author: Chief Judge Lippman.

text:
    [29 NE3d 230, 6 NYS3d 221]
    Ekaterina Schoenefeld, Respondent, v State of New York et al., Defendants, and Eric T. Schneiderman, as Attorney-General for the State of New York, et al., Appellants.
    Argued February 17, 2015;
    decided March 31, 2015

      POINTS OF COUNSEL

      Eric T Schneiderman, Attorney General, Albany (Laura Etlinger, Barbara D. Underwood and Andrea Oser of counsel), for appellants.
    The rule of constitutional avoidance calls for a narrow reading of Judiciary Law § 470. (Overstock.com, Inc. v New York State Dept. of Taxation & Fin., 20 NY3d 586; Matthews v Matthews, 240 NY 28; People ex rel. Simpson v Wells, 181 NY 252; People v Correa, 15 NY3d 213; People v Finkelstein, 9 NY2d 342; Barnard v Thorstenn, 489 US 546; Supreme Court of N. H. v Piper, 470 US 274; Supreme Court of Va. v Friedman, 487 US 59; Frazier v Heebe, 482 US 641; Lichtenstein v Emerson, 251 AD2d 64.)

      Ekaterina Schoenefeld, Princeton, New Jersey, respondent pro se.
    I. The rule of constitutional avoidance cannot save Judiciary Law § 470 because the term “office for the transaction of law business” cannot be reasonably construed as meaning merely “an address” or “designating an agent” for service of legal papers. (Matthews v Matthews, 240 NY 28; People v Correa, 15 NY3d 213; People ex rel. Simpson v Wells, 181 NY 252; New Lamp Chimney Co. v Ansonia Brass & Copper Co., 91 US 656; Bull v New York City Ry. Co., 192 NY 361; Matter of Gordon, 48 NY2d 266; Matter of Wood v Irving, 85 NY2d 238; Matter of Auerbach v Board of Educ. of City School Dist. of City of N.Y., 86 NY2d 198; Doctors Council v New York City Employees’ Retirement Sys., 71 NY2d 669; Matter of Carpenter v Chapman, 276 App Div 634.) II. The rule of constitutional avoidance cannot save Judiciary Law § 470 because it is an obsolete relic of the residency requirement that had been long held unconstitutional. (Matter of Gordon, 48 NY2d 266; Matter of Tang, 39 AD2d 357; Park Lane Commercial Corp. v Travelers Indem. Co., 50 Misc 2d 231; Matter of Fordan, 5 Misc 2d 372; United States v Raines, 362 US 17.) III. The New York courts have thus far construed the term “office for the transaction of law business” of Judiciary Law § 470 to require nothing less than an actual, physical space maintained for the purpose of practicing law in the State. (Matter of Haas, 237 AD2d 729; Empire HealthChoice Assur., Inc. v Lester, 81 AD3d 570; Kinder Morgan Energy Partners, LP v Ace Am. Ins. Co., 51 AD3d 580;
      Neal v Energy Transp. Group, 296 AD2d 339; Cheshire Academy v Lee, 112 Misc 2d 1076; Matter of Tang, 39 AD2d 357; Matter of Larsen, 182 AD2d 149; Marte v Graber, 17 Misc 3d 1139[A], 2007 NY Slip Op 52348[U]; Austria v Shaw, 143 Misc 2d 970; Matter of Scarsella, 195 AD2d 513.) IV. The Committee on Professional Standards, Third Department, has thus far interpreted Judiciary Law § 470 as requiring nonresident attorneys to maintain an actual law office in the State. (Matthews v Matthews, 240 NY 28; Matter of Wood v Irving, 85 NY2d 238.) V. Rewriting the statute, as defendants propose, will not preserve its constitutionality under the Privileges and Immunities Clause. (Supreme Court of Va. v Friedman, 487 US 59; White Riv. Paper Co. v Ashmont Tissue, 110 Misc 2d 373; Supreme Court of N. H. v Piper, 470 US 274; Bach v Pataki, 408 F3d 75; Walkes v Benoit, 257 AD2d 508; City of New York v Miller, 72 AD3d 726; Matter of Gordon, 48 NY2d 266; Matter of Wood v Irving, 85 NY2d 238; Matter of Haas, 237 AD2d 729.) VI. In the alternative, should the Court decide that it can read Judiciary Law § 470 in such a way as it can be saved, the Court could reasonably interpret it as requiring nonresident attorneys to provide an “email address” and to accept service of papers by electronic means. (Matter of Tang, 39 AD2d 357.)

      Meghan Boone, Institute for Public Representation, Georgetown University Law Center, Washington, D.C., for Michael H. Ansell and others, amici curiae.
    I. Judiciary Law § 470 should be interpreted according to its plain meaning, which contemplates a physical office location. (People v Finnegan, 85 NY2d 53; Majewski v Broadalbin-Perth Cent. School Dist., 91 NY2d 577; Caminetti v United States, 242 US 470.) II. The State’s interpretation of Judiciary Law § 470 creates surplusage and should be disregarded. (Astoria Fed. Sav. & Loan Assn. v Solimino, 501 US 104; Corley v United States, 556 US 303.) III. The State’s interpretation of Judiciary Law § 470 contradicts New York case law. (Marte v Graber, 17 Misc 3d 1139[A], 2007 NY Slip Op 52348[U].) IV. Other states have interpreted the term “office” to mean an operational physical location. (Frazier v Heebe, 482 US 641; Matter of Frazier, 594 F Supp 1173; Tolchin v Supreme Ct. of the State of N.J., 111 F3d 1099.)

      Ronald B. McGuire, New York City, amicus curiae.
    I. Judiciary Law § 470 became facially unconstitutional when this Court decided Matter of Gordon (48 NY2d 266 [1979]). (White Riv. Paper Co. v Ashmont Tissue, 110 Misc 2d 373.) II. The ad hoc approach taken by most New York courts interpreting the law office requirement of Judiciary Law § 470 failed to produce consistent or coherent results. (Lichtenstein v Emerson, 171 Misc 2d 933, 251 AD2d 64; Austria v Shaw, 143 Misc 2d 970; Rosenshein v Ernstoff, 176 AD2d 686; Matter of Scarsella, 195 AD2d 513; Matter of Kaur v New York State Urban Dev. Corp., 15 NY3d 235; Foss v City of Rochester, 65 NY2d 247.) III. Revolutionary developments in communications and transportation technology are redefining the meaning of a “law office” in ways that cannot be addressed by any construction of the language of Judiciary Law § 470. (International Shoe Co. v Washington, 326 US 310.) IV. The Court should not rely on an outmoded statute to fashion a modern practice requirement for nonresident attorneys. (Matter of Wood v Irving, 85 NY2d 238; Matter of Scarsella, 195 AD2d 513; Rosenshein v Ernstoff, 176 AD2d 686; Austria v Shaw, 143 Misc 2d 970.)
   OPINION OF THE COURT

Chief Judge Lippman.

In this case, the United States Court of Appeals for the Second Circuit has asked us to set forth the minimum requirements necessary to satisfy the statutory directive that nonresident attorneys maintain an office within the State “for the transaction of law business” under Judiciary Law § 470. We hold that the statute requires nonresident attorneys to maintain a physical office in New York.

Plaintiff Ekaterina Schoenefeld is a New Jersey resident who was admitted to the practice of law in New York in 2006. Schoenefeld is also admitted to practice in New Jersey and maintains her only law office in Princeton. According to the complaint, in 2007, Schoenefeld attended a continuing legal education class entitled Starting Your Own Practice, which was offered by the New York State Bar Association in New York City. There, she learned of the statutory requirement that nonresident attorneys must maintain an office within New York in order to practice in this State. Specifically, under Judiciary Law § 470, “[a] person, regularly admitted to practice as an attorney and counsellor, in the courts of record of this state, whose office for the transaction of law business is within the state, may practice as such attorney or counsellor, although he resides in an adjoining state.”

Schoenefeld commenced this action in federal district court in July 2008, alleging that Judiciary Law § 470 was unconstitutional on its face and as applied to nonresident attorneys in violation of the Privileges and Immunities Clause of the United States Constitution (US Const, art IV, § 2). She alleged that she was unable to practice in the State, despite her compliance with all admission requirements, because she does not maintain an office in New York. She further maintained that there was no substantial state interest served by the office requirement, which was not applicable to New York resident attorneys.

