author: Graffeo, J.

text:
    [931 NE2d 535, 905 NYS2d 551]
    Donald J. Jones et al., Appellants, v Town of Carroll et al., Respondents.
    Argued May 4, 2010;
    decided June 17, 2010

      POINTS OF COUNSEL

      Cohen & Lombardo, P.C., Buffalo (Anthony M. Nosek of counsel), for appellants.
    I. The Appellate Division misunderstood and misapplied this Court’s decision in Matter of Syracuse Aggregate Corp. v Weise (51 NY2d 278 [1980]). (Buffalo Crushed Stone, Inc. v Town of Cheektowaga, 55 AD3d 1228, 13 NY3d 88; Matter of Gernatt Asphalt Prods. v Town of Sardinia, 87 NY2d 668; People v Miller, 304 NY 105; Matter of Skenesborough Stone v Village of Whitehall, 272 AD2d 674; Matter of 550 Halstead Corp. v Zoning Bd. of Appeals of Town/Vil. of Harrison, 1 NY3d 561; Town of Bedford v Peltz, 283 AD2d 568; Ilasi v City of Long Beach, 38 NY2d 383; United Citizens of Mount Vernon v Zoning Bd. of Appeals of City of Mount Vernon, 109 Misc 2d 1080; Matter of Dolomite Prods. Co. u Kipers, 39 Misc 2d 627; Incorporated Vil. of Laurel Hollow v Owen, 247 AD2d 585.) II. The Town of Carroll acted in an arbitrary and capricious manner when it enacted the subject ordinance. (Matter of Conte v Town of Norfolk Zoning Bd. of Appeals, 261 AD2d 734; Matter of Androme Leather Corp. v City of Gloversville, 1 AD3d 654; Matter of WEOK Broadcasting Corp. v Planning Bd. of Town of Lloyd, 79 NY2d 373; Los-Green, Inc. v Weber, 156 AD2d 994; Interlaken Homeowners’ Assn. v City of Saratoga Springs, 267 AD2d 842; Matter of Miller v Kozakiewicz, 289 AD2d 494.) III. The Town of Carroll violated the State Environmental Quality Review Act (SEQRA) when it failed to identify any impact and provided no reasoned elaboration as required by SEQRA and the Town of Carroll acted in an arbitrary and capricious manner when it enacted the subject ordinance. (Matter of Jackson v New York State Urban Dev. Corp., 67 NY2d 400; Matter of East Coast Props. v City of Oneida Planning Bd., 167 AD2d 641; Matter of Consolidated Edison Co. of N.Y. v Hoffman, 43 NY2d 598; Matter of New York City Coalition to End Lead Poisoning v Vallone, 100 NY2d 337; Matter of Malloy v Incorporated Vil. of Sag Harbor, 12 AD3d 107; Matter of Spitzer v Farrell, 100 NY2d 186; Akpan v Koch, 75 NY2d 561; Chinese Staff & Workers Assn. v City of New York, 68 NY2d 359; Matter of Dunk v City of Watertown, 11 AD3d 1024; Matter of King v Saratoga County Bd. of Supervisors, 89 NY2d 341.) IV If a town can, through the exercise of its police power, extinguish a lawful use merely because it has become unpopular, a disastrous precedent is established as a matter of public policy.

      Erickson Webb Scolton & Hajdu, Lakewood (Paul V. Webb, Jr., of counsel), for respondents.
    I. Local Law No. 1 (2005) of the Town of Carroll eliminated landfills as a nonconforming use in the Town’s agricultural-residential (AR-1) zoning district in a reasonable fashion. (Matter of Syracuse Aggregate Corp. v Weise, 51 NY2d 278; Matter of Harbison v City of Buffalo, 4 NY2d 553; Matter of 550 Halstead Corp. v Zoning Bd. of Appeals of Town/ Vil. of Harrison, 1 NY3d 561; Briarcliff Assoc. v Town of Cortlandt, 272 AD2d 488, 95 NY2d 886; Matter of Gernatt Asphalt Prods. v Town of Sardinia, 87 NY2d 668; People v Miller, 304 NY 105.) II. The Town of Carroll rationally exercised its police power when it enacted Local Law No. 1 in 2005. (Matter of Gernatt Asphalt Prods, v Town of Sardinia, 87 NY2d 668; Udell v Haas, 21 NY2d 463; Randolph v Town of Brookhaven, 37 NY2d 544; Los-Green, Inc. v Weber, 156 AD2d 994; Matter of Town of Bedford v Village of Mount Kisco, 33 NY2d 178.) III. Plaintiffs did not have a vested right to operate a construction and demolition landfill as a nonconforming use over their entire 50 acres.
      (Matter of Syracuse Aggregate Corp. v Weise, 72 AD2d 254, 51 NY2d 278; Matter of Harbison v City of Buffalo, 4 NY2d 553; Buffalo Crushed Stone, Inc. v Town of Cheektowaga, 55 AD3d 1228, 13 NY3d 88; Telimar Homes v Miller, 14 AD2d 586; Marra v State of New York, 61 AD2d 38; Town of Lima v Harper, 55 AD2d 405; Breed v Town of Clay, 21 Misc 2d 856, 11 AD2d 625.) IV The Appellate Division did not misapply Matter of Syracuse Aggregate Corp. v Weise (51 NY2d 278 [1980]) by concluding plaintiffs’ nonconforming use did not extend over plaintiffs’ entire 50-acre parcel. (Marra v State of New York, 61 AD2d 38; Matter of Fairmeadows Mobile Vil. v Shaw, 16 AD2d 137; Matter of Cave v Zoning Bd. of Appeals of Vil. of Fredonia, 49 AD2d 228; Buffalo Crushed Stone, Inc. v Town of Cheektowaga, 13 NY3d 88.) V. The Town of Carroll complied with the State Environmental Quality Review Act prior to adopting Local Law No. 1 of 2005. (Matter of Gernatt Asphalt Prods, v Town of Sardinia, 87 NY2d 668; Matter of Jackson v New York State Urban Dev. Corp., 67 NY2d 400; Matter of Dunk v City of Watertown, 11 AD3d 1024.)
   OPINION OF THE COURT

Graffeo, J.

Applying our decisions in Matter of Syracuse Aggregate Corp. v Weise (51 NY2d 278 [1980]), Buffalo Crushed Stone, Inc. v Town of Cheektowaga (13 NY3d 88 [2009], rearg denied 13 NY3d 808 [2009]) and Glacial Aggregates LLC v Town of Yorkshire (14 NY3d 127 [2010]), we hold that the zoning ordinance at issue in this case, which restricted the development of landfills, does not apply to plaintiffs because they acquired a vested right to use their 50-acre parcel as a landfill for construction and demolition debris before the enactment of the zoning law.

In 1984, plaintiffs Donald and Carol Jones purchased 50 acres of land in an agricultural/residential zoning district in the Town of Carroll, Chautauqua County. In 1989, the Town granted plaintiffs a special use variance that permitted the operation of a construction and demolition (C & D) landfill on the entire parcel, provided that the New York State Department of Environmental Conservation (DEC) regulated the landfill. Consistent with the Town’s requirements, plaintiffs obtained a DEC permit later that year allowing landfill operations to commence on roughly two acres and the permit was subsequently expanded to cover three acres.

The landfill continued as an active business, but in 2005, the Town adopted a new zoning law that prohibited the “expansion of any landfill beyond the area and scope allowed under the operators [sic] permit from the DEC as of the date of this Local Law.” Relying on this new restriction, the Town sought to prevent plaintiffs from using the remaining 47 acres of their property for landfill purposes.

Plaintiffs then commenced this action seeking, among other relief, a declaration that the local law could not be validly applied to their property because the use variance and their activities on the land established a right to operate a landfill on all 50 acres. Following initial court proceedings (see 32 AD3d 1216 [4th Dept 2006]), Supreme Court granted summary judgment to plaintiffs, concluding that the Town’s decision to enact the ordinance restricting the preexisting nonconforming use that had been permitted under the special use variance violated the principle set forth in Syracuse Aggregate (51 NY2d 278 [1980]). The Appellate Division modified by denying summary judgment to plaintiffs and vacating the declaration in their favor (57 AD3d 1376 [4th Dept 2008]). The court held that the local law was applicable since the DEC permit covered only three acres and plaintiffs merely contemplated the future expansion of their operation. We granted leave to appeal (13 NY3d 706 [2009]).

As a general rule, a nonconforming use of real property that exists at the time a restrictive zoning ordinance is enacted is “ 'constitutionally protected and will be permitted to continue, notwithstanding the contrary provisions of the ordinance’ ” (Glacial Aggregates, 14 NY3d at 135, quoting People v Miller, 304 NY 105, 107 [1952]; see e.g. Syracuse Aggregate, 51 NY2d at 284). A party seeking to overcome a restrictive zoning ordinance “must demonstrate that the property was indeed used for the nonconforming purpose, as distinguished from a mere contemplated use, at the time the zoning ordinance became effective” (Syracuse Aggregate, 51 NY2d at 284-285). Where only part of a parcel has been used for a nonconforming use, a landowner may seek protection for the remaining portion by demonstrating that the use is unique and adaptable to the entire parcel (see id. at 285) and showing that the landowner took “specific actions constituting an overt manifestation of its intent to utilize the property for the ascribed purpose” (Buffalo Crushed Stone, 13 NY3d at 98).

Syracuse Aggregate, Buffalo Crushed Stone and Glacial Aggregates all involved mining operations. We observed that mining, unlike other types of nonconforming uses, is unique in that it “contemplates the excavation and sale of the corpus of the land itself as a resource” (Syracuse Aggregate, 51 NY2d at 285). Thus, “as a matter of practicality as well as economic necessity, a quarry operator will not excavate his entire parcel of land at once, but will leave areas in reserve, virtually untouched until they are actually needed” (id.).

In connection with the need to hold land in reserve for future purposes directly related to the permitted use, we indicated in Buffalo Crushed Stone that a quarry owner “would not necessarily seek a permit for lands that it did not intend to excavate immediately, or at least not until sometime in the future” (13 NY3d at 101). Hence, we determined that it would be unreasonable to limit the boundaries of the vested right to just the area approved for mining under a DEC permit where the quarry owner demonstrated an intention to eventually use a larger area for such mining activities. We further explained that a contrary rule would “fail[ ] to consider the realities of the [mining] industry” and require “a very narrow reading of Syracuse Aggregate” (id.). In Glacial Aggregates, we reiterated that, although a mining permit is “ ‘strong evidence of a manifestation of intent’ ” to continue that nonconforming use, it is “not ‘a prerequisite to establishing prior nonconforming use rights’ ” (Glacial Aggregates, 14 NY3d at 137-138, quoting Buffalo Crushed Stone, 13 NY3d at 101-102). Consequently, the primary issue in these mining cases was not whether the landowners acquired vested rights under their permits, but whether the towns had approved or allowed the nonconforming uses (see Glacial Aggregates, 14 NY3d at 136).

