Helmsley-Spear, Inc. v. Winter

• Citation: 426 N.Y.S.2d 778,74 A.D.2d 195
• Decision Date: 17 April 1980
• Docket Number: HELMSLEY-SPEA,INC
• Court: New York Supreme Court Appellate Division
• Parties: , Plaintiff-Respondent, v. Frank WINTER, Defendant-Appellant, and Jess Kenduck, Spruce Stationery & Printing Corporation, Frank Rachel, R & R Printing Corporation, Summit Office Supply, Inc., and Howard Brown, Al Goldrich and Perce Snitzer, Individually and doing business as Consumers Supply Company, Defendants.

Page 778

426 N.Y.S.2d 778

74 A.D.2d 195

HELMSLEY-SPEAR, INC., Plaintiff-Respondent, v. Frank WINTER, Defendant-Appellant, and Jess Kenduck, Spruce Stationery & Printing Corporation,

Frank Rachel, R & R Printing Corporation, Summit Office

Supply, Inc., and Howard Brown, Al Goldrich and Perce

Snitzer, Individually and doing business as Consumers Supply

Company, Defendants.

Supreme Court, Appellate Division, First Department.

April 17, 1980.

Melvin Hirshowitz, New York City, of counsel (Hyman Bravin, New York City), for defendant-appellant.

Arthur N. Lambert, New York City, of counsel (William R. Mait and Michael Maillet New York City, with him on the brief; Hendler & Murray, New York City), for plaintiff-respondent.

Before FEIN, J. P., and SANDLER, SULLIVAN, SILVERMAN and CARRO, JJ.

SILVERMAN, Justice:

This is an appeal by defendant Winter and his wife from an order of the Supreme Court denying their motion to vacate an attachment with respect to defendant Winter's interest in the Helmsley-Spear, Inc. Employees' Profit Sharing Plan and Trust.

Defendant Winter had been an employee of plaintiff Helmsley-Spear, Inc. The complaint alleges that that while so employed he had engaged in a course of fraud, involving false invoices from alleged suppliers, misappropriations of checks, and kickbacks from suppliers, resulting in damages to plaintiff of $665,549. Winter was indicted with respect to some of these transactions, acquitted as to some, and convicted of grand larceny with respect to the theft of two checks totalling $8,584. That conviction has recently been affirmed by this Court (People v. Winter, A.D.2d, 424 N.Y.S.2d 806 (1st Dept. 1980). In the present action, partial summary judgment has been granted in plaintiff's favor with respect to the amounts involved in the transactions for which defendant Winter has been convicted, and the remainder of the case has not yet been determined.

On September 25, 1975, an order of attachment issued out of the Supreme Court in the amount sued for. That attachment was levied by the sheriff on the proceeds of the Trust (as well as other property). Thereupon, the Trust paid over to the sheriff pursuant to the attachment the sum of $20,924.59 "which represent the sole and complete interest of Frank Winter in the Helmsley-Spear, Inc. Employees' Profit Sharing Plan and Trust." Defendant Winter does not attack the validity of the original attachment order, but he and his wife have moved to vacate the attachment so far as applicable to the monies paid to the sheriff by the Trust on the ground that that money is exempt from the claims of creditors. In our view, this money is exempt, and, therefore, the motion to vacate the levy of the attachment with respect to these funds should have been granted.

Hadden v. Consolidated Edison Co., 34 N.Y.2d 88, 356 N.Y.S.2d 249, 312 N.E.2d 445, 45 N.Y.2d 466, 410 N.Y.S.2d 274, 382 N.E.2d 1136, involved a contention that the allegedly dishonest employee was not entitled to his pension benefit because his continued employment, and thus his pension, had been fraudulently and improperly obtained by misconduct and the concealment thereof. The present pleadings present no such issue. The Trust, as we have seen, paid the money to the sheriff as representing the interest of defendant Winter in the Trust. And, indeed, the levy of the attachment assumed that this money is property of defendant Winter available to satisfy the claims of his creditors.

Nor can the case be considered as if the levy were on money actually in possession of defendant Winter. The garnishees were the trustees of the Trust with respect to funds "held or controlled" by the trustees. CPLR § 5201(c) 2. The fact that, if once the funds were in Winter's hands they would theoretically be subject 100% to the claims of creditors, does not alter the exemption, if any, so long as the funds are held by the Trust. Otherwise there would be no meaning to the provisions of CPLR § 5205(d) 1 exempting from application to the satisfaction of a money judgment 90% of the payments from a trust, or CPLR § 5205(c) exempting property "while held in trust."

Coming then to the main question, whether defendant Winter's interest in the Trust, to the extent that it was valid, is subject to the claims of creditors, we find exemptions from such claims in the Employees Retirement Income Security Act of 1974 ("ERISA," 29 U.S.C. § 1001 et seq.), and in the terms of the Trust itself, and to the extent of 90% in our state statute, CPLR § 5205(d) 1.