The district court grajited plaintiffs motion for summary judgment and held that section 470 violated the Privileges and Immunities Clause (see Schoenefeld v New York, 907 F Supp 2d 252, 266 [ND NY 2011]). The court determined that the office requirement implicated nonresident attorneys’ fundamental right to practice law. The court then rejected the state interests proffered by defendants as insubstantial and found that, in any event, the statute did not bear a substantial relationship to the interests asserted as there were less restrictive means of accomplishing those interests.

The Second Circuit determined that the constitutionality of the statute was dependent upon the interpretation of the law office requirement (see Schoenefeld v New York, 748 F3d 464, 467 [2d Cir 2014]). The court observed that the requirements that must be met by nonresident attorneys in order to practice law in New York reflect an important state interest and implicate significant policy issues. The court therefore certified the following question for our review: “Under New York Judiciary Law § 470, which mandates that a nonresident attorney maintain an ‘office for the transaction of law business’ within the state of New York, what are the minimum requirements necessary to satisfy that mandate?” (Schoenefeld, 748 F3d at 471). We accepted certification (23 NY3d 941 [2014]) and, as noted above, we interpret the statute as requiring nonresident attorneys to maintain a physical law office within the State.

It is well settled that, where the language of a statute is clear, it should be construed according to its plain terms (see Matter of Raritan Dev. Corp. v Silva, 91 NY2d 98, 107 [1997]). We have also held that “no rule of construction gives the court discretion to declare the intent of the law when the words are unequivocal” {Raritan, 91 NY2d at 107 [internal quotation marks, citation and emphasis omitted]).

Here, the statute appears to presuppose a residency requirement for the practice of law in New York State. It then makes an exception, by allowing nonresident attorneys to practice law if they keep an “office for the transaction of law business” in this State. By its plain terms, then, the statute requires nonresident attorneys practicing in New York to maintain a physical law office here.

However, recognizing that there may be a constitutional flaw if the statute is interpreted as written, defendants urge us to construe the statute narrowly in accordance with the doctrine of constitutional avoidance (see Overstock.com, Inc. v New York State Dept. of Taxation & Fin., 20 NY3d 586, 593 [2013] [“courts must avoid, if possible, interpreting a presumptively valid statute in a way that will needlessly render it unconstitutional”]). In particular, they suggest that the provision can be read merely to require nonresident attorneys to have some type of physical presence for the receipt of service — either an address or the appointment of an agent within the State. They maintain that interpreting the statute in this way would generally fulfill the legislative purpose and would ultimately withstand constitutional scrutiny.

The statute itself is silent regarding the issue of service. When the statute was initially enacted in 1862, however, it did contain a service provision. At that time, it essentially required that an attorney who maintained an office in New York, but lived in an adjoining state, could practice in this State’s courts and that service, which could ordinarily be made upon a New York attorney at his residence, could be made upon the nonresident attorney through mail addressed to his office {see L 1862, ch 43). Upon the enactment of the Code of Civil Procedure in 1877, the provision was codified at section 60 of the Code. In 1909, the provision was divided into two parts — a service provision, which remained at section 60 of the Code, and a law office requirement, which became section 470 of the Judiciary Law. Notably, after we invalidated a New York residency requirement for attorneys in Matter of Gordon (48 NY2d 266 [1979]) the legislature amended several provisions of the Judiciary Law and the CPLR to conform to that holding (L 1985, ch 226). Section 470, however, was not one of the provisions amended and has remained virtually unchanged since 1909.

Even assuming the service requirement had not been expressly severed from the statute, it would be difficult to interpret the office requirement as defendants suggest. As the Second Circuit pointed out, even if one wanted to interpret the term “office” loosely to mean someplace that an attorney can receive service, the additional phrase “for the transaction of law business” makes this interpretation much less plausible. Indeed, the Appellate Division departments have generally interpreted the statute as requiring a nonresident attorney to maintain a physical office space (see Lichtenstein, 251 AD2d 64; Haas, 237 AD2d 729; Matter of Larsen, 182 AD2d 149 [2d Dept 1992]). Defendants’ proffered interpretation, on the other hand, finds no support in the wording of the provision and would require us to take the impermissible step of rewriting the statute (see Matter of Wood v Irving, 85 NY2d 238, 245 [1995]).

The State does have an interest in ensuring that personal service can be accomplished on nonresident attorneys admitted to practice here. However, it is clear that service on an out-of-state individual presented many more logistical difficulties in 1862, when the provision was originally enacted. The CPLR currently authorizes several means of service upon a nonresident attorney, including mail, overnight delivery, fax and (where permitted) email (see CPLR 2103 [b]). Under our own Court rules, the admission of attorneys who neither reside nor have full-time employment in the State is conditioned upon designating the clerk of the Appellate Division in their department of admission as their agent for the service of process for actions or proceedings brought against them relating to legal services offered or rendered (see Rules of Ct of Appeals [22 NYCRR] § 520.13 [a]). Therefore, there would appear to be adequate measures in place relating to service upon nonresident attorneys and, of course, the legislature always remains free to take any additional action deemed necessary.

Accordingly, the certified question should be answered in accordance with this opinion.

Judges Read, Pigott, Rivera, Abdus-Salaam and Fahey concur; Judge Stein taking no part.

Following certification of a question by the United. States Court of Appeals for the Second Circuit and acceptance of the question by this Court pursuant to section 500.27 of this Court’s Rules of Practice, and after hearing argument by counsel for the parties and consideration of the briefs and record submitted, certified question answered in accordance with the opinion herein.

      . This action was initially commenced in the Southern District of New York. That court granted defendants’ motion to transfer venue to the Northern District. The Northern District then granted, in part, defendants’ motion to dismiss the amended complaint by dismissing the action as against certain named defendants and by dismissing plaintiffs Commerce Clause and equal protection claims.

      . The Appellate Division departments have not limited the application of the statute to residents of adjoining states, but have applied it to nonresident attorneys in general (see e.g. Lichtenstein v Emerson, 251 AD2d 64 [1st Dept 1998]; Matter of Haas, 237 AD2d 729 [3d Dept 1997]). We accept that interpretation, which is not contested by the parties, for the purposes of this certified question.


source: Caselaw Access Project

author: Stein, J.

license: Public Domain

text:
    [29 NE3d 227, 6 NYS3d 218]
    The People of the State of New York, Respondent, v Boris Shaulov, Appellant.
    Argued February 17, 2015;
    decided March 31, 2015

      POINTS OF COUNSEL

      Stuart D. Rubin, Brooklyn, for appellant.
    I. Appellant was denied his right to effective assistance of counsel. (People v Jones, 55 NY2d 771; People v Baldi, 54 NY2d 137; People v Turner, 5 NY3d 476; People v Hobot, 84 NY2d 1021; People v Flores, 84 NY2d 184; Espinal v Bennett, 588 F Supp 2d 388; People v Pelchat, 62 NY2d 97; People v Butler, 185 AD2d 141; Strickland v Washington, 466 US 668.) II. The trial court abused its discretion by denying appellant’s motion for a mistrial and motion to strike surprise evidence of prompt outcry. (People v Petty, 7 NY3d 277; People v Davis, 43 NY2d 17.)

      Kenneth P. Thompson, District Attorney, Brooklyn {Amy Appelbaum, Leonard Joblove and Anthea H. Bruffee of counsel), for respondent.
    I. Defendant was not deprived of the effective assistance of counsel by counsel’s presentation of evidence through a custodian of records of the Department of Probation or by counsel’s not objecting to the testimony of the expert on child sexual abuse. (People v Henry, 95 NY2d 563; People v Benevento, 91 NY2d 708; People v Ford, 86 NY2d 397; People v Stultz, 2 NY3d 277; Strickland v Washington, 466 US 668; People v Kennedy, 68 NY2d 569; People v Taylor, 75 NY2d 277; De Long v County of Erie, 60 NY2d 296; People v Abney, 13 NY3d 251; People v Lee, 96 NY2d 157.) II. The trial court properly exercised its discretion in denying defendant’s motion for a mistrial based on the complainant’s testimony about her conversation with her friend after the crime and in denying defendant’s alternative motion to strike that testimony, because defendant was not prejudiced by that testimony. (People v Rosario, 17 NY3d 501; People v McDaniel, 81 NY2d 10; People v Rice, 75 NY2d 929; People v Ortiz, 54 NY2d 288; People v Michael, 48 NY2d 1; People v Montes, 16 NY3d 250.)
   OPINION OF THE COURT

Stein, J.

