by Peterson and its offspring, those cases have established a rule that conflicts with the plain statutory language, and they should no longer be followed. Penal Law § 70.30 (3) makes no distinction whatsoever between inmates who are detained in New York and those who are detained by sister states or the federal government. Indeed, the statute expressly provides that inmates should receive jail time credit “[i]n any case” where they were held in “custody due to a charge that culminated in a dismissal or an acquittal,” as long as the warrant giving rise to the New York sentence was “lodged during the pendency of such custody.” “In any case” means in any case, and we cannot conclude that by saying “any” the Legislature meant some and not others (see People v Cerilli, 80 NY2d 1016 [1992]). In short, Penal Law § 70.30 (3) does not contemplate the place of detention as a factor DOCS should consider when computing jail time credit.

Accordingly, the order of the Appellate Division should be reversed, with costs, and the matter remitted to Supreme Court for further proceedings in accordance with this opinion.

Chief Judge Kaye and Judges G.B. Smith, Ciparick, Graffeo and Read concur; Judge R.S. Smith taking no part.

Order reversed, etc.

      . Reversed today in Matter of Chang v Goord (1 NY3d 603 [2004]).

      . Its reliance on Peterson in this case aside, DOCS concedes that one of the Peterson court’s key holdings, that Penal Law § 70.30 (2-a) does not authorize jail time credit for time spent in custody in foreign jurisdictions, was incorrect.

      . Although we reject the Peterson court’s reading of Penal Law § 70.30 (3), we note and petitioner concedes that inmates may not secure jail time credit for an out-of-state or federal detention unless they provide a certified record of that detention. The Department of Correctional Services has no obligation to collect such documentation on behalf of an inmate.


author: Read, J.

text:
    [806 NE2d 473, 774 NYS2d 465]
    In the Matter of Neil D. Levin, as Superintendent of Insurance of the State of New York, Respondent, v National Colonial Insurance Company, Respondent, and Chase Manhattan Bank, N.A., Appellant.
    Argued January 7, 2004;
    decided February 12, 2004

      POINTS OF COUNSEL

      Eileen J. Berkman, New York City, Alyssa Kelman and E. Regan Adams for appellant.
    I. The New York trial court clearly had jurisdiction to decide the merits of this case. (Ambiance, Inc. v Commodore Gen. Ins. Co., 553 F Supp 285; In re Koreag, Controle et Revision S.A., 961 F2d 341, 506 US 865; G.C. Murphy Co. v Reserve Ins. Co., 54 NY2d 69; Matter of Transit Cas. Co., 79 NY2d 13; Matter of Guardian Cas. Co., 161 Misc 859; Matter of Union Indem. Ins. Co., 89 NY2d 94; Stephens v American Home Assur. Co., 811 F Supp 937, 70 F3d 10; Federal Trade Commn. v Metropolitan Communications Corp., 977 F Supp 295.) II. The Kansas order should not be given full faith and credit. (Matter of Luna v Dobson, 97 NY2d 178; Lawlor v National Screen Serv. Corp., 349 US 322; Kearns v General Motors Corp., 94 F3d 1553, 520 US 1186.) III. The public policy of the Insurance Law will be advanced by the reinstatement of the trial court order. (Simonds v Simonds, 45 NY2d 233; In re Koreag, Controle et Revision S.A., 961 F2d 341; Matter of Union Indem. Ins. Co., 89 NY2d 94; Matter of Midland Ins. Co., 167 AD2d 75, 79 NY2d 253; Stephens v American Home Assur. Co., 811 F Supp 937, 70 F3d 10.)

