USA – NEW YORK Trends and Developments Contributed by: Sam Lieberman, Ben Hutman and Claiborne Hane, Sadis & Goldberg LLP
express written trust ( In re the Bank of New York Mel- lon , 2025 WL 1434057, at *2–3 (N.Y. Sup. Ct. May 19, 2025)) (quoting BlackRock Fin. Mgt. Inc. v Segregated Account of Ambac Assur. Corp ., 673 F3d 169, 174 (2d Cir 2012)). In recent years, Article 77 Proceedings have been used to resolve “billion[s]” of dollars in dis- putes over the administration of hundreds of RMBS, which are created as trusts under New York law ( Wells Fargo Bank v Aegon USA Inv. Mgmt., LLC , 198 A.D.3d 156, 60 (Dept. 2021)). As most commercial mortgage- backed securities (CMBS) and many other structured financial products – eg, collateralised loan obligations (CLOs) – are also created as New York trusts, the use of Article 77 proceedings is expected to increase in the coming years. An Article 77 proceeding is a “special proceeding” that is brought to “determine a matter relating to any express trust” under New York law, with minor exceptions (eg, a voting trust or a creditors’ trust) (N.Y. CPLR Section 7701). In general, Article 77 proceed- ings are “used by trustees to obtain instruction as to whether a future course of conduct is proper, and by trustees (and beneficiaries) to obtain interpretations of the meaning of trust documents” ( Bank of New York Mellon , 2025 WL 1434057, at *2–3 (quoting Black- Rock , 673 F3d at 174)). Article 77 proceedings can also be used for “the judicial settlement of a trustee’s accounts; an accounting; the modification of a trust; the compelling of payment to trust beneficiaries; a determination of trust revocation; and the removal of a trustee (Blackrock, 673 F.3d at 175 n.3 (citing 14 Jack B. Weinstein, et al., New York Civil Practice: CPLR paragraph 7701.05 (2011)). The purpose of an Article 77 proceeding is to ”avoid undue risk of liability” to the trustee, and undue risk of harm to beneficiaries, “if there is reasonable doubt about the powers or duties of the trusteeship or about the proper interpretation of the trust provisions” (Restatement (Third) of Trusts Section 71 (2007)). An Article 77 proceeding is commenced by a “veri- fied” “petition by a trustee”, which is filed with either a notice of petition or order to show cause, which in turn sets forth a deadline for other parties to appear and response (N.Y. CPLR Section 7702). Trust beneficiar- ies can often cause the trustee to bring an Article 77 proceeding by identifying an issue that could cause
the trustee liability, or by exploiting trust provisions that require the trustee to take action upon the direc- tion of beneficiaries holding a significant interest in the trust. Any trust beneficiary or party directly “inter- ested” in a trust has a right to appear in response to the petition (id) (Section 7703). Trust “creditor[s]”, parties “with an indirect economic interest in a trust”, and parties that expect “incidental benefits” from a trust generally do not have a right to appear in an Article 77 proceeding ( In re Wells Fargo Bank , 2018 WL 3743897, at **2, 5 (N.Y. Sup. Ct. Aug. 07, 2018)) (holders of CDO and re-real estate mortgage invest- ment conduit (REMIC) trusts did not have standing to appear in Article 77 proceedings for trusts held by the CDO and re-REMICs). A party appearing in response to an Article 77 pro- ceeding petition may file an “answer” or a “motion to dismiss the petition” (N.Y. C.P.L.R. Section 404). In practice, a respondent is unlikely to move to dismiss an Article 77 petition, because the respondent is just as interested as the trustee in getting judicial instruc- tion on the point(s) raised by the petition. So instead, a respondent is more likely to raise any objections or legal arguments in an answer to the petition. Discovery in an Article 77 proceeding is subject to the same disclosure requirements as a typical civil case, under “article thirty-one” of the CPLR, which pro- vided for document requests, interrogatories, notices to admit and depositions (N.Y. CPLR Section 7701). This includes the “right to examine the trustees, under oath” at a deposition (id). The parties may move for summary judgment, and “the same summary judg- ment standards that apply to actions” also “apply to special proceedings” under CPLR Article 77 ( Matter of Bank of New York Mellon , 202 A.D.3d 465, 466–67 (1st Dept. 2022)) (citing People v D.B.M. Intl. Photo Corp. , 135 A.D.2d 353, 354 (1st Dept. 1987)): N.Y. CPLR Section 409 (b) (“Summary determination”). If there are any “triable issues of fact” raised that pre- clude summary judgment, “they shall be tried forth- with and the court shall make a final determination” (id) (Section 410). In practice, however, most Article 77 proceedings are resolved based on briefing – with relatively modest dis- covery. This is because the costs and attorneys’ fees
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