On this appeal, defendant Boris Shaulov argues that he was deprived of the effective assistance of counsel at trial and that the trial court abused its discretion by refusing to declare a mistrial or to strike the surprise prompt outcry testimony elicited by the People in disregard of the prosecutor’s pretrial representation that no such testimony would be offered. We agree with defendant’s latter contention, and hold that Supreme Court erred by failing to order a mistrial or to strike the testimony. Accordingly, we reverse the Appellate Division order.

Defendant was charged with multiple counts of statutory and non-consensual rape and other sex crimes, for allegedly engaging in sexual activity with the 16-year-old complainant when he was 23 years old. Complainant testified that, on the day of the alleged sexual assault, she and defendant — who she knew through her ex-boyfriend — went to an apartment in Brooklyn sometime between 8:00 p.m. and 9:00 p.m. While they were watching a movie, defendant began to kiss and grope her and, despite her protests and attempts to resist, allegedly raped her twice. Based on complainant’s testimony and cell phone records, the People claimed the alleged rapes occurred between 9:21 p.m. and 10:57 p.m.

At a pretrial hearing, the People explicitly represented to the court and defense counsel that there would be no prompt outcry testimony, as complainant had not disclosed the sexual assault to anyone until at least six months after it allegedly happened. In response to the court’s inquiry, defense counsel stated that “the People have said that there’s no prompt outcry, so I think that takes care of that issue.” The court ruled that the People could present expert testimony about rape trauma syndrome if defendant attempted to impeach complainant based on her delayed disclosure.

In his opening statement to the jury, defense counsel — relying on the People’s earlier representation — stated that

“[t]he complaining witness is going to tell you that she was on the phone that night more than once— her mother, her friends, different people. She was on the phone, had access to her phone, but she didn’t call 911, she didn’t tell any of the people she was on the phone with . . . You’re going to hear about a long delay in her telling anybody about these accusations.”

However, shortly thereafter, complainant testified on direct examination that she called a friend on her way home from the apartment that night, and “told her [friend] what happened . . . [but] didn’t tell her the whole story” and “didn’t tell her [friend] that [she] didn’t want [it] to happen.” The People purposefully elicited this testimony and “expected” the complainant to testify that she told her friend she had “engaged in sexual intercourse” with defendant.

Defense counsel objected and sought a mistrial or, alternatively, a ruling striking that portion of complainant’s testimony regarding the alleged conversation with her friend on the night of the alleged sexual assault. Defense counsel argued that such testimony was prompt outcry evidence, which the People had represented would not be introduced at trial. According to defense counsel, complainant’s testimony “totally change [d] [his] trial strategy” as “it would have changed voir dire, it would have changed [his] opening [statement].” The People characterized the testimony as a partial disclosure, claimed that it “c[a]me to light at the last minute,” and argued that it did not prejudice defendant.

The court concluded that the testimony described a prompt outcry, but denied defendant’s request for a mistrial and let the testimony stand, concluding that it was not “an unfair surprise that unduly prejudice[d] . . . defendant.” The court reasoned that the testimony was not overly prejudicial because the jury could find that complainant was incredible.

When the trial resumed, complainant testified that she fully disclosed the sexual assault to her brother-in-law and two administrators from her school some six months after it allegedly occurred. The People then presented an expert witness, who explained the characteristics of rape trauma syndrome to the jury. More specifically, the expert testified that delayed disclosure was a common response to sexual assault, as was disclosure to a trusted adult outside the nuclear family. The expert further explained that sex crime victims often make “partial disclosure [s]” by minimizing or omitting the details of a sexual assault to “test[ ] the waters” before fully disclosing the events. The People also introduced cell phone records, which confirmed that complainant spoke with her friend shortly after 11:00 p.m. on the evening of the alleged assault, consistent with complainant’s testimony that she called the friend on her way home from the apartment.

Defense counsel attempted to discredit complainant, suggesting that she fabricated the allegations of rape after a dispute with defendant regarding her relationship with his cousin. Defense counsel focused on complainant’s delayed disclosure, and impeached complainant with her grand jury testimony that she did not tell anyone about the alleged rapes that night. In addition, counsel introduced into evidence probation records tending to establish that probation officers conducted a home visit at defendant’s apartment during the time the People alleged that the rapes had occurred.

After the close of proof and summations, the jury found defendant guilty of two counts of rape in the third degree (see Penal Law § 130.25 [2]), criminal sexual act in the third degree (see Penal Law § 130.40 [2]), sexual abuse in the third degree (see Penal Law § 130.55), and endangering the welfare of a child (see Penal Law § 260.10 [1]). However, the jury acquitted defendant of the remaining crimes charged, which were based on a theory of lack of consent by reason other than age.

The Appellate Division affirmed, holding, in relevant part, that the trial court did not abuse its discretion by denying defendant’s motion for a mistrial based on complainant’s prompt outcry testimony (107 AD3d 829 [2d Dept 2013]). A Judge of this Court granted defendant leave to appeal (22 NY3d 1141 [2014]), and we now reverse.

Based on this record, the trial court abused its discretion when it denied defense counsel’s motion for a mistrial or to strike a portion of complainant’s testimony. Undisputedly, complainant’s testimony that she told her friend “what happened” conveyed to the jury that she had engaged in sexual intercourse with defendant that evening. Although this testimony was relevant, we have observed that relevancy, alone, does not render evidence admissible because “ ‘it may be rejected if its probative value is outweighed by the danger that its admission would . . . unfairly surprise a party ... or create substantial danger of undue prejudice to one of the parties’ ” (People v Davis, 43 NY2d 17, 27 [1977], cert denied 435 US 998 [1978], quoting Jerome Prince, Richardson on Evidence § 147 at 117 [10th ed 1973]; see People v Cortez, 22 NY3d 1061, 1079 [2014, Abdus-Salaam, J., concurring], cert denied 574 US —, 135 S Ct 146 [2014]).

Relying on the People’s pretrial representation, defense counsel shaped his trial strategy — from voir dire to his opening statement — based on his founded belief that complainant did not disclose the alleged rapes until months after they occurred. Complainant’s testimony that she disclosed her accusations against defendant — even partially — the same night as the alleged assaults, took defendant by surprise because it was inconsistent with the People’s earlier position and with complainant’s grand jury testimony. Despite the People’s admission that they “expected” complainant to testify in such a manner, the prosecutor inexplicably failed to convey this information to defense counsel. As a result, the surprise testimony eviscerated counsel’s credibility with the jury and irreparably undermined his trial strategy.

We are not persuaded that the resulting prejudice was insubstantial. Notably, complainant’s cell phone records and the expert’s testimony corroborated and explained the nature and timing of complainant’s disclosure, thereby exacerbating the prejudice to defendant. The People claim that complainant’s disclosure was not prejudicial because she failed to tell her friend that the alleged rapes were non-consensual. This claim is unavailing. To the contrary, although unknown to the trial judge at the time of his ruling, complainant’s testimony later proved especially prejudicial to defendant because the jury convicted him of the age-based charges but acquitted him of the charges based on lack of consent for reasons other than age.

Under these circumstances — where the People failed to correct a prior representation to the court and defense counsel, where counsel was deprived of the opportunity to timely and meaningfully revise his trial strategy and emphasized the absence of any prompt outcry evidence during his opening statement, and where the error occurred early in the proceedings — the trial court abused its discretion by denying defendant a remedy for the unfair and prejudicial surprise (see Davis, 43 NY2d at 27; see also People v Walker, 83 NY2d 455, 458 [1994]). In light of our conclusion, we need not reach defendant’s ineffective assistance of counsel claim.

Accordingly, the Appellate Division order should be reversed and a new trial ordered.

Chief Judge Lippmajsf and Judges Read, Pigott, Rivera, Abdus-Sadaam and Fahey concur.

Order reversed and a new trial ordered.