      Cozen O’Connor, New York City (Francine L. Semaya and William K. Broudy of counsel), for National Colonial Insurance Company, respondent.
    I. This Court is required to give full faith and credit to the order of the Kansas liquidation court approving the classification and disposition of Chase’s claim. (Underwriters Natl. Assur. Co. v North Carolina Life & Acc. & Health Ins. Guar. Assn., 455 US 691; G.C. Murphy Co. v Reserve Ins. Co., 54 NY2d 69; Tolfree v New York Tit. & Mtge. Co., 72 F2d 702; United States v Bank of N.Y. & Trust Co., 296 US 463; American Cast Iron Pipe Co. v Statesman Ins. Co., 343 F Supp 860; Matter of Bean v Stoddard, 207 App Div 276; Matter of New York Tit. & Mtge. Co., 163 Misc 454; Matter of National

      Tit. Guar. Co., 152 Misc 523.) II. The order of the Kansas liquidation court approving the classification and disposition of Chase’s claim is a final order and must be given res judicata effect. (Matter of Farmland Dairies v Barber, 65 NY2d 51; Underwriters Natl. Assur. Co. v North Carolina Life & Acc. & Health Ins. Guar. Assn., 455 US 691.) III. Because there are no special deposit claims or secured claims pending against the National Colonial Insurance Company (NCIC) trust account, the assets of the NCIC trust account must be paid to the domiciliary liquidator. IV Public policy requires that Chase not benefit from its wrongdoing. (Matter of Rothko, 43 NY2d 305; Town of Evans v Catalino, 88 AD2d 780; Simonds v Simonds, 45 NY2d 233; Bankers Sec. Life Ins. Socy. v Shakerdge, 49 NY2d 939.)

      Jack A. Franceschetti, New York City, and Steven R. Harris for Superintendent of Insurance of the State of New York, respondent.
    The Appellate Division decision incorrectly placed control of the trust fund assets with the Kansas liquidator. (Tolfree v New York Tit. & Mtge. Co., 72 F2d 702; United States v Bank of N.Y. & Trust Co., 296 US 463; American Cast Iron Pipe Co. v Statesmen Ins. Co., 343 F Supp 860; Matter of Bean v Stoddard, 207 App Div 276; Matter of New York Tit. & Mtge. Co., 163 Misc 454; Matter of National Tit. Guar. Co., 152 Misc 523.)
   OPINION OF THE COURT

Read, J.

In this appeal we are asked whether Supreme Court properly exercised jurisdiction over a trust fund, established pursuant to New York Insurance Department Regulation 41, to resolve competing claims to the trust remainder brought by JPMorgan Chase Bank (sued herein as Chase Manhattan Bank, N.A.), the trustee, and National Colonial Insurance Company (NCIC), an insolvent insurer undergoing liquidation in Kansas. For the reasons that follow, we conclude that Supreme Court did not have jurisdiction in this regard, and that the remainder of the trust should be transferred to NCIC’s liquidator in Kansas.

I.

In 1989, NCIC, an insurer organized under the laws of the State of Kansas, sought to write excess and surplus line insurance policies in New York. As a condition of doing business as an unauthorized insurer, Regulation 41 (11 NYCRR part 27) required that NCIC establish a trust fund with Chase, a qualified financial institution. The trust fund, governed by a trust agreement, was exclusively available for payment of claims under policies issued to a resident of, or with respect to property situated in, a state in which NCIC was not licensed to conduct an insurance business. NCIC funded the trust by depositing $750,000 with Chase as trustee.

The trust agreement specified that, upon its termination and payment of outstanding liabilities, the remainder would be distributed to NCIC. In the event NCIC was found insolvent pursuant to the laws of Kansas, the trustee was to disburse the trust fund at the direction of the Superintendent of Insurance of the State of New York in accordance with the provisions of article 74 of the Insurance Law.

On September 21, 1990, the Kansas Insurance Department notified NCIC that the trust agreement did not comply with Kansas law and needed to be amended to insert certain mandatory language. Chase proposed alternative wording and advised that, “[i]n the event [this wording] is deemed unacceptable, [NCIC] will have to identify a new trustee and arrange for the transfer ... of the trust assets.” On March 8, 1991, NCIC advised Chase that the Kansas Insurance Department had rejected its proposed alternative wording; and on October 4, 1991, Chase notified NCIC that it could not accept the amendment to the trust agreement required by the Kansas Insurance Department. On June 11, 1992 and at NCIC’s direction, Chase electronically transferred the trust’s assets (NCIC’s original deposit of $750,000 plus interest, for a total of $917,846) to NCIC’s bank accounts. In so doing, Chase violated several of the trust agreement’s express terms (as well as Regulation 41), including the five-year irrevocability period, the minimum funding provision and the requirement to notify the Superintendent upon the trust’s termination.