Here, we conclude that the C & D landfill in this case is sufficiently similar in nature to the quarries in Syracuse

Aggregate, Buffalo Crushed Stone and Glacial Aggregates. “As opposed to other nonconforming uses in which the land is merely incidental to the activities conducted upon it” (Syracuse Aggregate, 51 NY2d at 285), the use of property as a landfill, like a mine, is unique because it necessarily envisions that the land itself is a resource that will be consumed over time. Additionally, the owner of landfill property can reasonably be expected to hold a portion of the land in reserve for future expansion of that activity, just as a quarry operator may find necessary. The fact that the DEC permit covered only a limited area is not determinative of plaintiffs’ rights over the remaining 47 acres of the parcel (see Buffalo Crushed Stone, 13 NY3d at 101-102). Instead, the factors to examine are whether the operation of a C & D landfill was a lawful use on the property prior to the enactment of the 2005 zoning law and whether plaintiffs’ activities before that time manifested an intent to utilize all of their property in a manner consistent with that purpose.

It is undisputed that the operation of a C & D landfill was a legal use on plaintiffs’ 50-acre parcel before the 2005 zoning restriction became effective. In 1989, the Town had acknowledged that there was no other reasonable use for the property and granted plaintiffs a variance that covered all 50 acres. This not only established that the landfill was a lawful use, it also gave plaintiffs a measure of security that they would be able to use additional acreage for the landfill operation as the need arose so long as DEC continued to issue the appropriate permits for expanded operations. The evidence also shows that plaintiffs manifested an intent before 2005 to devote the 50-acre parcel to use as a landfill since they dedicated substantial areas around the actual landfill site for related purposes, purchased necessary heavy equipment (such as a bulldozer, a backhoe, an excavator, a loader and a dump truck), employed a dozen people, developed plans for multi-stage enlargement of the landfill and engaged in discussions with investors regarding future operations. On these facts, plaintiffs adequately demonstrated that they acquired a vested right to operate a C & D landfill on their entire parcel, subject to regulation by DEC, and that the 2005 local law could not extinguish their legal use of the land for that purpose.

Accordingly, the judgment of Supreme Court appealed from and the order of the Appellate Division brought up for review should be reversed, with costs, and judgment granted to plaintiffs declaring in accordance with this opinion.

Chief Judge Lippman and Judges Cipabick, Read, Smith and Jones concur; Judge Pigott taking no part.

Judgment appealed from and order of the Appellate Division brought up for review reversed, etc.

      . C & D landfills that exceed three acres are currently subject to more stringent DEC standards (compare 6 NYCRR 360-7.3, with 6 NYCRR 360-7.4).

      . Supreme Court subsequently dismissed plaintiffs’ cause of action alleging a regulatory taking.

      . We note that the Appellate Division did not have the opportunity to consider either Buffalo Crushed Stone or Glacial Aggregates because both decisions were issued after its determination in this case.

      . In light of this determination, it is unnecessary for us to consider plaintiffs’ remaining contentions.


source: Caselaw Access Project

author: Smith, J.

license: Public Domain

text:
    [931 NE2d 87, 905 NYS2d 118]
    DDJ Management, LLC, et al., Appellants, v Rhone Group L.L.C. et al., Respondents, et al., Defendants.
    Argued June 2, 2010;
    decided June 24, 2010

      POINTS OF COUNSEL

      Law Offices of Arnold M. Weiner (Arnold M. Weiner of the Maryland bar, admitted pro hac vice, and Barry L. Gogel of counsel), Epstein Becker & Green, P.C., New York City (Barry A. Cozier and Ralph A. Berman of counsel), and Whiteford, Taylor & Preston, L.L.P., Baltimore, Maryland (William F. Ryan, Jr., Edward M. Buxbaum and Dwight W. Stone, II, of counsel), for appellants.
    I. The Appellate Division erred in performing its review of the sufficiency of the complaint on motions to dismiss under CPLR 3211 (a). (Knight Sec. v Fiduciary Trust Co., 5 AD3d 172; Sokoloff v Harriman Estates Dev. Corp., 96 NY2d 409; Nonnon v City of New York, 9 NY3d 825.) II. There is no support in existing New York case law for the Appellate Division’s harsh bright-line rule. (Metropolitan Coal Co. v Howard, 155 F2d 780; CBS Inc. v Ziff-Davis Publ. Co., 75 NY2d 496; National Conversion Corp. v Cedar Bldg. Corp., 23 NY2d 621; Jo Ann Homes at Bellmore v Dworetz, 25 NY2d 112; Merrill Lynch & Co. Inc. v Allegheny Energy, Inc., 500 F3d 171; Faller Group, Inc. v Jaffe, 564 F Supp 1177; Emergent Capital Inv. Mgt., LLC v Stonepath Group, Inc., 343 F3d 189; Lazard Freres & Co. v Protective Life Ins. Co., 108 F3d 1531; Turkish v Kasenetz, 27 F3d 23; Spyder Enters., Inc. v Ward, 872 F Supp 8.) III. The decision of the First Department threatens to have a chilling effect upon commercial lending and is therefore inconsistent with sound public policy. (Abu Dhabi Commercial Bank v Morgan Stanley & Co., 651 F Supp 2d 155.)

      Wachtell, Lipton, Rosen & Katz, New York City (Herbert M. Wachtell, Ben M. Germana, Emil A. Kleinhaus and Adam P. Schleifer of counsel), and Sullivan & Cromwell LLP (Brian T Frawley and Naomi D. Johnson of counsel) for Rhone Group L.L.C. and others, respondents.
    I. The complaint fails to allege facts showing reasonable reliance. (Global Mins. & Metals Corp. v Holme, 35 AD3d 93, 8 NY3d 804; Abrahami v UPC Constr. Co., 224 AD2d 231; Schumaker v Mather, 133 NY 590; Danann Realty Corp. v Harris, 5 NY2d 317; Sylvester v Bernstein, 283 App Div 333, 307 NY 778; Lanzi v Brooks, 54 AD2d 1057, 43 NY2d 778; Dragon Inv. Co. II LLC v Shanahan, 49 AD3d 403; Valassis Communications v Weimer, 304 AD2d 448; UST Private Equity Invs. Fund v Salomon Smith Barney, 288 AD2d 87; Orlando v Kukielka, 40 AD3d 829.) II. Appellants’ and amici’s “public policy” arguments are meritless. (CBS Inc. v Ziff-Davis Publ. Co., 75 NY2d 496.)

      Nixon Peabody LLP, New York City (Christopher M. Mason and Leah R. Threatte of counsel), for Quilvest S.A. and others, respondents.
    I. Plaintiffs did not plead or offer facts showing reasonable reliance as to Quilvest S.A., Quilvest Services Ltd., and Quilvest American Equity Ltd. (Global Mins. & Metals Corp. v Holme, 35 AD3d 93, 8 NY3d 804; Wendel v Wendel, 30 App Div 447; Daly v Kochanowicz, 67 AD3d 78; Dragon Inv. Co. II LLC v Shanahan, 49 AD3d 403; Lusins v Cohen, 49 AD3d 1015; Orlando v Kukielka, 40 AD3d 829; Permasteelisa, S.p.A. v

      Lincolnshire Mgt., Inc., 16 AD3d 352; Barrett v Huff, 6 AD3d 1164; Valassis Communications v Weimer, 304 AD2d 448; UST Private Equity Invs. Fund v Salomon Smith Barney, 288 AD2d 87.) II. Public policy does not favor allowing a lender to conclude a large financial transaction without conducting appropriate due diligence.

      Dorsey & Whitney LLP (Juan C. Basombrio, of the California bar, admitted pro hac vice) and Dorsey & Whitney LLP, New York City (Marc S. Reiner of counsel), for Scott Duncan, respondent.
    The claim against Scott Duncan fails for the reasons set forth in the briefs submitted by the other defendants-respondents. (Walton v New York State Dept. of Correctional Servs., 8 NY3d 186; Schiavone v City of New York, 92 NY2d 308; Ziecker v Town of Orchard Park, 75 NY2d 761; McCain v Koch, 70 NY2d 109.)

      Holland & Knight LLP, New York City (Christelette A. Hoey of counsel), and Holland & Knight LLP, Chicago, Illinois (Robert H. Lang of counsel), for John Jendrzejewski, respondent.
    The unanimous decision of the Appellate Division should be affirmed. (Dragon Inv. Co. II LLC v Shanahan, 49 AD3d 403; Zanett Lombardier, Ltd. v Maslow, 29 AD3d 495; Permasteelisa, S.p.A. v Lincolnshire Mgt., Inc., 16 AD3d 352.)

      Wilmer Cutler Pickering Hale and Dorr LLP, New York City (James H. Millar and Janet R. Carter of counsel), Wilmer Cutler Pickering Hale and Dorr LLP, Boston, Massachusetts (Tristan C. Snell of counsel), Elliot Ganz, New York City, Otterbourg, Steindler, Houston & Rosen, P.C., New York City (Jonathan N. Helfat and Richard G. Haddad of counsel), Goldberg Kohn Bell Black Rosenbloom & Moritz, Ltd., Chicago, Illinois (Richard M. Kohn of counsel), and Joseph R. Alexander, New York City, for Loan Syndications and Trading Association and others, amici curiae.
    I. The First Department’s proposed rule is contrary to long-standing public policy governing commercial transactions. (Credit Francais Intl. v Sociedad Fin. de Comercio, 128 Misc 2d 564; Metropolitan Coal Co. v Howard, 155 F2d 780; CBS Inc. v Ziff-Davis Publ. Co., 75 NY2d 496; Pramco III, LLC v Partners Trust Bank, 16 Misc 3d 351; Merrill Lynch & Co. Inc. v Allegheny Energy, Inc., 500 F3d 171.) II. The First Department’s harsh bright-line rule is not supported by its prior cases and conflicts with persuasive Second Circuit case law. (UST Private Equity Invs. Fund v Salomon Smith Barney, 288 AD2d 87; Global Mins. & Metals Corp. v Holme, 35 AD3d 93, 8 NY3d 804; Abrahami v

      UPC Constr. Co., 224 AD2d 231; Permasteelisa, S.p.A. v Lincolnshire Mgt., Inc., 16 AD3d 352; Merrill Lynch & Co. Inc. v Allegheny Energy, Inc., 500 F3d 171; Metropolitan Coal Co. v Howard, 155 F2d 780; Mallis v Bankers Trust Co., 615 F2d 68.)
   OPINION OF THE COURT

Smith, J.

We hold that plaintiffs in this action for fraud have alleged facts from which a jury could find that they were justified in relying on the representations defendants made to them.

I

Plaintiffs are four companies that loaned a total of $40 million in March of 2005 to American Remanufacturers Holdings, Inc. and affiliated companies (ARI). ARI was a remanufacturer of automobile parts; it purchased used parts, broke them down into their components, and used the components to make new parts. ARI’s stock was owned 45% by entities affiliated with Rhone Group L.L.C., and 55% by entities affiliated with Quilvest S.A.

