Are the staff (not just trustees) of New York's Interest on Lawyer Account Fund entitled to state-funded defense and indemnification under Public Officers Law § 17?

Plain-English summary

New York's Interest on Lawyer Account Fund (IOLA) channels interest earned on attorney trust accounts into grants for civil legal services. State Finance Law § 97-v(2)(c) says the IOLA Fund's trustees "shall be considered employees of the state for purposes of section seventeen of the public officers law." The statute is silent about the trustees' staff. Public Officers Law § 17 is the State's defense-and-indemnification statute (the State pays defense costs and indemnifies state employees for acts within the scope of employment); § 18 is the parallel statute for non-State public entities (the entity pays at its own expense). The IOLA General Counsel asked which statute covered IOLA staff: § 17 (state-paid) or § 18 (IOLA-paid).

Attorney General Eliot Spitzer's office concluded § 17 applied. The textual canon expressio unius est exclusio alterius would suggest § 17 covers only the trustees expressly named; but the canon cannot override clear legislative intent, and several factors pointed against applying it here. First, the IOLA Fund operates with no police, fire, or other independent infrastructure; the Legislature treats it as a fund "of the state" in the Comptroller's custody. Second, § 17 and § 18 are entity-level statutes; they cover all of an entity's personnel or none of them. Splitting trustees from staff would be unusual. Third, the only comparable statutory split (Long Island Power Authority) was a deliberate response to LIPA's unique situation; here, no such circumstances exist. Fourth, the 10% cap on personnel and administrative costs in State Finance Law § 97-v(3)(e) signals the Legislature's intent to preserve IOLA's grant monies for civil legal services, not divert them to defense costs. Fifth, IOLA staff participate in the state retirement system, receive state benefits, and are paid by State of New York checks, all standard indicia of state employment for § 17 purposes.

On who pays, the AG concluded general state-budget appropriations cover § 17 indemnification costs, with limited exceptions described in Budget Bulletin B-1129 (such as back-pay awards and Equal Access to Justice Act fees, which an agency would still cover from its own funds). The IOLA trust monies are protected from indemnification draws.

Currency note

This opinion was issued in 2004. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Public Officers Law §§ 17 and 18 have been amended in detail since 2004. The IOLA enabling statute and budget appropriations practices have continued to evolve. A current general counsel facing a similar question should review the current statutory text, the current Budget Bulletin, and any subsequent AG opinions.

Common questions

Q: What is Public Officers Law § 17?
A: The State's defense-and-indemnification statute for state employees. When a state employee is sued for acts within the scope of employment, the State (typically through the Attorney General) defends the employee and indemnifies the employee against judgments or settlements. State budget appropriations generally cover the costs.

Q: How is § 18 different?
A: Section 18 lets non-state public entities (commissions, authorities, agencies) provide defense and indemnification to their own employees at their own expense. The statute applies only when § 17 does not.

Q: What is the expressio unius canon?
A: A statutory construction principle that says when a law expressly applies to one group, it implicitly excludes others not named. The AG declined to apply that canon mechanically here; the Court of Appeals in Crane Neck Ass'n (1984) said the canon "must not be utilized to defeat the purpose of an enactment or to override the manifest legislative intent."

Q: Why does the 10% cap matter?
A: State Finance Law § 97-v(3)(e) generally caps IOLA's personnel-and-administrative spending at 10% of available funds. Making IOLA pay for its own staff defense and indemnification would chip into that cap, reducing the funds available for legal services grants. The cap supports the AG's reading that § 17 covers staff.

Q: Did the AG find any case where the Legislature did split trustees from staff?
A: One. Public Authorities Law § 1020-bb (LIPA) put trustees and officers under § 17 temporarily but covered staff under § 18. The legislative history described LIPA's situation as unique, due to insurance unavailability and controversy. No comparable factors apply to IOLA.

Q: Who pays if a court awards back pay in a § 17 case?
A: Budget Bulletin B-1129 lists specific categories the State does not cover from general appropriations, including back-pay awards in any court and certain Equal Access to Justice Act counsel fees. Those costs come from the agency's own funds.

Background and statutory framework

Public Officers Law § 17 protects state officers and employees by promising the State will defend and indemnify them for acts within the scope of their public employment. Section 17 covers entities and personnel "in service of the state." Public Officers Law § 18 was enacted later to fill a gap, allowing non-state public entities (authorities, commissions, public benefit corporations) to provide similar protection to their own employees at the entity's expense.

The IOLA Fund (State Finance Law § 97-v, Judiciary Law § 497) is structured as a fiduciary fund of the State, in the Comptroller's custody. Fifteen trustees, appointed by the Governor, administer the fund without compensation. The statute expressly puts trustees under § 17 but does not address staff.

The AG read the statute structurally. Section 17's definition of "employee" (Public Officers Law § 17(1)(a)) reaches "any person holding a position by election, appointment or employment in the service of the state . . . whether or not compensated." Many entities receive express § 17 designations either in § 17 itself or in their own enabling statutes; the IOLA statute is one. The express designation of trustees did not, in the AG's view, signal an intent to exclude staff, because (a) the practice for entities authorized to hire staff is to cover both officers and employees, (b) the only deviation (LIPA) was explained on unique grounds, and (c) splitting indemnity coverage would produce unified defense in adverse-interest cases but bifurcated payment, an unusual and inefficient outcome.