The Appellate Division in the Second Department has recently held that vested benefits from a pension trust are not exempt from execution under ERISA but are exempt to the extent of 90% under the state statute. National Bank of North America v. International Brotherhood of Electrical Workers, 69 A.D.2d 679, 419 N.Y.S.2d 127. Justice Rabin dissented on the ground that in his view, the entire trust was exempt under ERISA. With due respect we agree with Justice Rabin.

ERISA provides in § 206(d) (29 U.S.C. § 1056(d)):

(d)(1) Each pension plan shall provide that benefits provided under the plan may not be assigned or alienated.

In general, it is only property which can be assigned or alienated that is subject to the claims of creditors. See e. g., CPLR § 5201(a).

The Internal Revenue Service has promulgated regulations pursuant to ERISA to the effect "that benefits provided under the plan may not be . . . assigned . . . alienated or subject to attachment, garnishment, levy, execution or other legal or equitable process." (1 FTR § 1.401(a)(13)(b)(1) (1980)). "It is well settled that the construction given statutes and regulations by the agency responsible for their administration, if not irrational or unreasonable, should be upheld." Matter of Howard v. Wyman, 28 N.Y.2d 434, 438, 322 N.Y.S.2d 683, 686, 271 N.E.2d 528, 531.

The Trust instrument itself provides:

SECTION 3.6. Inalienability of benefits. The right of any person to receive any payment from the trust fund becoming payable to him under the provisions of this Plan shall not be subject to alienation or assignment and . . . should such right be subjected to attachment, execution, garnishment, acquestration (sic) or other legal, equitable or other process, it shall ipso facto pass and be transferred to such one or more as may be appointed by the Committee from among the beneficiaries, if any, of the participant with respect to whom such right arises, and the spouse, blood relatives or dependents of such participant and in such shares and proportions as the Committee may appoint . . . .

Even if ERISA did not exempt these funds from the claims of creditors, our state statute would still exempt 90% of them. CPLR § 5205(c) exempts from application to the satisfaction of a money judgment "(a)ny property while held in trust for a judgment debtor, where the trust has been created by, or the fund so held in trust has proceeded from, a person other than the judgment debtor . . . ." This apparently applies to the principal of the Trust. See CPLR § 5205(d) 1. CPLR § 5205(d) 1 then declares to be exempt "ninety per cent of the income or other payments from a trust the principal of which is exempt under subdivision (c)," except as determined to be unnecessary for the reasonable requirements of the judgment debtor and his dependents. The Appellate Division, Second Department, in the National Bank of North America case, supra, 69 A.D.2d 679, 419 N.Y.S.2d 127 was unanimous in its view that at least this 90% was exempt.

It is argued that the statutory exemptions should not apply to the claims of tort creditors, and particularly to the claims of tort creditors who are settlors of the allegedly exempt trust. We see nothing in the statutes carving out such an exception. And we note "strong public policy against forfeiture of employee benefits manifested by the Employee Retirement Income Security Act of 1974 (ERISA) (U.S.Code, tit. 29, § 1001 et seq.)" Post v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 48 N.Y.2d 84, 88, 421 N.Y.S.2d 847, 849, 397 N.E.2d 358, 360.

We therefore think that defendant Winter's interest in the Trust was not subject to attachment on the claims here sued on.

However, we do not think that appellants are entitled to attorneys' fees. There is no claim that the order of attachment as such was invalid or improperly issued. The only claim is that this particular fund is not subject to the attachment.

The order of the Supreme Court, New York County, entered September 5, 1979, should be modified, on the law, to the extent that the levy of the attachment on the interest of defendant Winter in the Trust should be vacated, and the order should otherwise be affirmed, without costs.

Order, Supreme Court, New York County, entered on September 5, 1979, modified, on the law, to the extent that the levy of the attachment on the interest of defendant Winter in the Trust is vacated, and the order is otherwise affirmed, without costs and without disbursements.

All concur, except FEIN, J. P., and CARRO, J., who dissent in an opinion by FEIN, J. P.

FEIN, Justice Presiding, and CARRO, Justice, dissent in an opinion by FEIN, Justice Presiding.

During the course of defendant Winter's employment by plaintiff as an officer and administrator from 1958 to 1975, plaintiff-employer was making the sole contributions to a trust fund for its employee's pension, and Winter was allegedly stealing $665,549.40 from his employer.

Winter was indicted in September 1975 on 22 counts of conspiracy to defraud plaintiff. In August 1976 he was found guilty on two counts of grand larceny in the second degree, based on acts of fraud in 1973 and 1975, netting $8,584.36. Plaintiff commenced this civil action in September 1975, and obtained a pre-judgment order of attachment. Partial enforcement of the attachment was achieved by levy against defendant's Westchester home. A foreclosure sale yielded some $53,000. Approximately half was...