       On appeal, neither party disputes that the testimony did, in fact, amount to prompt outcry evidence.


author: Pigott, J.

text:
    [29 NE3d 877, 6 NYS3d 530]
    BDC Finance L.L.C., Respondent/Counterclaim Defendant-Respondent, v Barclays Bank PLC, Appellant/ Counterclaim Plaintiff-Appellant.
    Argued January 6, 2015;
    decided February 19, 2015

      POINTS OF COUNSEL

      Sullivan & Cromwell LLP, New York City (Jeffrey T. Scott, Robinson B. Lacy and Marc De Leeuw of counsel), for appellant/ counterclaim plaintiff-appellant.
    I. Barclays Bank PLC was entitled to summary judgment that BDC Finance L.L.C. was not entitled to terminate the transactions. (Union Carbide

      Corp. v Affiliated FM Ins. Co., 16 NY3d 419; Hudson-Port Ewen Assoc. v Chien Kuo, 78 NY2d 944; Kass v Kass, 91 NY2d 554; Metropolitan Life Ins. Co. v Noble Lowndes Intl., 84 NY2d 430; Matter of Riconda, 90 NY2d 733; Matter of Westmoreland Coal Co. v Entech, Inc., 100 NY2d 352; Ronnen v Ajax Elec. Motor Corp., 88 NY2d 582; Gessin Elec. Contrs., Inc. v 95 Wall Assoc., LLC, 74 AD3d 516; Ruttenberg v Davidge Data Sys. Corp., 215 AD2d 191; Tibbetts Contr. Corp. v O & E Contr. Co., 15 NY2d 324.) II. Barclays Bank PLC was entitled to summary judgment that it properly terminated the transactions. (Filmline [Cross-Country] Prods., Inc. v United Artists Corp., 865 F2d 513; AG Props. of Kingston, LLC v Besicorp-Empire Dev. Co., LLC, 14 AD3d 971.) III. In the alternative, factual disputes preclude summary judgment in BDC Finance L.L.C.’s favor. (Greenfield v Philles Records, 98 NY2d 562; Chimart Assoc. v Paul, 66 NY2d 570; Bailey v Fish & Neave, 8 NY3d 523; W.W.W. Assoc. v Giancontieri, 77 NY2d 157; Triax Capital Advisors, LLC v Rutter, 83 AD3d 490; St. Paul Fire & Mar. Ins. Co. v Capri Constr. Corp., 78 NY2d 1016; Capra v Lumbermens Mut. Cas. Co., 31 NY2d 760.)

      Richards Kibbe & Orbe LLP, New York City {Craig A. Newman, Daniel L. Stein, Matthew M. Riccardi and Alex M. Solomon of counsel), and Richards Kibbe & Orbe LLP, Washington, D.C. {David W.T. Daniels of counsel), for respondent/ counterclaim defendant-respondent.
    I. The Appellate Division correctly determined that Barclays Bank PLC breached the agreement by refusing to return all of BDC Finance L.L.C.’s cash collateral following termination for default. (Merritt Hill Vineyards v Windy Hgts. Vineyard, 61 NY2d 106; Moran v Erk, 11 NY3d 452; MHR Capital Partners LP v Presstek, Inc., 12 NY3d 640; Oppenheimer & Co. v Oppenheim, Appel, Dixon & Co., 86 NY2d 685; Reddy v Ratnam, 95 AD3d 982; Cooper-Rutter Assoc. v Anchor Natl. Life Ins. Co., 193 AD2d 944; Towers Charter & Mar. Corp. v Cadillac Ins. Co., 894 F2d 516; White v Knickerbocker Ice Co., 254 NY 152; Knapp v Hughes, 19 NY3d 672; Bailey v Fish & Neave, 8 NY3d 523.) II. Barclays Bank PLC, in any event, is not entitled to partial summary judgment that it had the right to terminate. (Brualdi v IBERIA, Lineas Aereas de España, S.A., 79 AD3d 959; Kooleraire Serv. & Installation Corp. v Board of Educ. of City of N.Y., 28 NY2d 101.)
   OPINION OF THE COURT

Pigott, J.

This appeal arises out of a contract dispute between Bar-clays Bank PLC, a major global bank based in the United Kingdom, and BDC Finance L.L.C., a Connecticut-based hedge fund. We hold that material issues of fact exist as to whether Barclays defaulted under the parties’ contract, and thus conclude that neither party is entitled to summary judgment.

L

In May 2005, the parties entered into a series of transactions known as “total return swaps,” whereby BDC agreed to make payments to Barclays based on a financing rate, while Bar-clays agreed to make payments based on the return of certain underlying referenced assets. The transactions were memorialized in several standard forms issued by the International Swaps and Derivatives Association, including a master agreement, a schedule and a credit support annex (CSA). The parties also negotiated and drafted a master confirmation agreement.

Under the agreements, each party had the right to demand collateral from the other party based on changes in the value of the underlying debt instruments. Thus, Barclays was entitled to ask BDC to transfer a “Delivery Amount” of additional collateral to Barclays if Barclays was undercollateralized and BDC was entitled to ask Barclays to transfer a “Return Amount” of collateral if Barclays was overcollateralized.

As relevant to this appeal, the master confirmation agreement contained a “Delivery of Collateral” clause that provided that Barclays was to transfer any Return Amount “no[ ] later than the Business Day following the Business Day on which [BDC] requests the Transfer of such Return Amount.”

The CSA set forth a two-tiered mechanism for resolving disputes between the parties on the calculation of collateral calls. In the event of a dispute, the parties were to first use an informal dispute resolution mechanism. The informal mechanism required the disputing party to notify the other party of the dispute and transfer any undisputed amount, and the parties were then to attempt to resolve what remained of the dispute. If the dispute could not be resolved in this informal fashion, a formal mechanism was in place that required the party making the collateral call to recalculate the call by “seeking four actual quotations at mid-market from Reference Market-makers for purposes of calculating Market Quotation, and taking the arithmetic average” to determine the referenced assets’ value.

On October 6, 2008, the parties exchanged competing collateral call requests. Barclays demanded a Delivery Amount of $11,750,000 in collateral from BDC and BDC responded by demanding that Barclays transfer a Return Amount of approximately $40 million. Barclays did not make a transfer, but instead responded by email stating that it did not agree with BDC’s collateral call, asking whether BDC “want[ed] to invoke the dispute mechanism,” and reiterating that Barclays was due collateral from BDC. BDC and Barclays eventually agreed after discussion that day that BDC owed Barclays $13.52 million. BDC sent Barclays a payment.

On the next day, October 7, BDC and Barclays discussed BDC’s $40 million collateral call and, after taking into account the transfer made by BDC, Barclays agreed that it owed BDC $5,080,000. No transfer was made that day. Rather, Barclays transferred $5 million to BDC on October 8, claiming that the delay of the transfer was due to processing issues. Barclays also issued a new demand for $20.5 million in additional collateral to BDC.

On October 8, BDC sent Barclays a document entitled “Notice of Failure to Transfer Return Amount.” The notice stated that Barclays had failed to “either (i) pay the relevant Return Amount or (ii) notify BDC that Barclays disputes the calculation of the Return Amount and make a payment with respect to the undisputed amount.” The notice further informed Bar-clays that “if this failure continues for two business days, an Event of Default will have occurred.”

BDC paid collateral calls made by Barclays on October 8 and October 9, “under protest and without prejudice” to any claims of BDC.

Barclays sent BDC further collateral calls on October 10 and October 14. BDC refused to pay those collateral calls, responding that Barclays had defaulted on the $40 million collateral call and any outstanding transactions had been terminated.

On October 14, BDC emailed Barclays a document entitled “Notice of Designation of Early Termination Date” (the termination notice). The termination notice stated that an “Event of Default ha[d] occurred under the Master Agreement by virtue of Barclays’ failure to transfer the Return Amount reflected in the Return Demand on or prior to the second business day after the date of the Notice of Failure.” Barclays responded, contesting the claim of default and contending that it had complied with the dispute resolution procedure under the CSA and had promptly disputed BDC’s $40 million collateral call. On October 23, Barclays sent BDC a letter terminating the master agreement due to BDC’s alleged default.

IL

On October 17, 2008, BDC filed this action for breach of contract and declaratory judgment. Barclays answered and counterclaimed alleging corresponding causes of action.

Both BDC and Barclays moved for summary judgment. Supreme Court denied BDC’s motion, and granted Barclays’ cross motion to the extent of dismissing that portion of BDC’s cause of action for breach of contract alleging that Barclays was required to pay the full amount of BDC’s collateral call of October 6, 2008 (2012 NY Slip Op 33758 [U] [Sup Ct, NY County 2012]). The court otherwise denied the cross motion and ordered that the parties appear for a status conference to discuss the remaining issues (id.).

