90 N.Y.2d 725 (1997)

When a statutory amendment clarifies existing law and is designed to remedy a controversy, it should be applied retroactively to achieve its intended purpose, especially when the language and legislative history support such application.

Summary

This case concerns whether an amendment to New York Banking Law § 100-c (3), which allows common trust fund trustees to charge the fund for mutual fund management fees, should be applied retroactively. OnBank & Trust Co., trustee of two common trust funds, invested a portion of the funds in mutual funds. The guardians ad litem for the beneficiaries objected, arguing that this subjected the funds to double management fees in violation of Banking Law § 100-c (3). The Court of Appeals held that the amendment should be applied retroactively, reversing the lower court’s decision and allowing the trustee to charge the common trust fund for the mutual fund management fees. The Court reasoned that the amendment clarified existing law and was intended to remedy a controversy.

Facts

OnBank & Trust Company, as trustee, invested approximately 4% of its common trust fund assets in mutual funds. The mutual fund management fees during the accounting period totaled approximately $50,000. The guardians ad litem for the beneficiaries of the trust objected to the accounting, arguing that the investment in mutual funds resulted in a double layer of management fees: one paid to the trustee and another to the mutual fund managers.

Procedural History

The Surrogate’s Court initially held that while the investment in mutual funds was not an improper delegation, the trustee was required to absorb the mutual fund management fees. The Appellate Division agreed that investing in mutual funds was proper, but a majority affirmed the Surrogate’s decision that the trustee should be surcharged for the mutual fund management fees. The Court of Appeals granted leave to appeal to resolve the surcharge issue.

Issue(s)

Whether the amendment to Banking Law § 100-c (3), which permits a trust company to charge common trust funds for the fees and expenses of mutual funds, should be applied retroactively to the accounting period in question.

Holding

Yes, because the Legislature intended the amendment to clarify existing law and remedy a controversy, and its language and legislative history support retroactive application.

Court’s Reasoning

The Court of Appeals determined that the amendment to Banking Law § 100-c (3) should be applied retroactively based on the language of the amendment and its legislative history. The Court noted that the amendment’s reference to EPTL 11-2.2, which applied to investments made before January 1, 1995, would be rendered meaningless if the amendment were applied only prospectively. The court stated, “If Banking Law § 100-c (3) were prospective only, there would have been no need for reference to EPTL 11-2.2 and that portion of the statute would be meaningless.” The Court also considered the legislative history, including statements by the amendment’s sponsor, Senator Farley, who indicated that the amendment was intended to clarify that trustees could pass along the costs of mutual fund management to the common trust funds and that it “is the legislative intent that the trustees thereof should not be subject to liability for prudent investment in mutual funds whether made in the past or the future”. The Court reasoned that the amendment’s remedial purpose would be undermined if it were applied only prospectively. The court emphasized that while there is a general rule against retroactive application of statutes, the principle does not apply when the legislative goal indicates otherwise. The Court stated, “the reach of the statute ultimately becomes a matter of judgment made upon review of the legislative goal”. There were no dissenting or concurring opinions.