On the funding question, the AG explained that § 17 costs are normally covered from general state appropriations. Some categories (back pay, EAJA fees) are agency-funded under longstanding Budget Bulletin B-1129. But the IOLA trust monies, which are deposited with the Comptroller and appropriated annually by the Legislature for grant purposes, do not pay § 17 indemnification.

Citations and references

Statutes:

• Judiciary Law §§ 468, 497(4)(a)
• Mental Hygiene Law §§ 7.05, 19.05, 19.42
• Public Authorities Law § 1020-bb
• Public Officers Law §§ 17, 18
• State Finance Law §§ 97-v, 70(1)
• Statutes §§ 96, 111, 143, 145, 240
• Transportation Law § 402
• L. 1987, ch. 334, § 3 (LIPA defense and indemnification)
• L. 1983, ch. 659, § 1 (IOLA enabling act)

Cases:

• Crane Neck Ass'n v. New York City/Long Island County Servs. Group, 61 N.Y.2d 154 (1984)
• Matter of John P. v. Whalen, 54 N.Y.2d 89 (1981)
• Schettino v. Alter, 134 Misc. 2d 254 (Sup. Ct. 1986), rev'd in part, 140 A.D.2d 600 (2d Dep't 1988)

Prior AG opinions:

• Op. Att'y Gen. No. 99-F4; Op. Att'y Gen. No. 97-F1; Op. Att'y Gen. No. 88-F7; Op. Att'y Gen. No. 98-F11

Source

• Landing page: https://ag.ny.gov/libraries-documents/opinions/opinions-year
• Original PDF: https://ag.ny.gov/sites/default/files/opinions/2004-F6_pw.pdf

Original opinion text

JUDICIARY LAW §§ 468, 497(4)(a); MENTAL HYGIENE LAW §§ 7.05, 19.05, 19.42; PUBLIC AUTHORITIES LAW § 1020-bb; PUBLIC OFFICERS LAW §§ 17, 18; STATE FINANCE LAW §§ 97-v, 70(1); STATUTES §§ 96, 111, 143, 145, 240; TRANSPORTATION LAW § 402; L. 1987, CH. 334, § 3; L. 1983, CH. 659, § 1.

Staff of the Interest on Lawyer Account Fund ("IOLA") are eligible for state defense and indemnification under Public Officers Law § 17. State budget appropriations will cover indemnification costs to the same extent as other covered employees.

November 3, 2004

Stephen G. Brooks, Esq.
General Counsel
Interest on Lawyer Account Fund
11 East 44th Street
New York, New York 10017

Formal Opinion No. 2004-F6

Dear Mr. Brooks:

You have requested our opinion regarding whether employees of the Interest on Lawyer Account Fund of the State of New York ("IOLA Fund" or "the Fund") are entitled to defense and indemnification pursuant to Public Officers Law § 17. Your question arises because members of the Board of Trustees who administer the Fund are covered by Public Officers Law § 17 pursuant to specific statutory directive, while the relevant statutes are silent with respect to coverage of Fund staff. You also ask whether, if Public Officers Law § 17 covers IOLA Fund employees, general state funds or the IOLA Fund's own revenues finance any indemnification costs.

We conclude that employees of the IOLA Fund are eligible for state-provided defense and indemnification for acts and omissions within the scope of their employment, subject to the limitations and procedural requirements set forth in Public Officers Law §§ 17(3) and (4), and that general state funds would cover indemnification costs, except in specified circumstances.

STATUTORY BACKGROUND

A. IOLA Fund Framework

The Legislature created the IOLA Fund "to provide funding for providers of civil legal services in order to ensure effective access to the judicial system for all citizens of the state to the extent practicable within the means available for that purpose." L. 1983, ch. 659, § 1. Pursuant to the IOLA legislation, lawyers are required to place qualified funds in interest-bearing IOLA accounts, and the Fund receives interest earned on those accounts. See Judiciary Law § 497(4)(a). Consistent with its statutory purpose, the IOLA Fund distributes its funds "as grants and contracts to not-for-profit tax-exempt entities for the purpose of delivering civil legal services and for purposes related to the improvement of the administration of justice." State Finance Law § 97-v(3)(a).

The Legislature has established the IOLA Fund as a fiduciary fund, one of seven categories of "funds of the state," in the custody of the State Comptroller. Id. §§ 97-v(1), 70(1). The Fund is administered consistently with its statutory objectives by a board of fifteen trustees, who are appointed by the Governor according to criteria and procedures set forth in State Finance Law § 97-v(2). IOLA Fund trustees serve without compensation, but may be reimbursed for actual and necessary expenses. Id. § 97-v(2)(b).