By an order entered on July 16, 1993, the District Court of Shawnee County, Kansas, declared NCIC insolvent, placed NCIC in liquidation and appointed the Kansas Commissioner of Insurance as statutory liquidator of the estate. The liquidation order directed the Kansas liquidator to “take possession of [NCIC’s] property, business and affairs,” and vested him with “title to all [NCIC’s] property, assets, [and] contracts.” This order also enjoined and restrained all persons “from bringing, or further prosecuting” any actions or claims against NCIC or its “property or assets.” The Kansas court retained jurisdiction “for the purpose of granting such other and further relief as the nature of this cause or the interest of the policyholders, reinsureds, creditors or stockholders of [NCIC], or the members of the public may require.” At the time the liquidation order was entered, the trust was unfunded, Chase having transferred all the trust’s assets to NCIC’s bank accounts the previous year.

By letter dated October 7, 1993, the New York State Insurance Department demanded a “complete explanation” from Chase as to why the bank had released the full amount of the trust funds to NCIC. Further, the Department requested Chase to “[k]indly advise what action [Chase] intends to take to restore the missing funds which were untimely released or to indemnify any claimants that do or will have monies due them under the terms of the trust agreement.” In January 1994, Chase responded by replenishing the trust fund with $750,000 of its own.

On April 19, 1994, the Superintendent petitioned Supreme Court for an order authorizing him to take possession of the trust as conservator under article 74 of the Insurance Law. Chase filed an affidavit in the proceeding claiming entitlement to any funds remaining in the trust after valid policyholder and beneficiary claims had been satisfied. NCIC in liquidation (NCICL) also filed an affidavit, arguing that the trust remainder, if any, was part of the estate’s general assets.

Chase took the position that it was entitled to any remainder because the trust’s funds were comprised solely of monies that it had contributed. NCICL characterized this fact as “irrelevant”:

“[Chase] was obligated to maintain the trust in accordance with its terms and with Regulation 41. Simply because [Chase] breached its duty and was forced to return funds improperly transferred does not establish a claim to any funds remaining after all valid claims are paid. Once [Chase] transferred the funds back into the trust the funds became the property of the estate of NCIC. [Chase] ceased to have any claim to the funds.”

Notwithstanding its posture in the New York proceeding, on July 18, 1994 Chase filed a $750,000 proof of claim with the Kansas liquidator.

On December 20, 1994, Supreme Court issued an order granting the Superintendent possession of the trust as conservator pursuant to Insurance Law § 7406. The New York order “enjoined and restrained [all persons] from bringing or further prosecuting in the State of New York” (emphasis added) any action or claim against NCIC or the trust; and generally restrained all individuals from doing anything that might “waste” the trust or “allow or suffer the obtaining of preferences, judgments, attachments, garnishments or other liens, or the making of any levy against” the trust while in the Superintendent’s possession and control as conservator. The order further directed the Superintendent to petition Supreme Court, on notice to Chase and the Kansas Insurance Commissioner, “for further direction should trust funds remain upon the satisfaction of all outstanding claims by NCIC’s insureds and beneficiaries.”

In February 2000, the Kansas court approved the Kansas liquidator’s recommended allowances for claims to NCIC’s estate. The Kansas order included Chase, with a claim of $750,000, as a Class IV general unsecured creditor of the estate. Chase did not file an objection to the Kansas order, or take any further action in Kansas to pursue its claim of ownership of the tmst remainder.

On May 31, 2000, the Kansas liquidator prepared an unaudited Statement of NCIC’s Net Assets in Liquidation. The report included as a “potential recoverable” $987,229 in a “State of New York Special Deposit.” The Kansas liquidator noted that “a dispute surrounding release of this deposit to the NCIC estate may arise.”