After ARI failed to repay the loan, plaintiffs brought a number of claims against Rhone, Quilvest, companies and individuals associated with them, members of ARI management, and ARI’s outside accountants. Only the first claim is in issue here. It asserts in essence that Rhone and Quilvest, their corporate affiliates and individuals acting on their behalf (hereafter defendants) defrauded plaintiffs into making the loans.

Plaintiffs allege, among other things, that defendants presented them with ARI financial statements that were false and misleading. More specifically, they allege that the financial statements were designed to inflate the number with which plaintiffs were most concerned—ARI’s earnings before interest, taxes, depreciation and amortization (EBITDA). The allegations on this subject are lengthy, and include some striking details. An e-mail sent to one of the defendants by an ARI executive about two months before the loan closing says: “I understand the financial reason to manipulate earnings.” Another e-mail, sent some three weeks later by the same officer to the same recipient says: “I realize we needed to make EBITDA for banks but we should understand . . . what our true EBITDA is.”

We need not describe defendants’ alleged misconduct fully; we may assume, for purposes of this appeal, that the complaint adequately alleges that defendants made material misrepresentations. The question for us is whether, if the complaint’s allegations are true, a jury could find that plaintiffs justifiably relied on those misrepresentations. Defendants argue that plaintiffs failed to make a reasonable inquiry into the truth of what defendants said, and we will describe in more detail the alleged facts that are relevant to that argument.

The complaint alleges that plaintiffs were first solicited to loan money to ARI in July 2004, and that over the next several months they received a number of written presentations by ARI’s investment banker, containing financial and other information that later proved to be false or misleading. At the time of the solicitation—and indeed until the day the loan closed— ARI’s outside auditors had not completed their audit for the year ending December 31, 2003, and it was part of the original proposal that the loans would be “conditioned upon, and made after, the borrower had provided the lenders” with audited financial statements for 2003. It was later agreed that unaudited financial statements for 2004 would also be provided.

During the months before those financial statements were completed, plaintiffs had several conversations with ARI representatives in which they were given reassuring information, and made two calls to participants in the industry to get information about ARI’s management, which was also reassuring. In December 2004 and January 2005, plaintiffs were sent drafts of the audit report for 2003, and on March 2, 2005 they were sent the unaudited financial statements for 2004. The final version of the 2003 audit report was provided on March 22, 2005, and the loan closed on the same day.

ARI’s unaudited 2004 statements, plaintiffs allege, grossly inflated EBITDA, in significant part through a manipulation of ARI’s inventory reserves. Plaintiffs say that they could not have detected this, but, as defendants point out, the 2004 statements contained some features that might have aroused concern in a skeptical reader who examined them carefully. They showed a significant increase in the value of ARI’s inventory over the previous year; a modest amount of cash on hand, equal to the amount of ARI’s bank overdraft; and a remarkable increase in the company’s apparent profitability in the last month of the year. Though December 2004 revenues were below the year’s monthly average, gross profit was higher than average, and gross margin was shown as 17.9% for the month, compared to 13.5% for the year as a whole.

The complaint does not allege that plaintiffs asked questions about these or other aspects of the financial statements, or that they asked to look at ARI’s underlying records. Plaintiffs did, however, insist that ARI represent and warrant, in substance, that the financial statements were accurate. Specifically, ARI represented and warranted in the loan agreement (as summarized in the complaint) that the 2004 financial statements “present fairly in all material respects the financial position of ARI as at December 31, 2004 and the results of ARI’s operations and cash flows for the period then ended”; that the statements were prepared in accordance with generally accepted accounting principles; that “between December 31, 2003 and March 22, 2005 [the closing date], no event has occurred, which alone or together with other events, could reasonably be expected to have a Material Adverse Effect” on ARI’s business, assets, operations or prospects or its ability to repay the loans; and that “no information contained in the loan agreement, the other loan documents or the financial statements being furnished to the Plaintiffs contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained therein not misleading in light of the circumstances under which they were made.” All of these representations and warranties, plaintiffs say, later proved to be false.

The loan agreement, as defendants emphasize, also provided for a high interest rate: ARI agreed to pay plaintiffs the lower of 10% above the LIBOR rate or 9% above an index rate derived from the “base rate” charged by United States banks to corporate borrowers.

As we mentioned above, plaintiffs’ claim for fraud against defendants was one of several in the complaint. On motions pursuant to CPLR 3211, Supreme Court dismissed all the others, but allowed this claim to stand (19 Misc 3d 1124[A], 2008 NY Slip Op 50839[U]). The Appellate Division modified Supreme Court’s decision and dismissed the claim, emphasizing that “plaintiffs never looked at ARI’s books and records” and concluding that, having failed to do so, they “cannot now properly allege reasonable reliance on the purported misrepresentations” (DDJ Mgt., LLC v Rhone Group L.L.C., 60 AD3d 421, 424 [1st Dept 2009]). We granted leave to appeal (13 NY3d 710 [2009]), and now reverse.

II

The rule defendants rely on was stated more than a century ago in Schumaker v Mather (133 NY 590, 596 [1892]):

“[I]f the facts represented are not matters peculiarly within the party’s knowledge, and the other party has the means available to him of knowing, by the exercise of ordinary intelligence, the truth or the real quality of the subject of the representation, he must make use of those means, or he will not be heard to complain that he was induced to enter into the transaction by misrepresentations.” (See also Danann Realty Corp. v Harris, 5 NY2d 317, 322 [1959].)

This rule has been frequently applied in recent years where the plaintiff is a sophisticated business person or entity that claims to have been taken in. In some cases, the rule serves to rid the courts of cases in which the claim of reliance is likely to be hypocritical. Thus in Global Mins. & Metals Corp. v Holme (35 AD3d 93 [1st Dept 2006]), the plaintiff had fired an officer whom it found to be untrustworthy, and given him a general release. Later, it claimed to have trusted, without verifying, the officer’s assurances as to the innocent nature of a particular transaction. The Appellate Division held such trust to be unjustified. In other cases, the rule rejects the claims of plaintiffs who have been so lax in protecting themselves that they cannot fairly ask for the law’s protection. In Lampert v Mahoney, Cohen & Co. (218 AD2d 580, 582 [1st Dept 1995]), the Appellate Division dismissed the claim of a plaintiff who said “that he loaned some $3 million to a corporate entity and its principal without ever investigating the financial condition of the business beyond obtaining some vague verbal assurances from its accountant.” In cases like Global Minerals and Lampert, the plaintiff “may truly be said to have willingly assumed the business risk that the facts may not be as represented” (Rodas v Mandaras, 159 AD2d 341, 343 [1st Dept 1990]).

Where, however, a plaintiff has taken reasonable steps to protect itself against deception, it should not be denied recovery merely because hindsight suggests that it might have been possible to detect the fraud when it occurred. In particular, where a plaintiff has gone to the trouble to insist on a written representation that certain facts are true, it will often be justified in accepting that representation rather than making its own inquiry. Indeed, there are many cases in which the plaintiffs failure to obtain a specific, written representation is given as a reason for finding reliance to be unjustified (see e.g. Curran, Cooney, Penney v Young & Koomans, 183 AD2d 742, 743-744 [2d Dept 1992]; Rodas v Mandaras, 159 AD2d at 343; Emergent Capital Inv. Mgt., LLC v Stonepath Group, Inc., 343 F3d 189, 196 [2d Cir 2003] [applying New York law]). It is harder to find cases holding that a plaintiff who did obtain such a representation could not justifiably rely on it; one such case is Ponzini v Gatz (155 AD2d 590 [2d Dept 1989]), in which the plaintiffs attorney actually knew that the warranty in question was false. In National Conversion Corp. v Cedar Bldg. Corp. (23 NY2d 621 [1969])—a case admittedly much different in its facts from this one—we held that it was reasonable for the plaintiff to rely on a written representation as a substitute for making an investigation of the facts represented.

“The question of what constitutes reasonable reliance is always nettlesome because it is so fact-intensive” (Schlaifer Nance & Co. v Estate of Warhol, 119 F3d 91, 98 [2d Cir 1997]). No two cases are alike in all relevant ways. However, several federal cases applying New York law bear a noticeable resemblance to this one—and all of them hold that the plaintiffs’ claims of justifiable reliance were legally sufficient (Merrill Lynch & Co. Inc. v Allegheny Energy, Inc., 500 F3d 171, 181-182 [2d Cir 2007]; Barron Partners, LP v Lab123, Inc., 2008 WL 2902187, 2008 US Dist LEXIS 56899 [SD NY 2008]; JP Morgan Chase Bank v Winnick, 350 F Supp 2d 393 [SD NY 2004]; Faller Group, Inc. v Jaffe, 564 F Supp 1177 [SD NY 1983]).

JP Morgan is perhaps the case most similar to ours. Plaintiffs there were banks that had extended credit to Global Crossing, Ltd. (GC). After it became insolvent, the banks sued GC’s officers, directors and employees for fraud. The District Court denied defendants’ motion for summary judgment on the fraud claims, rejecting the argument “that the plaintiffs cannot demonstrate reliance on the alleged misrepresentations” (350 F Supp 2d at 404). The court emphasized that plaintiffs had bargained for a provision in their credit agreement with GC to the effect that “each loan request was ‘deemed’ a ‘representation and warranty’ by GC that no ‘event of default’ had occurred” (id. at 396). Examining the facts of several state and federal cases applying New York law, the court concluded that they “do not support the interpretation that a duty to inquire is necessarily triggered as soon as a plaintiff has the slightest ‘hints’ of any ‘possibility’ of falsehood” (id. at 408). The court said:

“It is undisputed that the Banks expressly bargained not only for the right to examine GC’s books and records, but also for the provision of the Agreement deeming each borrowing request to be a representation that GC remained in compliance with its debt covenants at the time the request was made. Under these circumstances, it cannot be argued that the Banks failed to bargain for adequate safeguards to establish, at least initially, the basis for their reliance on the defendants’ representations” (id. at 409).

Noting the defendants’ argument “that GC’s . . . financial statements . . . were so transparently false—or at least, that the assumptions on which they were based were so apparently questionable—that no reasonable banker would have lent GC a penny without conducting further inquiry into their accuracy” (id.), the court found that the question it presented was for the jury. The court was unable to say as a matter of law that “a reasonable lender of equivalent experience should have inquired further” into GC’s financial statements (id. at 411).

We reach a similar conclusion here. It is fair to say that there were hints from which plaintiffs might have been put on their guard in this transaction. Some aspects of the 2004 financial statements—particularly the sudden improvement in profitability in the last month of the year—might have seemed too good to be true; the fact that it took an auditor until March of 2005 to complete an examination of the 2003 financial statements was hardly encouraging; and the high interest rate itself demonstrates that plaintiffs knew the transaction carried considerable risk. But plaintiffs made a significant effort to protect themselves against the possibility of false financial statements: they obtained representations and warranties to the effect that nothing in the financials was materially misleading. We decline to hold as a matter of law that plaintiffs were required to do more—either to conduct their own audit or to subject the preparers of the financial statements to detailed questioning. If plaintiffs can prove the allegations in the complaint, whether they were justified in relying on the warranties they received is a question to be resolved by the trier of fact.