The Appellate Division, with two Justices dissenting in part, modified by granting BDC’s motion and denying Barclays’ cross motion, and otherwise affirmed (110 AD3d 582 [1st Dept 2013]). The Court held that the evidence in the record established “as a matter of law” that Barclays did not properly dispute the October 6 collateral call because Barclays neither notified BDC of the dispute nor transferred the undisputed amount of $5,080,000 by October 7, 2008 (id. at 585). It also noted that Barclays’ payment of $5 million on October 8 was a day late, and although BDC had notified Barclays that it then had two days to pay the Return Amount, Barclays did not remit the $40 million, placing it in default (id.). Barclays’ default, in turn, entitled BDC to terminate the transactions and demand return of its collateral (id.). “Because Barclays did not return BDC’s collateral, it breached the agreements, and summary judgment on liability should have been granted to BDC” (id.).

The Court rejected Barclays’ argument that its $5 million payment within the two-day period cured any default (id.). The Court held that because Barclays did not pay the undisputed amount by the deadline, it lost any right it may have had to suspend the payment of the full $40 million (id.).

Finally, the Court held that Barclays was not entitled to summary judgment on its counterclaims alleging that BDC failed to meet Barclays’ collateral calls on October 10 and 14, 2008 (id. at 588). It held that “BDC was not required to meet those calls because at the time they were due, Barclays was already in default and BDC had terminated the transactions” (id.).

The dissent would have found that questions of fact exist as to whether Barclays gave BDC notice of the dispute and whether there was any undisputed amount owed by Barclays to BDC when Barclays refused to pay the $40 million Return Amount on October 6, 2008 and whether Barclays’ responses that day, considered in the light of the past practice of the parties, were sufficient to invoke the informal dispute resolution mechanism agreed to by the parties (id. at 590-591).

The Appellate Division granted Barclays leave to appeal, certifying the question whether its order was properly made.

III.

The dispute in this case centers around the $40 million collateral call made by BDC to Barclays on October 6, 2008. BDC claims that under the terms of the master confirmation agreement and CSA, that Return Amount was due by the close of business on October 7. BDC separately argues that Barclays could have suspended the due date of that Return Amount by complying with the dispute mechanism contained in the CSA, but that Barclays failed to do so.

BDC’s first claim is that the “Delivery of Collateral” clause of the master confirmation unconditionally required Barclays to transfer the Return Amount by the next business day, or October 7. The provision provides, in relevant part, that “[notwithstanding anything in the Credit Support Annex to the contrary: . . . [Barclays] shall Transfer any Return Amounts in respect of Transactions not later than the Business Day following the Business Day on which [BDC] requests the Transfer of such Return Amount.”

“Unless statutory language or public policy dictates otherwise, the terms of a written agreement define the rights and obligations of the parties” (Abiele Contr. v New York City School Constr. Auth., 91 NY2d 1, 9 [1997]). We have held that “where the parties have agreed to conduct themselves in accordance with the rights and duties expressed in a contract, a court should strive to give a fair and reasonable meaning to the language used” (id. at 9-10).

The clause at issue, by its very language, discusses the time for transferring the Return Amount. This provision also negates the dispute resolution procedure found in the CSA. As the Appellate Division dissent recognized, BDC’s own course of conduct during the dispute refutes its interpretation of the provision.

With regard to the dispute resolution mechanism under the CSA, the first step requires that the disputing party must notify the other party of the dispute. BDC does not deny that Barclays gave notice that it disputed the collateral call. Indeed, within hours of receiving the collateral call, Barclays emailed BDC stating that it did not agree with the call, and queried whether BDC wanted to invoke the dispute mechanism.

Next, the disputing party must transfer the “undisputed amount,” if any, to the other party. BDC claims that Barclays was required to transfer the undisputed amount of $5,080,000 by the close of the business day on October 7. Barclays’ failure to make the full transfer of that amount on that day, BDC maintains, resulted in the remaining obligation to pay the $40 million.

Barclays maintains that it paid $5,000,000, which represented over 98% of an amount due to BDC. Further, it explains that the $80,000 shortfall was credited to BDC on October 8 as part of the collateral transfers between the parties. It also claims that the failure to transfer the full undisputed amount does not then result in the total collateral call being due and owing, particularly when BDC failed to give notice of any issue with the undisputed amount payment or an opportunity to cure.

We conclude that questions of fact exist as to whether Bar-clays complied with the undisputed amount provision. The record reflects that Barclays and BDC spoke with one another about the dispute, including at least two telephone conversations on October 6 and 7, 2008. The undisputed amount, Bar-clays maintains, reflected an agreement about the outstanding collateral calls made by both parties. Barclays then undisputedly transferred $5 million to BDC on October 8. A question of fact exists as to whether BDC received the full benefit of the amount it was owed when Barclays paid the $5 million and reduced the amount of its collateral call to BDC by the additional $80,000.

Finally, because questions of fact exist as to whether Bar-clays defaulted, Barclays was not entitled to summary judgment on its counterclaims alleging that BDC failed to meet the October 10 and 14 collateral calls.

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

Chief Judge Lippman and Judges Read, Rivera and AbdusSalaam concur; Judges Stein and Fahey taking no part.

Order modified, without costs, by remitting to Supreme Court, New York County, for further proceedings in accordance with the opinion herein and, as so modified, affirmed and certified question answered in the negative.


author: Rivera, J. Pigott, J.

text:
    [29 NE3d 881, 6 NYS3d 534]
    In the Matter of Mehran Manouel et al., Appellants, v Board of Assessors et al., Respondents.
    Argued January 15, 2015;
    decided February 24, 2015

      POINTS OF COUNSEL

      Schroder & Strom, LLP, Mineóla (Christopher P. Byrnes of counsel), for appellants.
    The hearing officer’s decision lacked a rational basis because the subject property qualifies for small claims assessment review. (Matter of Town of New Castle v Kaufmann, 72 NY2d 684; Matter of McNamara v Board of Assessors of Town of Smithtown, 272 AD2d 617; Matter of Meola v Assessor of Town of Colonie, 207 AD2d 593; Matter of Great E. Mall v Condon, 36 NY2d 544; Matter of Troy Props. v Dimitriadis, 56 AD3d 1086; Matter of Delaware & Hudson Ry. Co. v McDonald, 126 AD2d 29; Town of Tonawanda v Ayler, 68 NY2d 836; Matter of Masters v Board of Assessors, 188 AD2d 471; Matter of Regenstreif v Board of Assessors, 20 Misc 3d 787; Matter of Aerotech World Trade v Excalibur Sys., 236 AD2d 609.)

      Carnell T. Foskey, County Attorney, Mineóla (Martin Valk and Brian M. Libert of counsel), for respondents.
    I. The owner-occupied requirement under RPTL 730 must be afforded a plain reading because the statutory language is clear and unambiguous. (Matter of Lauer v Board of Assessors, 51 AD3d 926; Matter of Gershon v Nassau County Assessment Review Commn., 29 AD 3d 909; Matter of Barbera v Assessor of Town of Pelham, 278 AD2d 412; Matter of McNamara v Board of Assessors of Town of Smithtown, 272 AD2d 617; Matter of Masters v Board

      of Assessors, 188 AD2d 471; Matter of Regenstreif v Board of Assessors, 20 Misc 3d 787; Matter of Town of New Castle v Kaufmann, 72 NY2d 684; Matter of Kline v City of Rye, 150 AD2d 576.) II. Pursuant to the canons of statutory construction the language of RPTL 730 specifically indicates that the legislature intended to exclude homes that are not “owner-occupied.” (Matter of Regenstreif v Board of Assessors, 20 Misc 3d 787; Matter of Pierse v Zimmerman, 255 App Div 708; Novak & Co. v Travelers Indem. Co., 56 AD2d 418.)
   OPINION OF THE COURT

Rivera, J.

In this appeal concerning the denial of petitioners’ application for small claims assessment review of their property taxes under Real Property Tax Law § 730, we conclude that when, as in this case, the property is occupied during the relevant tax period by an owner’s relative but not by the owner, the property is not “owner-occupied” within the meaning of RPTL 730 (1) (b) (i). Therefore, petitioners’ property does not qualify for small claims assessment review and we affirm the denial of their petition.

Petitioners Mehran and Sepideh Manouel are the owners of a single-family residence located in Nassau County. In 2010, they filed a small claims assessment review (SCAR) petition pursuant to RPTL 730, which provides low-cost, expeditious tax assessment review of certain residential properties. The petition challenged the assessed value of their real property for the 2010/2011 tax year. The Manouels, however, did not occupy the property during the relevant tax period. Instead, petitioner Mehran Manouel’s mother lived in the residence, rent-free. Respondent County of Nassau requested disqualification of the petition for lack of jurisdiction, arguing that the property did not qualify for the SCAR program because it was not owner-occupied by the Manouels during the tax year in question, as required by RPTL 730 (1) (b) (i). The SCAR hearing officer agreed and ordered the petition disqualified.