In December 2000, the Superintendent, as conservator of the trust, brought this special proceeding under article 74 of the Insurance Law. The Superintendent advised Supreme Court that Chase and the Kansas liquidator both claimed entitlement to the trust remainder, and sought an order directing its distribution. He relied on an áffidavit dated November 21, 2000, in which the Kansas liquidator averred that “(i) there are no pending claims upon and (ii) there will be no claims upon the Trust Fund currently in the possession of and conserved by the Conservator.”

Supreme Court determined that the funds deposited by Chase had not become a part of NCIC’s estate. Applying principles of trust law and equity, Supreme Court entered an order directing that the trust remainder be distributed to Chase because otherwise NCIC would enjoy an “unjust windfall.” The Appellate Division reversed on the law, ordering distribution of the trust to the Kansas liquidator, reasoning that “[t]he Kansas court had and has jurisdiction over the proper disposition of this trust asset and the liquidator in that proceeding should determine distribution of such asset” (296 AD2d 354, 354-355 [1st Dept 2002]). We granted Chase leave to appeal and now affirm.

II.

In 1939, the National Conference of Commissioners on Uniform State Laws endeavored to resolve some of the complexities of liquidating an insolvent insurance company with assets in multiple states by approving the Uniform Insurers Liquidation Act (UILA). New York adopted the UILA in 1940 “with the main purpose in mind of providing a uniform system for the orderly and equitable administration of the assets and liabilities of defunct multistate insurers” (G.C. Murphy Co. v Reserve Ins. Co., 54 NY2d 69, 77 [1981]; see Insurance Law §§ 7408-7415). As NCIC is a “defunct multistate insurer[ ],” any analysis of New York’s authority to administer its assets must begin with the UILA.

Section 7410 (b) of the UILA, entitled “Conduct of delinquency proceedings against insurers not domiciled in this state,” sets forth the procedures that New York follows when assets of a nondomiciliary insolvent insurer are located both within and without New York, and when receivers have been appointed in both New York and the domiciliary state. This provision—and the UILA generally—recognizes the authority of the domiciliary state and its receiver over all of the insolvent insurer’s assets, including those located in New York. Nonetheless, when a New York receiver has been appointed, New York has the primary right to exercise control over certain assets located within the state, even if a domiciliary receiver also exists. Under section 7410 (b), New York’s authority includes the right to liquidate “special deposit claims” from these assets.

The UILA defines a “[s]pecial deposit claim” as “any claim secured by a deposit made pursuant to statute for the security or benefit of a limited class of persons, but not including any general assets” (§ 7408 [b] [9] [emphasis added]; compare § 7408 [b] [7] [defining “(g)eneral assets” as “(a)ssets held in trust and assets held on deposit for the security or benefit of all policyholders, or all policyholders and creditors in the United States” (emphasis added)]).

Here, the trust was required in order for NCIC to do business in New York; it was created for the benefit of policyholders and beneficiaries of policies written in a state in which NCIC was not authorized to carry out an insurance business. Thus, the trust benefitted a limited class of people, and so was a special deposit (see e.g. Murphy, 54 NY2d at 75 n 2 [“The history of the Uniform Insurers Liquidation Act indicates that the term ‘special deposit’ was intended to mean security deposits exacted from a foreign insurer as a condition precedent to doing business in a State for purposes of providing a general fund for the protection of resident policyholders. . . . Such ‘special deposits’ are required in this State. (Insurance Law, §§ 103-104 [now §§ 1319-1320].)”]; see also State ex rel. Ingram v Reserve Ins. Co., 303 NC 623, 629, 281 SE2d 16, 20 [1981] [“Deposits pursuant to Article 20 constitute a trust for the benefit of North Carolina policyholders and are not assets of the insolvent insurance company” (emphasis in original)]; Commissioner of Ins. v Equity Gen. Ins. Co., 346 Mass 233, 239, 191 NE2d 139, 143 [1963] [statutory deposit by foreign insurance company is “a deposit for the benefit of all or specified Florida policyholders, and thus within . . . the term ‘special deposit’ ”]).