Defendants emphasize that the warranties were given only by ARI, and suggest that they cannot support a claim against Rhone, Quilvest and others. But this argument blurs the distinction between claims for breach of warranty and claims for fraud. It is true that, as a contractual matter, the only rights plaintiffs acquired under the warranties were against ARI. If plaintiffs prove only that the warranties were false, they cannot recover against Rhone and Quilvest. But if they can prove that Rhone and Quilvest knew the facts represented and warranted were false—in other words, that Rhone and Quilvest knew the financial statements gave an untrue picture of ARI’s financial condition—the case is different. It can be inferred from the allegations of the complaint that plaintiffs believed Rhone and Quilvest would not knowingly cause a company they controlled to make false representations in a loan agreement as to the accuracy of financial statements. We cannot say as a matter of law that this was an unjustifiable belief.

Accordingly, the order of the Appellate Division, insofar as appealed from, should be reversed with costs, and the case remitted to the Appellate Division for consideration of questions raised but not determined on the appeal to that court.

Chief Judge Lippman and Judges Ciparick, Grapfeo, Read, Pigott and Jones concur.

Order, insofar as appealed from, reversed, with costs, and case remitted to the Appellate Division, First Department, for consideration of issues raised but not determined on the appeal to that court.


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

text:
    [931 NE2d 1039, 905 NYS2d 783]
    Ronald Fields, Appellant, v Lucille Fields, Respondent.
    Argued May 4, 2010;
    decided June 10, 2010

      POINTS OF COUNSEL

      Arnold, Davis, New York City, for appellant.
    I. Husband’s interest in the apartment building, having been purchased in his own name with funds received by him as a gift, was his separate property. The building increased in value from capital contributions from his mother, from its tenants’ rents and from passive market conditions. Plaintiff’s interest was never converted into marital property. (Allen v Allen, 263 AD2d 691; Embury v Embury, 49 AD3d 802; Chiotti v Chiotti, 12 AD3d 995; Sarafian v Sarafian, 140 AD2d 801; Spector v Spector, 136 AD2d 939; Cappiello v Cappiello, 66 NY2d 107; Falgoust v Falgoust, 15 AD3d 612; Pullman v Pullman, 176 AD2d 113; Heine v Heine, 176 AD2d 77, 80 NY2d 753; Cooper v Cooper, 52 AD3d 429.) II. Defendant wife failed to demonstrate that she had contributed to the active or passive appreciation in the building’s value. Her purported direct and indirect efforts had no effect at all upon the market value of the building. (Hartog v Hartog, 85 NY2d 36; Price v Price, 69 NY2d 8; Pauk v Pauk, 232 AD2d 386; Xikis v Xikis, 43 AD3d 1040; Embury v Embury, 49 AD3d 802; Juhasz v Juhasz, 59 AD3d 1023; Lord v Lord, 124 AD2d 930; Ritz v Ritz, 21 AD3d 267.) III. It was a gross abuse of discretion to have fashioned a distributive award to wife based upon husband’s interest in the apartment building. The parties did not occupy an economic relationship. (Galvin v Francis, 20 AD3d 550; Naimollah v De Ugarte, 18 AD3d 268; Sutka v Sutka, 299 AD2d 540, 99 NY2d 510; Majauskas v Majauskas, 61 NY2d 481.) IV The overwhelming weight of evidence indicates that the predominance of funds in the building account came from rents received, mortgage proceeds and inherited funds. The conclusion that husband’s interest in the building fund account was transmuted into marital property was erroneous. The evidence below demonstrates that only some $20,000 of the husband’s marital earnings were deposited into that account. (Bloch v Bloch, 10 Misc 3d 1058[A], 2005 NY Slip Op 52021[U].)

      Hoffman, Polland & Furman, PLLC, New York City (Elliot R. Polland of counsel), for respondent.
    I. The Appellate Division properly concluded that premises 318 West 107th Street is marital property. (Murphy v Murphy, 4 AD3d 460; McLoughlin v McLoughlin, 63 AD3d 1017; George v George, 237 AD2d 894; Saasto v Saasto, 211 AD2d 708; Bossard v Bossard, 199 AD2d 971; Judson v Judson, 255 AD2d 656; Embury v Embury, 49 AD3d 802; DiBlasi v DiBlasi, 48 AD3d 403; Sarafian v Sarafian, 140 AD2d 801; Bartha v Bartha, 15 AD3d 111.) II. The Citibank account is marital property. (Chernoff v Chernoff, 31 AD3d 900; Chiotti v Chiotti, 12 AD3d 995; Judson v Judson, 255 AD2d 656; Carney v Carney, 202 AD2d 907.) III. The court below properly granted respondent a distributive award of appellant’s interest in 318 West 107th Street and his interest in the Citibank account. (Florio v Florio, 25 AD3d 947; Miller v Miller, 128 AD2d 844; Graves v Graves, 307 AD2d 1022; McKnight v McKnight, 18 AD3d 288; Oster v Goldberg, 226 AD2d 515, 88 NY2d 811; Saleh v Saleh, 40 AD3d 617; Volponi-Hotton v Hotton, 2 AD3d 437; O’Brien v O’Brien, 66 NY2d 576; Falgoust v Falgoust, 15 AD3d 612; Zelnik v Zelnik, 169 AD2d 317.) IV The court below correctly valued 318 West 107th Street as of the date of trial. (Bartek v Draper, 309 AD2d 825; D’Angelo v D’Angelo, 14 AD3d 476; Ierardi v Ierardi, 151 AD2d 548.)
   OPINION OF THE COURT

Graffeo, J.

The principal issue raised in this matrimonial case is whether husband’s one-half interest in the parties’ residence—a Manhattan townhouse that husband purchased during the marriage and where the parties have lived for nearly 30 years—is marital property. We conclude that the value of husband’s one-half interest in the townhouse constitutes marital property subject to equitable distribution and we therefore affirm the Appellate Division order.

I.

As we have previously observed, although the manner in which marital property is distributed falls within the discretion of the trial court, “the initial determination of whether a particular asset is marital or separate property is a question of law, subject to plenary review on appeal” (DeJesus v DeJesus, 90 NY2d 643, 647 [1997]).

Domestic Relations Law § 236 defines “marital property” as “all property acquired by either or both spouses during the marriage and before the execution of a separation agreement or the commencement of a matrimonial action, regardless of the form in which title is held” (Domestic Relations Law § 236 [B] [1] [c] [emphasis supplied]), and the definition of marital property includes a “wide range” of tangible and intangible interests (DeJesus, 90 NY2d at 647). It is telling that the Legislature chose to initially categorize all property, of whatever nature, acquired after parties marry as marital property. As we have repeatedly emphasized, the Equitable Distribution Law “recognizes that spouses have an equitable claim to things of value arising out of the marital relationship and classifies them as subject to distribution by focusing on the marital status of the parties at the time of acquisition” (O’Brien v O’Brien, 66 NY2d 576, 583 [1985]). This marital property designation is in keeping with the fundamental purpose of the Equitable Distribution Law—the recognition of marriage as an economic partnership (see Governor’s Approval Mem, L 1980, ch 281, reprinted in 1980 McKinney’s Session Laws of NY, at 1863), in which “both parties contribute as spouse, parent, wage earner or homemaker” (O’Brien, 66 NY2d at 585).

The Legislature did provide for several exceptions to this general classification. Section 236 specifies that marital property does not include “separate property” and the statute sets forth four categories of property that constitute separate property:

“(1) property acquired before marriage or property acquired by bequest, devise, or descent, or gift from a party other than the spouse;
“(2) compensation for personal injuries;
“(3) property acquired in exchange for or the increase in value of separate property, except to the extent that such appreciation is due in part to the contributions or efforts of the other spouse;
“(4) property described as separate property by written agreement of the parties pursuant to subdivision three of this part” (Domestic Relations Law § 236 [B] [1] [d]).

When the Legislature enacted Domestic Relations Law § 236, it sought “to recognize the direct and indirect contributions of each spouse” (Hartog v Hartog, 85 NY2d 36, 47 [1995], citing Governor’s Approval Mem, L 1980, ch 281, and Assembly Mem, 1980 NY Legis Ann, at 129-130). Hence, we have stressed that marital property should be “construed broadly in order to give effect to the ‘economic partnership’ concept of the marriage relationship” (Price v Price, 69 NY2d 8, 15 [1986] [emphasis omitted]). By contrast, separate property—denoted as an exception to marital property—should be construed “narrowly” (id. [emphasis omitted]; see Majauskas v Majauskas, 61 NY2d 481, 489 [1984]). The structure of section 236 therefore creates a statutory presumption that “all property, unless clearly separate, is deemed marital property” and the burden rests with the titled spouse to rebut that presumption (DeJesus, 90 NY2d at 652).

With these principles in mind, we turn to the unique facts presented in this case.

II.

Husband and wife, who are 60 and 69 years old, respectively, were married in 1970 and they have a son who was born in 1973. In 1978, the parties decided to purchase a home on the Upper West Side of Manhattan, selecting a five-story townhouse with 10 apartments and a basement. Wife agreed to the acquisition of the townhouse only if husband consented to certain preconditions because she believed that working outside the home and caring for their son, together with maintaining the townhouse, would be too burdensome. Because of wife’s reticence, husband decided to purchase the townhouse with his mother’s assistance.

Husband paid $130,000 for the townhouse, making a $30,000 down payment. The down payment came from funds husband received from his grandparents—half in lieu of a bequest and half on loan, which his mother agreed to repay. The balance of the purchase price was paid through two mortgages held jointly by husband and his mother. Husband took title solely in his name but later conveyed a one-half interest in the building to his mother. From 1982 to 2001, husband and his mother managed the townhouse as a formal partnership. They deposited rent proceeds into a partnership bank account and made mortgage payments from that account. But the partnership bank account was not used exclusively for the building’s income and expenses; husband acknowledges that he commingled marital funds in the account.

In September 1978, husband and wife moved into the townhouse, initially residing in apartment 2 and, in 1979, the couple converted the basement into an apartment where they lived together for five months until wife became ill and moved into apartment 3. In 1983, after apartment 3 was burglarized, wife relocated to apartment 2. Husband remained in the basement apartment and the couple shared occasional meals until 1997. Husband paid rent to the partnership for the basement apartment until 2002; he used his income from employment to make rental payments. Wife also paid rent using her wages while she was living in apartment 3. Husband’s mother and stepfather resided in the building as well and paid rent for three apartments that they combined into a single residence. The remaining apartments were leased to various tenants. Husband and wife were continuously employed outside of the home, although they each took periods of parental leave to care for their son. It is not disputed that the couple shared child care expenses and responsibilities as parents.