Thereafter the Manouels commenced a CPLR article 78 proceeding challenging the hearing officer’s decision as arbitrary and capricious, and without rational basis. They argued their property came within the statute’s coverage because the owner-occupancy requirement was designed to exclude income-producing properties from SCAR, and the statute should therefore be read to encompass properties, like theirs, which are occupied rent-free by the owner’s relative. The County moved to dismiss again arguing the petition lacked a jurisdictional basis. Supreme Court concluded the hearing officer’s determination was proper, granted the County’s motion, and denied the petition and dismissed the article 78 proceeding (Matter of Manouel v Board of Assessors, 2011 NY Slip Op 34171 [U] [2011]).

The Appellate Division affirmed, finding the Manouels did not reside on the property and no evidence established the mother’s residence was merely temporary. Therefore, the Manouels failed to comply with the clear and unambiguous statutory requirement of RPTL 730 (1) (b) (i) that the owner occupy the premises (Matter of Manouel v Board of Assessors, 111 AD3d 735 [2d Dept 2013]). We granted the Manouels leave to appeal (22 NY3d 862 [2014]).

The Manouels argue that they should be able to avail themselves of the SCAR program because the statutory language should be interpreted to include noncommercial property occupied rent-free by their close relative. The County responds that by its plain language, and as confirmed by the statute’s legislative history, RPTL 730 (1) (b) (i) is limited to properties that are owner-occupied. Therefore, because the Manouels concede that they did not occupy the premises during the relevant tax period, the property is beyond the scope of the statute. We agree with the County.

In determining the meaning of the statutory language at issue we adhere to the well established principle that “where the statutory language is clear and unambiguous, the court should construe it so as to give effect to the plain meaning of the words used” (Commonwealth of the N. Mariana Is. v Canadian Imperial Bank of Commerce, 21 NY3d 55, 60 [2013] [brackets and citations omitted]; see also McKinney’s Cons Laws of NY, Book 1, Statutes § 94, Comment [“The Legislature is presumed to mean what it says, and if there is no ambiguity in the act, it is generally construed according to its plain terms”]). According to the RPTL, an owner may petition for property tax review under the SCAR program provided that “the property is . . . improved by a one, two or three family owner-occupied structure used exclusively for residential purposes” (RPTL 730 [1] [b] [i]). The “owner-occupied” language in this section is unambiguous, and the import of its ordinary meaning is that the person with ownership rights must be in occupancy of the subject property in order to petition under the SCAR program. The choice of the word “owner,” which is legally understood to mean the holder of certain superior interests in property (see Black’s Law Dictionary [9th ed 2009] [defining owner as “(o)ne who has the right to possess, use, and convey something; a person in whom one or more interests are vested”]; see generally 1 Rasch, New York Law and Practice of Real Property §§ 2:1, 2:2, 2:4), when used in section 730 (1) (b) (i) to modify the type of occupancy required by the statute means that section 730 excludes property occupied solely by persons with rights inferior to those of the owner. Moreover, because the statute lacks any reference to occupancy by persons other than owners, we presume the legislature intentionally omitted non-owner occupants from coverage (see McKinney’s Cons Laws of NY, Book 1, Statutes § 74 [“the failure of the Legislature to include a matter within the scope of an act may be construed as an indication that its exclusion was intended”]) and accordingly, we decline to “read into the statute that which was specifically omitted by the legislature” (Commonwealth of the N. Mariana Is., 21 NY3d at 62). The statute’s unambiguous language thus leads to the conclusion that the Manouels cannot challenge the property’s tax assessment in a SCAR proceeding because during the tax year at issue they were non-occupant owners of the property.

Nevertheless, in support of their argument that we should attach a more expansive meaning to “owner-occupied” than the words may suggest, the Manouels rely on Matter of Town of New Castle v Kaufmann where this Court stated that “literal and narrow interpretations [of statutes] should be avoided” where “such a construction would thwart the settled purposes of the statute” (72 NY2d 684, 686 [1988] [citations omitted]). The Manouels contend that in order to effectuate the purpose of the SCAR petition process, the statutory term “owner-occupied” should be liberally construed to include property, like theirs, occupied by the owner’s non-rent-paying relative. They argue that such construction is faithful to the legislative intent to deny owners of income-generating properties access to the SCAR program, presumably because such owners could afford a traditional tax certiorari appeal. The underlying premise of the Manouels’ argument is obvious: owners of non-income-producing properties who allow their relatives to occupy the property rent-free are the types of beleaguered taxpayers the legislature sought to assist when it created the SCAR program. It may be true that the owners described by the Manouels would be well served by participation in the SCAR program, but that is a far cry from a legally sufficient basis to conclude that they are the intended beneficiaries of RPTL 730.

The Manouels argue that in Town of New Castle this Court interpreted RPTL 730 broadly, eschewing narrow interpretations that undermine the statute’s primary remedial purposes, and that we should do so again in this case. While the Manouels are correct that Town of New Castle took a somewhat broad view of a different section 730 requirement, they are incorrect that the decision mandates we do the same here with respect to the “owner-occupied” requirement.

In Town of New Castle, this Court interpreted the residential use requirement of RPTL 730 (1), which limits the SCAR program to property “used exclusively for residential purposes,” to also include properties used occasionally or incidentally for nonresidential purposes (72 NY2d at 687). The Manouels argue that we should apply a similarly expansive reading to the statute’s “owner-occupied” requirement so as to include properties occupied solely by the owners’ non-paying relatives. However, the Court’s interpretation of RPTL 730 in Town of New Castle, in a manner apparently in contradiction to the explicit statutory text, relied on legislative history and administrative guidance to support the conclusion that a narrow construction of the residency provision would contravene the primary purposes of RPTL 730. Those factors are lacking in the Manouels’ case.

As this Court stated in Town of New Castle, the legislature enacted RPTL 730 in order to provide a speedy, inexpensive, and simplified real property tax assessment review process for certain residential taxpayers, as an alternative to the complex and expensive formal proceedings provided for under RPTL article 7, which the legislature found to be cost-prohibitive for many homeowners (see 72 NY2d at 686 [“The Legislature enacted section 730 to cure this inequity and protect the wrongfully assessed homeowner by affording speedy and inexpensive relief to such persons through a simplified review procedure”]). The legislative history revealed that less than a year following enactment of section 730, the legislature amended the statute to add the residential use requirement in order to clarify that mixed-use structures were excluded from the SCAR program (see L 1982, ch 531). Furthermore, the administrative entity then responsible for the State’s assessment policies, the former State Division of Equalization and Assessment — now the Office of Real Property Tax Services — had concluded that while regular nonresidential use disqualified a homeowner, occasional or incidental use for nonresidential purposes did not foreclose access to the SCAR program (Town of New Castle, 72 NY2d at 687, citing Opinion letter to Senator Skelos, Feb. 13, 1986).

In light of this legislative history and the attendant administrative construction, the Court concluded that adoption of the occasional use interpretation furthered the legislative interest in reducing burdens for certain classes of homeowners. As this Court explained, owners who occasionally used the residential property for business purposes were similarly situated to owners who used the property exclusively as a residence (Town of New Castle, 72 NY2d at 687). As applied to the owners in Town of New Castle, the Court had little difficulty concluding that the owners’ mere 10 hours of business-related use in the seven months prior to the SCAR proceeding established that their nonresidential use was occasional and incidental, permitting them to seek relief under RPTL 730.