New York’s policy regarding its authority over statutory special deposits, and its ability to conserve these assets for the beneficiaries of a Regulation 41 trust, is consistent with the policy in Kansas, which adopted the National Association of Insurance Commissioners’ (NAIC) Insurers Rehabilitation and Liquidation Model Act in 1991 (see Kan Stat Ann §§ 40-3605— 40-3658). The Model Act’s 1991 provisions concerning interstate relations mimic those of the UILA (see NAIC Model Laws, Regulations and Guidelines, 555-1, Insurers Rehabilitation and Liquidation Model Act § 55 legislative history). Thus, Kansas recognizes the right of an ancillary receiver to “liquidate from its securities those special deposit claims and secured claims which are proved and allowed in the ancillary proceedings” when a domiciliary receiver also exists (compare Kan Stat Ann § 40-3651 [c] with Insurance Law § 7410 [b]; see also Kan Stat Ann § 40-3650 [a]).

Indeed, the actions of the Kansas liquidator were entirely consistent with this view of New York’s jurisdiction. He listed the Regulation 41 trust as a “Statutory Deposit” on his unaudited Statement of NCIC’s Net Assets in Liquidation, and indicated that a “dispute” concerning the trust remainder existed. Moreover, nothing in the liquidation order contravenes New York’s jurisdiction over the Regulation 41 trust. Kansas exercised jurisdiction over NCIC’s assets; NCIC’s interest in the trust fund was a contingent, remainder interest.

Notwithstanding the appointment of the Kansas liquidator and the liquidation proceeding underway in Kansas, the New York conservator had authority under the UILA to “recover” the Regulation 41 trust fund, and “liquidate” from it any claims made under covered policies (see Insurance Law § 7410 [b]). Jurisdiction over the trust did not rest exclusively with Kansas, as the Appellate Division determined; however, neither Chase nor NCIC was the holder or beneficiary of a policy protected under the trust. Accordingly, their claims to the trust remainder could not be adjudicated by Supreme Court under the UILA’s special deposit authority. We must therefore consider whether Supreme Court otherwise properly exercised jurisdiction to resolve Chase’s and NCIC’s competing claims to the trust remainder.

III.

As we recognized in Matter of Transit Cas. Co. (Digirol— Superintendent of Ins.) (79 NY2d 13, 20 [1992]), which presented us with an issue concerning notice, “[o]n this and many other aspects of the liquidation process the [UILA] is silent because it was not intended as a comprehensive scheme displacing all State laws, substantive and procedural, relating to liquidation of insolvent insurance companies.” We are now again faced with a question on which the UILA is silent: should competing claims to ownership of a trust remainder be adjudicated in the domiciliary state’s courts or in the courts of the state where the trust’s ancillary receiver was appointed? Unlike the matter of notice at issue in Transit Casualty, this question implicates one of the core “embarrassments” that the UILA was designed to remedy—“the ineffective administration of the liquidation process caused by differences in the laws of the various States regarding the title and right to possession of the property of a defunct nonresident insurer” (Murphy, 54 NY2d at 76, 77).

The UILA’s only statement bearing on the trust remainder is that, after liquidating “those special deposit claims and secured claims which are proved and allowed in the ancillary proceedings in [New York], and . . . pay[ing] the necessary expenses of the proceedings,” the ancillary receiver “shall promptly transfer [the remainder] to the domiciliary receiver” (Insurance Law § 7410 [b]). Thus, while silent regarding adjudication of competing claims of ownership of a trust remainder, the UILA provides a procedure to follow generally. We therefore conclude that in order to promote the UILA’s goal of orderly and equitable liquidation proceedings, the domiciliary state is the proper forum in which to adjudicate competing claims to the trust remainder.

The Kansas liquidator included the trust remainder as an asset of NCIC’s estate even though the remainder’s value was contingent at the time. By entertaining Chase’s claim of ownership, Supreme Court delayed the orderly administration of claims in Kansas. Once the conservator determined that there were no special deposit claims, Supreme Court should have “promptly transfer [red]” the trust remainder to the Kansas liquidator. While the highly unusual facts of this case, involving withdrawal of the settlor’s deposit to the trust and its replacement by the trustee, may complicate the UILA’s plan for efficient administration, they should not be allowed to override it.