III.

Husband commenced this divorce action in February 2005 and Supreme Court referred the matter to a Special Referee. After a hearing on issues of equitable distribution, the Referee found that both parties contributed to the long-term marriage, their son’s upbringing and the townhouse. The Referee recommended that husband’s one-half interest in the townhouse be classified as marital property, less the $30,000 down payment, which the Referee deemed as husband’s separate property because those funds had been received from husband’s grandparents. He also found that husband’s one-half interest in the partnership bank account was marital property. The Referee awarded wife 35% of the value of all marital assets because he concluded that wife had made direct and indirect contributions to the townhouse, including services as a spouse and mother. Supreme Court confirmed the Referee’s report and directed entry of a judgment of divorce. Upon husband’s failure to pay wife her distributive award, Supreme Court entered a money judgment in wife’s favor.

The Appellate Division, with two Justices dissenting, affirmed (65 AD3d 297 [1st Dept 2009]). The court held that husband’s interest in the townhouse, less the $30,000 down payment, was properly categorized as marital property subject to equitable distribution. The majority emphasized that husband purchased the townhouse during the parties’ marriage, that the couple continuously lived in the townhouse and raised their son in the home, and that wife made direct and indirect contributions to the upkeep of the townhouse. Rejecting husband’s assertion that his interest in the townhouse should be viewed as separate property, the court explained that “[t]he fact that the marital residence can also be used to generate income . . . does not therefore reclassify marital property into separate property” (id. at 304). The two dissenting Justices disagreed and concluded that husband rebutted the statutory presumption by showing that the townhouse, purchased with funds that were separate property, remained separate property and that wife failed to establish that any appreciation in the townhouse’s value was caused by her direct or indirect contributions (see id. at 305 [McGuire, J, dissenting]). This appeal ensued.

IV

Husband argues that his one-half interest in the townhouse is separate property because he owns and manages the building with his mother and because wife did not contribute to its purchase or its appreciation in value. We disagree and conclude that the value of husband’s one-half interest in the townhouse is marital property subject to equitable distribution.

This case involves the application of the well-settled statutory presumption that all property acquired by either spouse during the marriage, unless clearly separate, is deemed marital property (see DeJesus, 90 NY2d at 652). Here, husband purchased the townhouse in 1978, approximately eight years into the marriage, and therefore, on the date of acquisition, the presumption of marital property arose. Indeed, New York courts have long treated a marital residence that was purchased after the marriage as marital property subject to equitable distribution (see e.g. Murphy v Murphy, 4 AD3d 460, 461 [2d Dept 2004], lv denied 3 NY3d 612 [2004]; Judson v Judson, 255 AD2d 656, 657 [3d Dept 1998]; see also Juhasz v Juhasz, 59 AD3d 1023, 1024 [4th Dept 2009], lv dismissed 12 NY3d 848 [2009]; Heine v Heine, 176 AD2d 77, 84 [1st Dept 1992], lv denied 80 NY2d 753 [1992]). Even where one spouse contributed monies derived from separate property toward the acquisition of the marital residence, this has not precluded its classification as marital property where the other spouse made economic or other contributions to the residence and the marriage; the contributing spouse generally has received a credit for that contribution (see e.g. Juhasz, 59 AD3d at 1024; Murphy, 4 AD3d at 461; Judson, 255 AD2d at 657; Heine, 176 AD2d at 84).

For example, in Heine, the parties purchased a townhouse containing several apartments during their marriage. The husband used separate property to meet the down payment expense and the parties secured two mortgages to pay the balance of the purchase price; however, title was placed solely in the husband’s name. The couple lived in an apartment in the townhouse and at least one of the units was always rented to a tenant. The wife was involved in several renovations to the building and she undertook primary care of the family’s domestic and social needs. The Appellate Division credited the husband with the amount of the down payment, designating it as separate property (see 176 AD2d at 84). Nevertheless, the court held that husband was not entitled to the appreciation in value of his separate property contribution because that appreciation was not attributable to the down payment but to market forces, renovations and mortgage payments paid for with marital funds (see id.). Thus, the court viewed the townhouse, less the husband’s initial contribution, as marital property subject to distribution between the parties (see id.; see also Bartha v Bartha, 15 AD3d 111, 115-117 [1st Dept 2005]).

Here, the property was purchased eight years into the parties’ marriage with the intent that it would be used as the marital residence where the parties would live and raise their son. In fact, that is precisely what occurred—the parties resided in the home with their son and other family members for nearly 30 years. Thus, the statutory presumption that a residence acquired during the marriage is marital property clearly applies in this case.

Once the statutory presumption was triggered, the burden shifted to husband to rebut that presumption (see DeJesus, 90 NY2d at 652). Husband relies on the fact that he used monies derived from separate property—specifically, the $30,000 down payment—to acquire the townhouse. But the townhouse was not “acquired in exchange for” the $30,000 down payment (Domestic Relations Law § 236 [B] [1] [d] [3 ]). Instead, husband’s $30,000 separate property contribution covered only a fraction of the purchase price. While the down payment facilitated the acquisition, the use of a “separate property” down payment does not, in and of itself, establish the property’s character as separate property (see e.g. Juhasz, 59 AD3d at 1024; Murphy, 4 AD3d at 461; Judson, 255 AD2d at 657; Heine, 176 AD2d at 84).

The remaining $100,000 of the purchase price was paid through two mortgages and, despite husband’s claim that he made mortgage payments solely from rental proceeds, he failed to substantiate that allegation. Husband testified that he commingled marital assets in the partnership bank account from which mortgage payments were made. Specifically, he acknowledged that he would sometimes deposit his paychecks—which were marital property—into the account. Funds from other sources of marital income were also placed into the account, such as husband’s earnings from his tax preparation and video businesses and wife’s paychecks. The fact that husband would later transfer funds or give cash to wife does not alter the commingled nature of the funds. Finally, both husband and wife paid rent to the partnership using income from their outside endeavors, which was a partial source of the mortgage payments. Husband therefore failed to establish that the mortgages, which were used to pay the majority of the townhouse’s purchase price, were paid using monies derived exclusively from separate property, much less that all of the expenses associated with the property were covered by segregated funds.

There is no single template that directs how courts are to distribute a marital asset that was acquired, in part or in whole, with separate property funds. In these situations, courts have usually given the spouse who made the separate property contribution a credit for such payment before determining how to equitably distribute the remaining value of the asset (see e.g. Zurner v Zurner, 213 AD2d 906, 908 [3d Dept 1995], lv denied 87 NY2d 802 [1995]; Burns v Burns, 193 AD2d 1104, 1106 [4th Dept 1993], mod on other grounds 84 NY2d 369 [1994]). In distributing any appreciation in value, courts may consider any of the factors listed in Domestic Relations Law § 236 (B) (5) (d) or any other relevant considerations (see e.g. Butler v Butler, 171 AD2d 89, 93-94 [2d Dept 1991]; Woodson v Woodson, 178 AD2d 642, 642-643 [2d Dept 1991]), including the respective contributions of each spouse and the effect of market forces.

In this case, the courts below properly considered the spectrum and quantity of contributions made by each spouse to the management and maintenance of the townhouse and the extent to which market factors enhanced the value of the property. Under these circumstances, we decline to disturb the determination below that husband failed to rebut the statutory presumption that his interest in the townhouse is marital property subject to equitable distribution and that wife was entitled to 35% of husband’s interest in that asset.

In reaching this conclusion, we emphasize that husband purchased the townhouse eight years into the 35-year marriage and that the family maintained their living arrangement since 1978. It is not for the courts to dictate what type of lifestyle a “normal” marriage should reflect or how married couples should structure their marital relationships. That husband and wife in this case have maintained separate apartments in the building does not change the character of the property from marital to separate, especially since they both made economic and noneconomic contributions to their marriage and the upbringing of their son (see e.g. Iwanow v Iwanow, 39 AD3d 471, 475 [2d Dept 2007]; see also Fagan v Fagan, 2 AD3d 394, 395 [2d Dept 2003]; Greenwald v Greenwald, 164 AD2d 706, 713-714 [1st Dept 1991], lv denied 78 NY2d 855 [1991]). Surely, many married couples sleep in different bedrooms for a variety of reasons and such arrangements do not affect the “marital property” status of their homes if they divorce. Likewise, the fact that husband took title to his one-half interest in the townhouse in his name alone is irrelevant under the statute’s express language (see Domestic Relations Law § 236 [B] [1] [c]), nor does the fact that husband acquired title with his mother interfere with the marital character of his interest in the property (see e.g. Bartha, 15 AD3d at 115). Finally, that portions of the townhouse were used as an income-generating business does not transform the building into separate property (see e.g. Heine, 176 AD2d at 84). Wife’s lack of an initial monetary investment and involvement in the management activities pertaining to the townhouse do not preclude a holding that husband’s interest in the building is marital property. These were factors properly considered by the trial court in determining the extent of wife’s distributive award (see Domestic Relations Law § 236 [B] [5] [d]).

We part ways with the dissent at the initial stage of this analysis. The dissent fails to recognize the statutory presumption that property acquired during a marriage is marital property; instead, the dissent begins with the assumption that the building was separate property at the time of its acquisition. As explained above, we do not view husband’s interest in the townhouse as property “acquired in exchange for” his separate property contribution toward the down payment. Under the dissent’s analysis, any time a married couple purchases a marital residence using “separate” funds (e.g., an inheritance or monetary gift from a parent) contributed by one spouse towards the down payment, the entirety of the marital home would be classified as separate property. This approach is not consistent with relevant precedent, does not heed the Domestic Relations Law’s statutory presumption in favor of marital property and is contrary to the very purpose underlying the statute in recognition of an “economic partnership.”

V

Next, husband claims that his one-half interest in the partnership bank account is separate property because the account was created solely to manage funds relating to the townhouse. But, as previously discussed, husband commingled marital assets in the partnership bank account and he could not sufficiently delineate any of the funds in the account as separate property (see e.g. McManus v McManus, 298 AD2d 189 [1st Dept 2002]). We agree with the courts below that husband’s interest in the partnership bank account is marital property that should be allocated between the parties.

VI.

Finally, husband challenges the trial court’s distribution of the marital property, arguing that the court abused its discretion by awarding wife 35% of the value of the marital assets. We disagree.

In recognizing marriage as an economic partnership, Domestic Relations Law § 236 mandates that the equitable distribution of marital assets be based on the circumstances of the particular case and directs the courts to consider a number of statutory factors. These factors encompass the income and property of each party at the time of marriage and at the time of commencement of the divorce action, the duration of the marriage, the age and health of the parties, the extent of any maintenance award and the nontitled spouse’s direct or indirect contributions to the marriage, including “services as a spouse, parent, wage earner and homemaker” (Domestic Relations Law § 236 [B] [5] [d]). Absent an abuse of discretion, this Court may not disturb the trial court’s distributive award (see Holterman v Holterman, 3 NY3d 1, 8 [2004]).