Here, there is no similar legislative history or administrative interpretation to support the Manouels’ argument that the “owner-occupied” language should be construed broadly to include the petitioner’s non-rent-paying relative. First, the legislature was well aware when it enacted section 730 over 30 years ago in 1981, that the statute, as written, limited its application to owner-occupied residential properties. Indeed, the Association of Towns of the State of New York specifically objected to the proposed bill’s distinction between owner-occupied residential properties and non-owner-occupied residential properties (see Opinion letter of Association of Towns of St of NY, Oct. 29, 1981, Bill Jacket, L 1981, ch 1022). Moreover, the Governor’s Approval Memorandum states that the SCAR “program will be available to owners of one, two or three family owner-occupied residential real property” (see Bill Jacket, L 1981, ch 1022, 1981 NY Legis Ann at 528). In light of this legislative history, there is no question that the legislature passed the statute fully intending to distinguish between owner-occupied properties and those not owner-occupied. Second, RPTL 730 has been amended several times since its enactment, and the owner-occupied language has survived each change to the statute. The resilience of this requirement is further indication that the legislature continues to adhere to its initial decision to limit the SCAR program to owner-occupied properties. Third, the most recent amendment in 2012 expanded the definition of owner to persons who occupy the property as a primary residence while a separate entity holds legal title solely for purposes of estate planning and asset protection (see L 2012, ch 114). These occupants retain core ownership characteristics essential to the statutory scheme. One class includes beneficiaries “whose real property is held in trust solely for the benefit of such person or persons” (see RPTL 730 [1] [i]). The second class consists of partners in noncommercial limited liability partnerships which exist “to hold title solely for estate planning and asset protection purposes and the partner or partners who primarily reside [on the property] personally pay all of the real property taxes and other costs associated with the property’s ownership” (RPTL 730 [1] [ii]).

The amendment thus extends coverage to residents who for purposes of the statute are in effect beneficial owners. This careful and limited expansion of the meaning of “owner,” which takes into consideration the realities of property ownership in furtherance of estate planning concerns, only further demonstrates the legislature’s cautious approach to expansion of the SCAR program, and cannot support the broad interpretation of “owner-occupied” advocated by the Manouels.

Further, unlike the administrative guidance relied on by this Court in Town of New Castle, the administrative constructions of the owner-occupied requirement, to the extent they are liberal in nature, demand occupancy by an owner. For example, seasonal use does not disqualify property from SCAR consideration, so long as the owner occupies the property in season (see 7 Op Counsel SBEA No. 80 [1982] [“A seasonal residence may qualify for small claims assessment review, provided that during the period it is in use it is occupied by its owner”]; see also 9 Op Counsel SBEA No. 94 [1992] [property that was owner-occupied on taxable status date but vacant thereafter “analogous to a seasonal residence” and thus qualifies for SCAR]). The administrative guidance makes clear that lack of occupancy by the owner renders the property ineligible for the SCAR program (see 9 Op Counsel SBEA No. 122 [1983] [vacant property under construction does not qualify for SCAR as “the (owner) has never actually lived in the structure”]).

The history of the SCAR program establishes that its purpose is to address the plight of small homeowners. Limiting access to the SCAR program to owners who occupy their property reasonably restricts the program to those most likely to have limited resources and who are most economically in need of the SCAR program’s expeditious and inexpensive procedures. Hence, interpreting “owner-occupied” to mean what it says, namely a property occupied by its owner, is not such a “literal and narrow interpretation [ ]” as to thwart the statutory purpose (see Town of New Castle, 72 NY2d at 686).

The Manouels next argue that even if section 730 (1) (b) cannot be interpreted as broadly as they contend, they should be able to avail themselves of the SCAR program because their facts come within the interpretation espoused by the Appellate Division in Matter of Masters v Board of Assessors (188 AD2d 471 [2d Dept 1992]). As is the case with the Manouels, the property owner in Masters did not occupy the property and permitted a relative to reside in the premises. The Appellate Division concluded that the owner could proceed with a SCAR petition because the relative’s occupancy was temporary, while the owner attempted to sell the property (188 AD2d at 471). Assuming, without deciding, that Masters propounds an appropriate interpretation of RPTL 730, here the Appellate Division properly determined that there is no evidence in the record to suggest that the Manouels’ relative occupied the premises temporarily. Thus, even this suggested construction of the statute is inapplicable to the Manouels’ case.

While it is certainly a reasonable and perhaps quite convincing argument that owners of residential noncommercial property occupied solely by the owners’ relatives, rent-free, are just as much burdened by formal tax certiorari proceedings and in need of the financial and bureaucratic relief offered by the SCAR program as owners who occupy their property, that argument must be made to the legislature (see Doctors Council v New York City Employees’ Retirement Sys., 71 NY2d 669, 674 [1988] [“Where the statute is clear and unambiguous on its face, the legislation must be interpreted as it exists. Absent ambiguity the courts may not resort to rules of construction to broaden the scope and application of a statute” (citation omitted)]; McKinney’s Cons Laws of NY, Book 1, Statutes § 94). Were we to adopt the Manouels’ interpretation, and ignore the literal language of the statute and its legislative history, we would invite further unsupportable expansions of the statutory text, and risk judicial encroachment on the legislature’s lawmaking role.

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

Pigott, J.

(dissenting). Small claims assessment review (SCAR) is an economical and expeditious vehicle that permits owners of real property to challenge an allegedly “unequal or excessive” assessment so long as “the property is . . . improved by a one, two or three family owner-occupied structure used exclusively for residential purposes” (RPTL 730 [1] [b] [i]). When it was enacted over 30 years ago, SCAR was greeted warmly by real property taxpayers and assessing units alike, and, through the years, our Court has acknowledged that SCAR’s statutory provisions should not be afforded a “literal and narrow interpretation! ]” which would frustrate SCAR’s statutory objectives, namely, “expedited and inexpensive review to homeowners” (Matter of Town of New Castle v Kaufmann, 72 NY2d 684, 686 [1988]; see Town of Tonawanda v Ayler, 68 NY2d 836, 838 [1986]).

In Town of New Castle, we rejected a narrow construction of the phrase “used exclusively for residential purposes” in a situation where one of the owners had utilized the residence for business purposes, albeit limited (72 NY2d at 687 [emphasis supplied]). We held that the owners should not be denied access to the “simplified assessment procedure based on such incidental use” (id.). Given the plain meaning of the statute, we could have easily afforded a strict construction to the word “exclusively” such that SCAR would not have been available to those owners. But we didn’t. We acknowledged in Town of New Castle that section 730 should not be construed so as to “frustrate [its] statutory objectives” (id. at 686).

The majority’s narrow interpretation of section 730 (1) (b) (i)’s owner-occupancy requirement constitutes a significant shift from how we have historically interpreted the SCAR statute, and, in my view, requires SCAR hearing officers and the courts to give the SCAR statutes a literal and narrow interpretation in future assessment challenges. Had Town of New Castle been decided today utilizing the same narrow construction that the majority has applied to “owner-occupancy,” then plainly a different result would have been reached: the homeowner in Town of New Castle would have been denied the benefit of the SCAR procedure.

In a similar vein, the majority’s decision calls into question the holding in Matter of Masters v Board of Assessors (188 AD2d 471 [2d Dept 1992]). In that case, the petitioner, who was selling his property but did not want to leave the house vacant, allowed his father-in-law to stay in the residence rent-free while it was on the market {id. at 471-472). The homeowner in Masters did not reside in the house when he challenged the assessment, but the Court, interpreting the statute liberally, held that “petitioner undoubtedly [fell] within the class of those intended to be benefitted by the procedure” {id. at 472). In light of the majority’s holding, it is doubtful that the petitioner in Masters — an owner of the property but certainly not an “occupier” of it — would have been as successful had a similar challenge been brought today.

The majority’s decision is clearly a retreat from our prior decisions, and those of the Appellate Division, liberally interpreting the SCAR statute. It makes little sense to force these petitioners to commence a “complex and expensive” formal tax proceeding (see Ayler, 68 NY2d at 838) under RPTL article 7 to simply challenge an assessment on a single family home from which petitioners derive no income and which they do not utilize for a business purpose. Because these petitioners are precisely the type of homeowners who are entitled to avail themselves of the SCAR procedure, I respectfully dissent and would reverse the order of the Appellate Division.

Chief Judge Lippman and Judges Read and Abdus-Salaam concur; Judge Pigott dissents in an opinion; Judges Stein and Fahey taking no part.

Order affirmed, with costs.