This approach is consistent with the modern trend in insurance liquidation as evidenced by the Model Act. In 1994, the Model Act was revised in a manner that substantially curtails the ancillary receiver’s authority. Specifically, the current version of the Model Act requires that, upon entry of a final order of liquidation, all special deposits “shall be delivered to the domiciliary liquidator” and held as a “general asset for the benefit of all creditors,” and limits the ancillary receiver’s authority to proceedings that “support” the domiciliary proceeding (see NAIC Model Laws, Regulations and Guidelines, 555-1, Insurers Rehabilitation and Liquidation Model Act § 57). These changes were intended “to discourage the retention of special or statutory deposits by nondomiciliary states in the event of a multistate insolvency.” (Id. § 57 legislative history.) Further, the “basic principle behind the amendments is that insurers should be rehabilitated or liquidated in their state of domicile pursuant to the laws in that state, and that the domiciliary commissioner is in the best position to carry out that function” (id.).

Finally, Chase protests that it was barred by the New York order from bringing or prosecuting its claim to ownership of the trust remainder in the Kansas proceeding. The order, however, restrained Chase only from pursuing such a claim in New York while the trust was in the conservator’s possession and control. We have no way to know whether Chase’s ownership claim would have been entertained if, as was the case in New York, Chase had raised the issue in an affidavit in the Kansas proceeding.

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

Chief Judge Kaye and Judges Ciparick, Rosenblatt and Graffeo concur; Judges G.B. Smith and R.S. Smith taking no part.

Order affirmed, with costs.

      . Because of the similarities between New York and Kansas law, Kansas qualifies as a “reciprocal state” for purposes of the UILA (see Insurance Law § 7408 [b] [6] [defining “Reciprocal state” as “any state other than this state in which in substance and effect the provisions of this act are in force, including the provisions requiring that the insurance commissioner or equivalent insurance supervisory official be the receiver of a delinquent insurer”]; see Kan Stat Ann §§ 40-3605—40-3658).

      . The text of section 7410 (b) provides that
      “[t]he domiciliary receiver for the purpose of liquidating an insurer domiciled in a reciprocal state, shall be vested by operation of law with the title to all of the property, contracts, and rights of action, and all books and records of the insurer located in this state, and shall have the immediate right to recover balances due from local agents and obtain possession of any books and records of the insurer found in this state. He shall also be entitled to recover the other assets of the insurer located in this state except that upon the appointment of an ancillary receiver in this state, the ancillary receiver shall during the ancillary receivership proceedings have the sole right to recover such other assets. The ancillary receiver shall, as soon as practicable, liquidate from their respective securities those special deposit claims and secured claims which are proved and allowed in the ancillary proceedings in this state, and shall pay the necessary expenses of the proceedings. All remaining assets he shall promptly transfer to the domiciliary receiver.”

      . The UILA defines “[r]eceiver” as “receiver, liquidator, rehabilitator, or conservator as the context may require” (§ 7408 [b] [11]).

      . Kansas law defines “[g]eneral assets” as
      “all property . . . not specifically mortgaged, pledged, deposited or otherwise encumbered for the security or benefit of specified persons or classes of persons. As to specifically encumbered property, ‘general assets’ includes all such property or its proceeds in excess of the amount necessary to discharge the sum or sums secured hereby. Assets held in trust and on deposit for the security or benefit of all policyholders or all policyholders and creditors, in more than a single state, shall be treated as general assets” (Kan Stat Ann § 40-3607 [i] [emphasis added]).
      Thus, Kansas designates the remainder of a special deposit as a general asset of the estate, which is consistent with New York’s treatment of “[g]eneral assets” and “[s]pecial deposit claim[s].”

      . Kansas adopted the Model Act in 1991, and has not amended its law to incorporate these 1994 revisions.

      . We note that Chase filed its proof of claim with the Kansas liquidator before the New York order was entered.

      . The Appellate Division relied on full faith and credit to determine that New York lacked jurisdiction to resolve Chase’s claim. We find full faith inapplicable here, and instead rest our holding that Supreme Court lacked jurisdiction on the provisions of the UILA. Our decision today does not foreclose Chase from pressing a claim to ownership of the trust remainder in the ongoing Kansas liquidation proceeding.