Here, Supreme Court issued a comprehensive decision addressing all relevant factors, including that husband and wife were married for 35 years; that both maintained employment and made economic and noneconomic contributions to the marriage, their son and the townhouse; that they had equal parenting responsibilities; that wife did not invest in the purchase of the townhouse; and that the couple maintained separate units in the building for approximately 28 years. In light of these considerations, particularly the length of the marriage, the age of the parties and wife’s contributions to the marriage, we cannot conclude that Supreme Court abused its discretion in awarding wife 35% of the value of husband’s half interest in the townhouse and other marital assets.

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

Smith, J. (dissenting).

The decisions below and the majority opinion here rest on different grounds, both indefensible.

The governing statute says that “separate property” includes “property acquired in exchange for or the increase in value of separate property, except to the extent that such appreciation is due in part to the contributions or efforts of the other spouse” (Domestic Relations Law § 236 [B] [1] [d] [3]). I think it clear, and the courts below seem to have assumed, that the husband’s interest in this townhouse was acquired “in exchange for . . . separate property,” and was therefore separate property at the time it was acquired. That interest grew in value during the next three decades, and the main issue as I see it is whether, and to what extent, the wife’s “contributions or efforts” justify treating the “increase in value of separate property” as marital property. The courts below held 100% of the appreciation to be marital—a conclusion that I find to be completely unjustified.

The majority affirms the decisions below on a different rationale. It does not rely on the statutory exception to the rule that appreciation in separate property is separate property, and does not assert that the wife’s “contributions or efforts” played any part in that appreciation. Rather, it finds that the property was not separate in the first place. It was, the majority says, not “acquired in exchange for . . . separate property” because, according to the majority, some part of the mortgages used to acquire the townhouse may have been repaid with marital funds. This theory has many flaws, but the most obvious is that there is no evidence in this record, and neither court below found, that a penny of marital funds went into repaying the mortgages: The uncontradicted proof is that they were repaid entirely from rental proceeds. Thus the majority’s rationale seems to me to be an even weaker one than that of the courts below.

I

While the opinions below contain some confusing language, I think the basis for them is reasonably clear; Supreme Court and the Appellate Division majority treated the husband’s interest in the townhouse as having been separate property initially, and found that the wife’s contributions to the increase in value of that interest were such that all of the appreciation should be classed as marital property. It is true that both Supreme Court and the Appellate Division referred to the husband’s interest itself—not just the appreciation—as marital property, but this seems to be simply a misdescription. Both courts in fact included only the appreciation in marital property, excluding the $30,000 down payment; and the opinions below dwell on, and treat as dispositive, what the Special Referee called the wife’s “countless contributions to the building.” I see nothing to support the majority’s surmise that the Appellate Division’s reasoning was the same as the majority’s here (see majority op at 165 n 2).

I therefore begin by examining the statutory language that I think was decisive below: “[t]he term separate property shall mean . . . the increase in value of separate property, except to the extent that such appreciation is due in part to the contributions or efforts of the other spouse.” (Domestic Relations Law § 236 [B] [1] [d] [3].) Read carefully, the italicized words may be puzzling. “[T]o the extent that” and “in part” seem contradictory: Is the appreciation marital only “to the extent” that the other spouse contributes to it, or is it wholly marital if the other spouse contributes even “in part”? I think this riddle can be answered by considering an important premise of the law of equitable distribution: that marriage is an economic partnership, in which both spouses may contribute to the wealth accumulated during the marriage, either through direct efforts to earn money or indirect efforts as a parent and homemaker (see Price v Price, 69 NY2d 8, 13-15 [1986]). The statutory words “in part” refer to the possibility that the partnership of which the untitled spouse is “part” may contribute to the appreciation; “to the extent” that it does so, the resulting appreciation will be deemed marital, and the “part” of that marital appreciation due to the untitled spouse’s efforts will be recognized when the marital property is divided.

Thus, when dealing with the appreciation in separate property, the statute assigns two tasks to a court: first, to figure out the “extent” to which appreciation results from the “contributions or efforts” of the untitled spouse, either solely or as a member of the marital partnership, and to include the appreciation in marital property to that extent; and secondly, to decide what “part” of that marital property the untitled spouse should receive. Here, the courts below classified 100% of the appreciation in the husband’s interest in the townhouse as marital property, and then divided the marital property 65% to the husband and 35% to the wife. They thus implicitly found that 100% of the appreciation was attributable either to the wife’s efforts or to the efforts of the economic partnership of which she and her husband were members; and that the 65-35 split is a reasonable reflection of the ratio of the parties’ contributions. I do not find it necessary to examine the second of these findings, because I am satisfied that the first is without record support.

As we held in Price, the “contributions or efforts” referred to in the statute may be of two kinds: those that directly enhance the value of an asset, or “indirect contributions” as homemaker and parent (69 NY2d at 12-13). Only the first kind of contributions and efforts—the direct kind—is involved in this case. This is not a case like Price, in which the wife gave up outside employment when her first child was born, devoted herself thereafter to bringing up children and taking care of the home, and “attended conventions with her husband and assisted him as hostess at various business-related social events” (id. at 12). Here, the parties lived in separate apartments for most of the marriage; both continued in full-time employment, though she took a maternity leave and he took a paternity leave; and both spent roughly equal time on parental duties. Neither party should be penalized for this, of course; the Appellate Division majority was quite right in saying that it is not for courts “to dictate what a ‘normal’ marriage should be” (Fields v Fields, 65 AD3d 297, 304 [2009]). I simply note that, under the statute as we interpreted it in Price, the wife’s indirect contributions and efforts as homemaker and parent would, if they had contributed to the appreciation of the property, be entitled to recognition; but there is no evidence that they did.

There is some evidence, relied on heavily by the majority in the Appellate Division, that the wife made direct contributions to the value of the townhouse. I quote the Appellate Division’s summary:

“The wife purchased some furniture for apartment 1 and ‘occasionally’ swept and vacuumed the hall in front of the apartment entrance. She testified that she would clean up the lobby during renovations. She also purchased a $600 vacuum cleaner to clean the lobby three times a week, cleaned the mailbox vestibule, swept the interior and exterior steps, used bleach to clean dog excrement from the sidewalk, and raked leaves from a maple tree in the backyard. In the summers, when the husband would go to France to spend time with his mother, the wife took responsibility for disposing of the building’s refuse. She washed lobby curtains, cleaned lobby windows and polished the lobby mirror. She also decorated apartment 1, planted and maintained the backyard, and bought patio furniture.
“In addition to these services, the wife purchased a carpet, and a $500 Formica countertop for the marital apartment, as well as paying $700 for flooring in the foyer. She paid $400 for a foyer mirror, and paid for couches, a basement door installation, linen closet, bathroom cabinets and a chandelier.” (Id. at 299-300.)

This is the evidence on which the courts below implicitly found all of the appreciation in the husband’s interest in the townhouse—from $30,000 (as they valued it) in 1978 to $1,158,000 at the time of trial in 2006—to be attributable to the parties’ joint or to the wife’s sole efforts. With all the deference that is due both to affirmed findings of fact and to the established presumption that, in cases of doubt, property should be found to be marital (Price, 69 NY2d at 15), this finding cannot be sustained. No doubt well-cleaned lobbies, well-kept backyards and attractive furnishings can enhance the value of a building, but they do not cause a Manhattan real estate holding to increase forty-fold in value over 30 years. What does that, obviously, is the real estate market. A court-appointed expert— the only valuation expert to testify—confirmed this. He testified that “the greatest increase in value” came from “market forces.” He added that another contributing factor was renovations that had been done in the building—renovations with which the wife had little, if anything, to do.

The record here simply does not support a finding that 100%—or any large part—of the increase in the value of the husband’s interest in the real property was “due in part to the contributions or efforts” of the wife. For that reason, the Appellate Division’s award to the wife of 35% of the value of that interest should be reversed.

II

The majority does not try to defend the conclusion that the appreciation in the husband’s interest in the townhouse was an “increase in value of separate property” includable in marital property because of the wife’s “contributions or efforts” (Domestic Relations Law § 236 [B] [1] [d] [3]). Rather, the majority says that the interest in the townhouse was not separate property at all because it was “property acquired . . . during the marriage” (Domestic Relations Law § 236 [B] [1] [c]). At first blush, this seems an impossible conclusion, because the statute also says that “[mjarital property shall not include separate property as hereinafter defined” (id.), and goes on to define “separate property” to include “property acquired in exchange for . . . separate property” (Domestic Relations Law § 236 [B] [1] [d] [3]). As the majority acknowledges (majority op at 166-167), all of the money the husband put into the townhouse in 1978 was separate property. It is thus indisputable that the interest in the townhouse was separate property when it was first acquired.

But, as the majority notes, most of the money used to purchase the property was borrowed on the security of mortgages; the majority suggests that some part of the mortgages may later have been repaid with marital funds. The majority says that the husband “failed to substantiate” his claim “that he made mortgage payments solely from rental proceeds” (majority op at 167). If indeed the mortgages were paid back in part with marital funds, I agree that that would make the interest in the townhouse, in part, marital property. The majority ignores the distinction between “in part” and “in whole,” but that error is not significant, because the only possible finding on this record is that mortgages were paid not from marital property, but from rental proceeds.

The husband’s testimony on this point was not equivocal:

“Q And how did you pay these [original] mortgages?
“A Through the rents they collected from the building. . . .
“Q And the [subsequent] mortgage . . . , how was that being paid?
“A Same way.”

The wife, having had discovery of the husband’s financial records, offered nothing to contradict this testimony. Nor did either of the courts below reject it; no opinion below discusses it. The opinions below proceed on the assumption that the mortgages were indeed, as the husband said, paid out of the rents.

But the majority finds scraps of evidence in the record that it says support a contrary conclusion. It says the husband “acknowledged that he would sometimes deposit his paychecks . . . into the account” from which the mortgage payments were made (majority op at 167). But what he actually said was: “I occasionally put my paychecks so I could pay the rent” (emphasis added). The fact that the husband and the wife paid their rent with marital property, and that the mortgages were paid out of the rents, cannot support a finding that marital property was being used to reduce the husband’s mortgage obligation—not, at least, if the rent payments reflected the fair rental value of the apartments rented. There is no evidence that the husband’s (or the wife’s) rental obligation was inflated, so as effectively to divert marital property into the separately owned building. It is at least as likely that the husband, in renting apartments to himself and his wife, charged a below-market rent, thus enlarging the marital estate.