       Real Property Tax Law § 730 has been amended multiple times following its enactment in 1981, including within the first two years of its passage (see
        L 1982, ch 531, §§ 1-5; L 1982, ch 714, § 21; L 1983, ch 357, § 1; L 1983, ch 735, § 23; see also L 1984, ch 473, § 18; L 1985, ch 687, § 2; L 1986, ch 858, § 1; L 1987, ch 221, § 1; L 1991, ch 552, § 1; L 1993, ch 154, § 1; L 1997, ch 517, § 1; L 2003, ch 62, § 1, part J, § 26; L 2003, ch 363, § 1; L 2005, ch 215, § 1; L 2006, ch 556, § 1; L 2010, ch 56, § 1, part W, § 1 [b]; L 2012, ch 114, §§ h 2).


author: Read, J.

text:
    [29 NE3d 890, 6 NYS3d 543]
    The People of the State of New York, Respondent, v Clemon Jones, Appellant.
    Argued February 18, 2015;
    decided March 26, 2015

      POINTS OF COUNSEL

      D.J. & J.A. Cirando, Esqs., Syracuse (John A. Girando, Bradley E. Keem and Elizabeth deV. Moeller of counsel), for appellant.
    Appellant was improperly sentenced as a persistent felony offender. (Griffin v Mann, 156 F3d 288; People v Parker, 41 NY2d 21; People v Drayton, 39 NY2d 580; People v Ortiz, 283 AD2d 256; People v Blanchard, 288 NY 145; People v Breckner, 179 AD2d 410; People v Sasso, 176 AD2d 410; People v Trudo, 153 AD2d 993; People v Gill, 109 AD2d 419; People v Lawrence, 17 AD3d 697.)

      Sandra Doorley, District Attorney, Rochester (Geoffrey Kaeuper of counsel), for respondent.
    Defendant was eligible to be sentenced as a persistent felony offender based upon his prior New York and federal convictions. (People v Olah, 300 NY 96; People v Parker, 41 NY2d 21; People v Pacheco, 53 NY2d 663; People v Meckwood, 20 NY3d 69; People v Quinones, 12 NY3d 116; People v Scarbrough, 66 NY2d 673; Griffin v Mann, 156 F3d 288; People v Shannon, 89 NY2d 1000.)
   OPINION OF THE COURT

Read, J.

On March 16, 2007, defendant Clemon Jones was convicted, following a jury trial, of criminal possession of a forged instrument in the second degree (Penal Law § 170.25 [two counts]). On April 6, 2007, the People applied to County Court to have defendant adjudicated a persistent felony offender, pursuant to Penal Law § 70.10. Subdivision (1) of this provision defines a “persistent felony offender” as

“(a) ... a person, other than a persistent violent felony offender . . . , who stands convicted of a felony after having previously been convicted of two or more felonies, as provided in paragraphs (b) and (c) of this subdivision. “(b) A previous felony conviction within the meaning of paragraph (a) of this subdivision is a conviction of a felony in this state, or of a crime in any other jurisdiction, provided:
“(i) that a sentence to a term of imprisonment in excess of one year . . . was imposed therefor; and
“(ii) that the defendant was imprisoned under sentence for such conviction prior to the commission of the present felony; . . .
“(c) For the purpose of determining whether a person has two or more previous felony convictions, two or more convictions of crimes that were committed prior to the time the defendant was imprisoned under sentence for any of such convictions shall be deemed to be only one conviction” (emphasis added). “the [1994 and 1995] state court convictions at issue may only be counted as one pursuant to Penal Law § 70.10(l)(c) (since defendant was not imprisoned for the first crime [s] until after he had committed the second), the earlier federal convictions stand separate and apart from the state convictions and are unaffected by this statutory provision.”

In support of their application to County Court, the People relied on three sets of defendant’s prior felony convictions. First, on March 14, 1991, defendant was convicted in the Federal District Court for the Middle District of Florida of two federal felonies — making a false statement on a Bureau of Alcohol, Tobacco and Firearms form (18 USC § 924 [a]), and being a convicted felon possessing a firearm (id. § 922 [g]). Neither federal crime has a New York counterpart. Second, on January 3, 1994, defendant was convicted in New York of the felony of attempted criminal possession of a controlled substance in the fifth degree (Penal Law §§ 110.00, 220.06). And third, on March 17, 1995, defendant was convicted in New York of three more felonies: second-degree criminal sale of a controlled substance (id. § 220.41) and third-degree criminal possession of a controlled substance (id. § 220.16 [two counts]).

After two days of hearings in July 2007, County Court issued a decision and order on September 4, 2007, finding that defendant was a persistent felony offender and concluding that a recidivist sentence was warranted by virtue of his “history and character . . . and the nature and circumstances of his criminal conduct” (see id. § 70.10 [2]; see also CPL 400.20 [9]). As relevant to his finding that defendant had previously been convicted of the “two or more” felonies required to qualify as a persistent felony offender (Penal Law § 70.10 [1] [a]), the Judge observed that although defendant correctly contended that

County Court sentenced defendant to two concurrent indeterminate terms of incarceration of 15 years to life for his forgery crimes. On February 14, 2014, the Appellate Division unanimously affirmed the judgment of conviction and sentence (114 AD3d 1239 [4th Dept 2014], lv denied 23 NY3d 1038 [2014]).

Meanwhile, prior to the disposition of his direct appeal, defendant moved pro se in July 2009 for an order pursuant to CPL 440.20 to set aside his sentence as “unconstitutional, unauthorized, illegally imposed and invalid as a matter of law since the two federal felony convictions . . . relied upon . . . do not have equivalent elements to crimes under New York State Law.” Defendant contended that County Court impermissibly “determine [d] that [he] was a persistent felony offender instead of a second felony offender and sentenced him accordingly in violation of his due process rights.”

County Court denied defendant’s CPL 440.20 motion by order dated August 26, 2009; on November 30, 2009, a Justice of the Appellate Division granted defendant permission to appeal to that Court; and in September 2013, the Appellate Division unanimously affirmed County Court’s order (109 AD3d 1108 [4th Dept 2013]). The Court noted that defendant “primarily relie [d] upon cases interpreting the second felony offender statute [Penal Law § 70.06],” which — unlike Penal Law § 70.10— specifies that a predicate conviction “ ‘must have been in [New York] of a felony, or in any other jurisdiction of an offense for which a sentence to a term of imprisonment in excess of one year . . . was authorized and is authorized in [New York] irrespective of whether such sentence was imposed,’ ” (id. at 1110 [some emphasis added and some emphasis omitted], quoting Penal Law § 70.06 [1] [b] [i]). By contrast, the persistent felony offender statute “contains no language requiring that the underlying out-of-state conviction be for a crime that would constitute a felony in New York” (id.).

The Appellate Division also pointed out that “the legislative history of the persistent felony offender statute reflects that the drafters specifically considered and rejected the contention advanced by defendant” (id. at 1111, citing Griffin v Mann, 156 F3d 288, 291 [2d Cir 1998]). Additionally, the Court declined to follow Third Department cases relied upon by defendant, noting that they “trace [d] back” to People v Morton (48 AD2d 58 [3d Dept 1975]), which was “effectively overruled” by us in People v Parker (41 NY2d 21 [1976]) (109 AD3d at 1111, 1112). A Judge of this Court granted defendant leave to appeal (22 NY3d 1157 [2014]), and we now affirm.

New York’s persistent felony offender statute, by its plain terms, does not require that, in order to classify someone as a persistent felony offender, an out-of-state predicate felony must have a New York counterpart. Section 70.10’s silence with regard to New York equivalency is dispositive. As the Second Circuit explained in Griffin, when holding that section 70.10 was rational as applied to the defendant in that case,

“[s]ection 70.10(l)(b) does not distinguish among felony convictions that arise under federal, New York State, or out-of-state law. Thus, if the acts constitute a felony under federal or another state’s law, they will be deemed a felony for purposes of persistent offender status under [sjection 70.10 even if there is no counterpart felony in New York law” (156 F3d at 290 [emphasis added]; see also People v Ortiz, 283 AD2d 256, 256 [1st Dept 2001], lv denied 96 NY2d 922 [2001]).

Further, section 70.10’s legislative history shows that the New York equivalency test, as construed in People v Olah (300 NY 96 [1949]), was “explicitly considered and rejected at the time of [section 70.10’s] enactment” (Griffin, 156 F3d at 291; see also 109 AD3d at 1111, quoting Staff Notes of Temp St Commn on Rev of Penal Law and Crim Code, 1964 Proposed NY Penal Law [Study Bill, 1964 Senate Intro 3918, Assembly Intro 5376] § 30.10 at 285). Accordingly, like the Appellate Division, we refuse to adopt defendant’s proposed construction of Penal Law § 70.10.

Finally, defendant’s facial constitutional challenge to Penal Law § 70.10 is unpreserved, and his as-applied constitutional challenge lacks merit. Accordingly, the order of the Appellate Division should be affirmed.

Chief Judge Lippman and Judges Pigott, Rivera, AbdusSalaam and Stein concur; Judge Fahey taking no part.

Order affirmed.