First Department Reversal Vindicates New York State Comptroller's Audit Power
March 6, 2007
On March 6, the Appellate Division, First Department, reversed a decision of the state trial court and vindicated the audit power of Cleary Gottlieb client the Office of the State Comptroller.
The dispute concerned whether the Comptroller’s audit powers apply to the Superintendent of Insurance when acting as the statutory liquidator or rehabilitator of distressed insurance companies, which is a function assigned exclusively to the Superintendent by statute. The Superintendent argued that he was acting as a private court-appointed receiver and not as a state officer, and so was not accountable to the Comptroller in that capacity. Looking to a 1938 amendment to the New York State Constitution and its effectuating legislation, the First Department rejected this reasoning, and agreed with our position that when “acting as an officer of the court [in liquidation proceedings], the Superintendent does not lose his status as an officer of the state.” The court further explained the Comptroller’s audit was necessary to assure the integrity of the Superintendent’s operation and management of distressed insurance companies, noting that ”[a]cceptance of the Superintendent’s argument would permit the [Superintendent] to avoid any oversight of the manner in which it handles the assets of an insolvent insurer, which is inconsistent with [state law.]” The court also upheld the Comptroller’s right to audit the Superintendent’s reports of unclaimed funds under the Abandoned Property Law.
The decision is stayed pending appeal to the New York Court of Appeals.