The other evidence on which the majority relies is to the effect that some money other than rental payments occasionally went through the bank account from which the mortgages were paid. But the husband testified in substance that these transactions (to the extent that they involved arguably marital funds) were trivial, and again the wife produced no evidence to contradict his testimony. Thus he testified that the account was used as a conduit for payments for a “block guard fund”—apparently payments to a security guard hired by the block association— because the amounts involved did not justify spending $40 a month to maintain a separate account. He also used the account for a “school fund” totaling “a few hundred dollars.” There is no evidence that any money from the husband’s tax preparation and video business was put into the account before 2004. There is no evidence at all—the wife never even claimed—that any of the marital funds put into the account were diverted to mortgage payments. There is no evidence, and no claim, that the mortgage payments ever exceeded the rents received from the building.

In short, when the record is examined, it is easy to see why the majority’s theory that marital funds were used to pay the mortgage was not embraced by the courts below: the record is quite clear that no such funds were ever used that way.

Ill

The facts that the majority discusses are not limited to those made relevant by the statute—i.e., whether the husband’s interest in the townhouse was “property acquired in exchange for . . . separate property” or the extent to which the appreciation in the townhouse was “due in part to the contributions or efforts” of the wife (Domestic Relations Law § 236 [B] [1] [c], [d] [3]). The majority gives great weight to the fact that the husband and wife lived in the townhouse—a fact whose relevance, on the face of the statute, is not apparent. The majority stresses that “the property was purchased . . . with the intent that it would be used as the marital residence where the parties would live and raise their son” and that “that is precisely what occurred” (majority op at 166). The majority speaks of the “statutory presumption that a residence acquired during the marriage is marital property” (id. [emphasis added])—but the statutory presumption applies to all assets, not just residences. Indeed, the majority seems horrified by the idea that “any time a married couple purchases a marital residence using ‘separate’ funds . . . the entirety of the marital home would be classified as separate property” (majority op at 169)— though that is plainly what the statute says.

The majority seems to think it self-evident that, when a married couple buys a home, whether with separate or marital funds, any later increase in value of that home—whether due to the parties’ efforts, market forces or something else—should be shared between the parties. I see some intuitive appeal in that rule, but the Legislature quite clearly did not enact it. The statute, right or wrong, treats residences and other property just the same. I think it inappropriate for us simply to engraft a special rule for residences onto the statute—if indeed that is what the majority is doing.

But even assuming that a “marital residence” has special status—that is, assuming it to be the law that the parties should share in the appreciation of a marital residence, even when the residence was acquired with separate property and the appreciation is due to market forces—it seems absurd to apply that rule to a case like this. The “marital residence” in this case was not the 10-apartment townhouse; it was, for a relatively brief period of time, a rented apartment in that townhouse in which the parties lived together. To suggest that when parties live in an apartment the whole apartment building, if separately acquired by one of them, takes on some special “marital residence” status is to open the door to enormous uncertainty and potential abuse.

IV

The Appellate Division majority, like the majority here, emphasized facts having no relevance under the governing statute to the marital-separate property issue. The facts the Appellate Division stressed may be roughly put under the heading of “equities.” That is evident from the opening words of the Appellate Division’s majority opinion: “In this action for divorce, plaintiff husband seeks to divest 69-year-old defendant wife . . . .” (65 AD3d at 298.)

It is indeed easy to sympathize with the wife’s plight. She is a retired school teacher. Her husband, nine years younger than she, decided after a 35-year marriage that he wanted to marry another woman. The husband is the wealthier of the parties. These facts might have supported an award of maintenance, which the courts below did not make. They are supposed to be totally irrelevant to an award of equitable distribution.

I am not naive enough to think it possible that considerations like these will never influence the outcome of cases, even cases

to which they should not be relevant. But I think it is our Court’s role to hold lower courts in check when they find highly inventive ways of reaching what seem desirable results—not to find even more inventive ways of affirming those results. When one spouse can be awarded 35% of the other’s valuable asset on a record like this, it is very hard to predict how any equitable distribution dispute will come out—except that the more sympathetic party will usually win. The result is a marked lack of predictability, and the sending of a message that the rules written in the statute books will not be followed. That is bad for litigants and bad for the law.

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

Order affirmed, with costs.

      . Included in his findings, the Special Referee determined that wife decorated the basement apartment, purchasing a carpet, a Formica countertop, couches, a linen closet, bathroom cabinets, a chandelier, curtains, and rugs. She installed a door in the basement apartment, wallpapered the bathroom and paid for flooring and a mirror for the foyer outside the apartment. Wife also helped with the townhouse’s day-to-day maintenance. She cleaned the basement apartment and purchased the vacuum used to clean the lobby. Wife cleaned the mailbox vestibule, swept the interior and exterior steps, periodically cleaned the sidewalk, raked and bagged leaves in the backyard and planted a garden. She also cleaned lobby windows and washed the curtains, polished the lobby mirror and, during times when husband was away, disposed of the townhouse’s refuse.

      . The majority appears to have concluded that husband failed to rebut the statutory presumption that property acquired during the marriage is marital property, although the court’s opinion does not explicitly state its holding in those terms.

      . Wife argues that husband failed to prove that the $30,000 down payment was separate property because he could not produce cancelled checks showing that the money was a gift from his grandparents. Wife did not cross appeal to this Court or seek a modification of the Appellate Division order affirming Supreme Court’s classification of the down payment as separate property. In any event, husband testified that he received the funds from his grandparents and his inability to produce the cancelled checks did not preclude a finding that the money was a gift (see e.g. Chiotti v Chiotti, 12 AD3d 995, 996 [3d Dept 2004]).

      . At the time of trial, the townhouse was valued at $2,625,000.

       The $30,000 figure seems to be an error in the husband’s favor committed by the courts below. $30,000 was the amount paid down to purchase the entire townhouse. Since the husband retained only a half interest in it, the amount of the offset against his interest should, on the theory of the courts below, be $15,000.


author: Chief Judge Lippman.

text:
    [933 NE2d 194, 906 NYS2d 796]
    In the Matter of a Trust Created by Charlotte P. Hyde, Deceased. Glens Falls National Bank and Trust Company et al., as Trustees of a Trust Created by Charlotte P. Hyde, Deceased, Respondents; Carol J. Whitney, as Executor of Louis H. Whitney, Deceased, et al., Respondents, and Mary W. Renz et al., Appellants. (And Another Proceeding.)
    Argued June 2, 2010;
    decided June 29, 2010

      POINTS OF COUNSEL

      Nolan & Heller, LLP, Albany (David H. Wilder of counsel), for appellants.
    I. Based on the pro tanto rule and their lack of any interest in the outcome of the Whitneys’ surcharge proceedings, the Renzes’ respective interests in trust principal should not be required to bear any portion of the litigation expenses incurred in successfully defending the trustees against the Whitney’s objections. (Matter of Garvin, 256 NY 518; Matter of Ellensohn, 258 App Div 891; Matter of Stumpp, 153 Misc 92; Matter of Harmon, 5 Misc 2d 308; Matter of Newhoff, 107 AD2d 417; Matter of Saxton, 179 Misc 2d 681; Matter of Janes, 165 Misc 2d 743, 223 AD2d 20, 90 NY2d 41; Matter of Penney, 60 Misc 2d 334; Matter of Urbach, 252 AD2d 318; Matter of Antoinette Frances G., 135 Misc 2d 1034.) II. In any event, the doctrine of stare decisis is not absolute, and in this case, compelling circumstances warrant departing from Matter of Dillon (28 NY2d 597 [1971]) construction of SCPA 2110. (Cenven, Inc. v Bethlehem Steel Corp., 41 NY2d 842; Matter of Eckart, 39 NY2d 493; People v Hobson, 39 NY2d 479; Zappone v Home Ins. Co., 55 NY2d 131; Matter of Meyer, 209 NY 386; Matter of Higby v Mahoney, 48 NY2d 15; Matter of Schinasi, 277 NY 252; Matter of Baxter [Gaynor], 196 AD2d 186; Matter of Burns, 126 AD2d 809; Matter of Heilbronner, 39 Misc 2d 912.) III. On common-law grounds as well, a non-objecting beneficiary’s interest in the trust estate should not be required to bear any portion of the litigation expenses incurred by a trustee in successfully defending himself against an objection where the pro tanto rule applies. (Matter of Ungrich, 201 NY 415; Matter of Rose BB., 16 AD3d 801; Parker v Rogerson, 49 AD2d 689; Matter of Campbell, 138 AD2d 827; Matter of Garvin, 256 NY 518.) IV. Alternatively, the Surrogate has the power in equity to direct that the Whitneys’ respective interests in trust principal be charged with all of the litigation expenses incurred in successfully defending the Hyde and Cunningham trustees against the Whitneys’ objections.

      Judge & Duffy, Glens Falls (H. Wayne Judge and Monica A. Duffy of counsel), for Carol J. Whitney and others, respondents.
    I. This appeal lacks merit. (Matter of Urbach, 252 AD2d 318; Matter of Dillon, 28 NY2d 597; Matter of Penney, 60 Misc 2d 334.) II. The estate of Louis H. Whitney is not a proper party to this appeal. III. The relief requested against the Whitney children in the Cunningham trust accounting is also unavailable. IV The allocation of legal fees and expenses among litigating legatees is a legislative, not a judicial, matter. (Matter of Povlsen, 62 Misc 2d 239.) V The facts of this case compel the application of the established law. VI. The Whitney objectants had an affirmative duty to defend the residuum of these trusts under the circumstances presented here and should not, in equity, be penalized for doing so. (Meinhard v Salmon, 249 NY 458.) VII. The complete record of these proceedings must be “unsealed” and any stay order of final distribution must be vacated.

      Putney Twombly Hall & Hirson LLP, New York City (Christopher M. Houlihan of counsel), for Glens Falls National Bank and Trust Company, respondent.

      McNamee, Lochner, Titus & Williams, P.C., Albany (G. Kim-ball Williams of counsel), for Banknorth, N.A., respondent.
   OPINION OF THE COURT

Chief Judge Lippman.

We hold that Surrogate’s Court Procedure Act (SCPA) § 2110 grants the trial court discretion to allocate responsibility for payment of a fiduciary’s attorney’s fees for which the estate is obligated to pay—either from the estate as a whole or from shares of individual estate beneficiaries. In so doing, we overrule our holding in Matter of Dillon (28 NY2d 597 [1971]).

We consequently modify the order of the Appellate Division affirming the order of the Surrogate and remit to the Surrogate’s Court for de novo consideration of allocation of the trustees’ counsel fees.

I

This dispute developed out of a joint trial concerning intermediate accountings of two trusts. The first proceeding involved a testamentary trust created by Charlotte P Hyde (Hyde Trust). At the outset of the trust accountings in 2001, Hyde’s grandchildren, Mary Renz and her brother Louis H. Whitney, were the two life income beneficiaries of two equal shares of the Hyde Trust. Mary Renz’s three children (Renz Children) and Louis H. Whitney’s two children (Whitney Children) each possessed a presumptive one-fifth remainder interest in both the Mary Renz Share and the Louis H. Whitney Share that would vest upon the death of Mary Renz and Louis H. Whitney, respectively. Upon Louis H. Whitney’s death in January 2008, the Renz Children and the Whitney Children each received a one-fifth interest in the principal of the Louis H. Whitney Share of the Hyde Trust.

The second proceeding concerned an inter vivos trust created by Nell Pruyn Cunningham (Cunningham Trust). The Cunningham Trust term is measured by the lives of two of Cunningham’s grandnephews. In 2003, when the Cunningham accounting commenced, Mary Renz and Louis H. Whitney were each income beneficiaries and presumptive remaindermen of undivided one-sixth shares of the Cunningham Trust. The Mary Renz Share and the Louis H. Whitney Share were to pass to their living issue per stirpes upon the death of Mary Renz or Louis H. Whitney. Thus, upon Louis H. Whitney’s death, the two Whitney children became the income beneficiaries and presumptive remaindermen of their father’s undivided one-sixth share of the Cunningham Trust.

The two proceedings arose out of objections made to the Hyde trustees’ accountings by Louis H. Whitney and the Whitney Children (the Whitneys) and objections made to the Cunningham trustees’ accountings by Louis H. Whitney (and carried on by the Whitney Children and Louis H. Whitney’s executor after his death). The Whitneys sought to deny the Hyde trustees and the Cunningham trustees their commissions and surcharge them on the basis of their alleged failure to diversify the Trusts’ assets, among other objections.

Mary Renz and the Renz Children (the Renzes) did not participate in the Whitneys’ objections to trustee conduct in either the Hyde or the Cunningham Trust accounting proceedings. Neither did any of the other income beneficiaries or remainder-men of the Cunningham Trust, aside from Louis H. Whitney (and later his executor and the Whitney Children), interpose objections to the accounting of that Trust.

In advance of the joint trial on the Whitneys’ objections, the Renzes filed an acknowledgment, attesting that they were non-objectors; and thus, under the Pro Tanto Rule, they would not be entitled to share in any surcharges that might be imposed on the Hyde or Cunningham trustees. The Renzes simultaneously filed a cross motion seeking to require that all future trustees’ counsel fees be deducted exclusively from the objecting beneficiaries’ shares of the Hyde Trust and Cunningham Trust assets. The Renzes’ cross motion also sought to reserve the right to seek reallocation of and reimbursement of the Hyde Trust for all counsel fees that had already been advanced from the Renzes’ interests in the Hyde Trust.

Surrogate’s Court dismissed all of the Whitneys’ objections. As to the question of attorney’s fees, the court acknowledged that the Pro Tanto Rule had applied, which meant that the non-objecting beneficiaries had not stood to gain from the success the Whitneys’ objections might have had. Yet, the court stated it was constrained by Dillon to treat the trusts as single entities for purposes of trustee indemnification. Thus, regardless of potential unfairness to the Renz beneficiaries who abstained from the costly litigation, the Surrogate’s Court ordered that the trustees’ counsel fees be disbursed from the corpus of each trust generally. As a result, the Renzes’ shares of the Hyde and Cunningham Trusts were held responsible for more than $700,000 in attorney’s fees incurred by the trustees.

The Appellate Division affirmed, citing the construction of SCPA 2110 articulated in Dillon and finding no basis to distinguish this case (61 AD3d 1018 [3d Dept 2009]).

II

SCPA 2110 (2) provides: “The court may direct payment [for legal counsel rendered a fiduciary in connection with the performance of his or her fiduciary duties] from the estate generally or from the funds in the hands of the fiduciary belonging to any legatee, devisee, distributee or person interested.”

We first construed SCPA 2110 (2) in our 1971 memorandum decision, Matter of Dillon (28 NY2d 597 [1971]). In Dillon, a legatee under a testator’s will that had been admitted to probate challenged probate of a subsequent will that increased the number of legatees who would inherit and thereby reduced the original legatee’s portion of the testator’s estate. The Surrogate’s Court refused to vacate probate and charged the objecting legatee’s share of the estate with the executor’s legal fees expended in defending probate of the later will. The legatee then appealed, asserting that legal fees should be allocated to the whole estate generally, not to the legacy of an individual party. Ultimately, this Court held that “SCPA 2110 does not authorize payment for legal services rendered a party to be charged against the share of other individual parties. Accordingly, although appellant lost in this litigation, the legal fees of the executor as her adversary were not chargeable to her personally” (Dillon, 28 NY2d at 599).

Although the decision in Dillon offers little rationale for its conclusion, the statutory interpretation requiring the corpus of the estate generally, and not the shares of individual beneficiaries, to pay for fiduciaries’ counsel seems guided by the common-law American Rule. In brief, the American Rule requires all parties to a controversy—the victors and the vanquished—to pay their own “incidents of litigation” (Chapel v Mitchell, 84 NY2d 345, 349 [1994], quoting Hooper Assoc. v AGS Computers, 74 NY2d 487, 491 [1989]). Thus, the unsuccessful objectant, under the American Rule, was required to pay only its own attorney’s fee, not the executor’s attorney’s fees as well, which were paid for by the estate.

However, the Dillon decision, finding that SCPA 2110 required that the whole of the estate be charged with the executor’s counsel fees, in spite of the fact that actions of the objecting party did not effect a benefit to the estate and bordered on the vexatious, seems to have ignored the plain meaning of the statute and departed from the earlier jurisprudence of this Court.

In interpreting SCPA 2110, we bear in mind that it is “presumed that no unjust or unreasonable result was intended and the statute must be construed consonant with that presumption” (Zappone v Home Ins. Co., 55 NY2d 131, 137 [1982], citing Matter of Breen v New York Fire Dept. Pension Fund, 299 NY 8, 19 [1949] and McKinney’s Cons Laws of NY, Book 1, Statutes § 143). The Legislature’s intentions should normally be ascertained from a careful reading of the statute itself, especially where, as here, the language is unambiguous, and the legislative history reveals nothing that would counsel an alternative interpretation (see McKinney’s Cons Laws of NY, Book 1, Statutes § 92 [b]). On its face, the statute provides the trial court with discretion to disburse funds from any beneficiary’s share in the estate—and not exclusively from “the estate generally.”

In addition to departing from the plain meaning of the statute, Dillon did not focus on the considerations of fairness that guided Matter of Ungrich (201 NY 415 [1911]) and its progeny (e.g. Matter of Garvin, 256 NY 518 [1931]; Matter of Bishop, 277 App Div 108 [1st Dept 1950]; see also Matter of Burns, 126 AD2d 809 [3d Dept 1987]). In Ungrich, the plaintiff, a life tenant under a testamentary trust, brought an action for a trust accounting and to remove the trustees for alleged misconduct. The Surrogate’s Court there had dismissed the objectant’s challenges. Regarding the question of attorney’s fees, we determined as a matter of common law, prior to any statute on the subject, that the court should have discretion to disburse fees from the estate generally or from individual shares, depending on the circumstances of each case. We stated that trustees should have “an opportunity to prove their expenses and the circumstances under which they were incurred,” and at that point, “it would be for the court to determine on the facts of the case what part, if any, of such expenditures should be allowed to the [trustees] and charged against the life tenant and what part against the corpus of the estate” (Ungrich, 201 NY at 420).

Because we find that this construction is more faithful to the statute, our precedents prior to Dillon, and fairness, we choose to restore the plain meaning of SCPA 2110 (2): to place discretion in the hands of the trial courts to allocate expenses when ordering that fiduciaries be indemnified by an estate for attorney’s fees. The trial court’s discretion extends to the timing and structure of deducting funds against the present and future interests of the beneficiaries.

In cases where a fiduciary is to be granted counsel fees under SCPA 2110 (2), the Surrogate’s Court should undertake a multi-factored assessment of the sources from which the fees are to be paid. These factors, none of which should be determinative, may include: (1) whether the objecting beneficiary acted solely in his or her own interest or in the common interest of the estate; (2) the possible benefits to individual

beneficiaries from the outcome of the underlying proceeding; (3) the extent of-an individual beneficiary’s participation in the proceeding; (4) the good or bad faith of the objecting beneficiary; (5) whether there was justifiable doubt regarding the fiduciary’s conduct; (6) the portions of interest in the estate held by the non-objecting beneficiaries relative to the objecting beneficiaries; and (7) the future interests that could be affected by reallocation of fees to individual beneficiaries instead of to the corpus of the estate generally (see e.g. Matter of Greatsinger, 67 NY2d 177, 183-184 [1986] [providing factors to guide courts in discretionary allocation of attorney’s fees among multiple trusts in estate litigation]). Inasmuch as Surrogate’s Court never exercised its discretion, we remit to allow it the opportunity to do so.

Accordingly, the order of the Appellate Division should be modified, with costs to appellants, by remitting to Surrogate’s Court for further proceedings in accordance with the opinion herein and, as so modified, affirmed.

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

Order modified, etc.

      . Following Louis H. Whitney’s death, his widow and executor, respondent Carol J. Whitney, was substituted for him in both proceedings by order entered in April 2008. The Whitney Children were simultaneously joined as respondents in the second proceeding.

      . The court-made Pro Tanto Rule dictates that beneficiaries who did not file objections to a fiduciary’s conduct are not entitled to share in the surcharge that accrues to the estate or trust when other beneficiaries file successful objections. The rule sought to prevent non-objecting beneficiaries from being rewarded for their quiescence while their co-beneficiaries defended the estate assets (see Matter of Garvin, 256 NY 518 [1931]).

      . The present SCPA 2110 was enacted in 1966 as part of a recodification of the Surrogate’s Court Act. The original Surrogate’s Court Act § 231-a, adopted in 1923, stated in relevant part, “The surrogate may direct payment therefor from the estate generally or from the funds in the hands of the representative belonging to any legatee, devisee, distributee or person interested therein.” (L 1923, ch 526.) SCPA 2110, like Surrogate’s Court Act § 231-a before it, provides for compensation out of estate funds for a fiduciary that accrues counsel fees in the course of fulfilling its fiduciary duties to the estate. Although the fiduciary conducts the litigation and may have all the hallmarks of a party to a suit (especially when the fiduciary is defending itself in a surcharge proceeding), the estate is ordinarily obligated to indemnify the fiduciary for attorney’s and litigation fees (see e.g. Wetmore v Parker, 52 NY 450 [1873]; cfi Matter of Wadsworth, 275 NY 590 [1937]). The rationale is that the actions of fiduciaries, absent misconduct, are undertaken to benefit the estate, and the estate should therefore be charged with the fiduciaries’ costs.

      . This holding does not involve or affect SCPA 2301 (4), which provides for costs and allowances that may be made payable by any party personally.

      . This holding does not involve or affect the Surrogate’s discretion to make the underlying determination of whether or not the fiduciary is entitled to charge its counsel fees to the estate, or whether or not the amount of counsel fees is reasonable. In assessing the reasonableness of a fee award, the Surrogate should consider such factors as the extent of services provided, the amount of time spent on the matter, the level of sophistication required, and the size of the estate relative to the amount of fees.