The board of trustees, in turn, is authorized to "employ . . . such personnel as it may deem necessary for the performance of its functions," but generally may expend no more than ten percent of the available funds in any fiscal year on personnel and administrative costs. Id. § 97-v(3)(e). Pursuant to the IOLA Fund's enabling act, members of the board of trustees "shall be considered employees of the state for purposes of section seventeen of the public officers law." State Finance Law § 97-v(2)(c). The statute is silent with respect to the status, for section 17 purposes, of IOLA Fund personnel hired by the board of trustees.

B. Public Officers Law §§ 17 and 18

Section 17 of the Public Officers Law provides that the State will defend and indemnify its employees in "any civil action or proceeding in any state or federal court arising out of any alleged act or omission" occurring while the employee was acting within the scope of his state public employment or duties. Public Officers Law § 17(2),(3). Section 17's definition of "employee" does not distinguish among state officials, board members and staff for purposes of coverage. The statute defines "employee" as "any person holding a position by election, appointment or employment in the service of the state . . . whether or not compensated, or a volunteer expressly authorized to participate in a state-sponsored volunteer program, but shall not include an independent contractor." Id. § 17(1)(a).

A public entity whose employees do not qualify for section 17 coverage may elect to defend and indemnify those employees at the entity's own expense pursuant to Public Officers Law § 18. For purposes of defining the scope of coverage, section 18 focuses on the entity. Thus, it extends defense and indemnification to all members, officers and staff of a covered entity. See Public Officers Law § 18(1)(b). Section 18 defines "public entity" to include "a public authority, commission, agency or public benefit corporation, . . . [or] any other separate corporate instrumentality or unit of government," but states expressly that "public entity" does not include "the state of New York or any other public entity the officers and employees of which are covered by [Public Officers Law § 17]." Id. § 18(1)(a).

ANALYSIS

A. IOLA Staff Members are Entitled to State Defense and Indemnification

In the absence of an express statutory designation, the question of whether the employees of a public board are entitled to state defense and indemnification ordinarily involves a determination of whether the employing entity should be considered part of the State (in which case defense and indemnification would be provided pursuant to Public Officers Law § 17) or whether it operates independently of the State and should be considered a non-state public entity (thereby allowing coverage under Public Officers Law § 18). The status of an employee within the organization (as a member, officer or employee) is not relevant to that inquiry because the general provisions defining the scope of sections 17 and 18 include all personnel "in service of the state" (section 17) or all personnel of a covered "public entity" (section 18).

As noted above, however, here the IOLA statute (which anticipates that the IOLA Fund trustees will hire staff) specifically designates the Fund trustees as "employees" for purposes of Public Officers Law § 17, but does not address the status of Fund staff members or indicate that the IOLA Fund, as an entity, falls under section 17. The question presented here is therefore whether the express inclusion of the IOLA trustees requires different treatment of the IOLA staff members for defense and indemnification purposes. Typically, under the statutory construction canon expressio unius est exclusio alterius, where a law expressly applies to one group of people, it is interpreted not to apply to other groups not expressly named. Applying that canon here would point toward excluding IOLA Fund staff from defense and indemnification as "employees" under Public Officers Law § 17.

But the canon "must not be utilized to defeat the purpose of an enactment or to override the manifest legislative intent." Crane Neck Ass'n v. New York City/Long Island County Servs. Group, 61 N.Y.2d 154, 166 (1984). Instead, the literal language of a statute must yield as necessary to effectuate legislative intent.

Here, several factors convince us that the specific reference to section 17 coverage of IOLA trustees should not be interpreted as evidence of the Legislature's intent to exclude IOLA employees from coverage. There is no evidence in the legislative history that the Legislature affirmatively determined that staff members should not be considered employees for purposes of Public Officers Law § 17, or that it even contemplated the subject at all. Indeed, at the time the legislation was passed, there was no Fund staff and no understanding apparent from the legislative history regarding what personnel (beyond the trustees) would be needed.

Additionally, the general provisions defining the scope of sections 17 and 18 contemplate coverage of particular entities rather than distinguishing among categories of an entity's personnel. Where the Legislature specifically designates a public entity for section 17 coverage and the entity's enabling act contemplates the hiring of staff, coverage is ordinarily extended to both officers and employees.

Our research indicates that the IOLA and Clients' Security Fund statutes are unique in their express extension of section 17 coverage to officers without addressing the status of contemplated employees. Similarly, we are aware of only one situation in which the Legislature has specified section 17 coverage for an entity's officers while providing for section 18 coverage for its employees. See Public Authorities Law § 1020-bb (Long Island Power Authority). However, that unusual defense and indemnification provision was a special legislative response to the unique needs of a particular entity.

Furthermore, the fact that the Legislature has prohibited the IOLA Board generally from spending more than ten percent of its available funds in any year on personnel and administrative costs, State Finance Law § 97-v(3)(e), weighs in favor of construing the statute to extend section 17 coverage to employees. This ten-percent cap demonstrates that the Legislature intended for the Fund to direct nearly all of its monies to providing legal services consistent with the Fund's purpose.

As set forth above, section 17 applies to one who is "employed" by a public entity and works "in the service of the state." Public Officers Law § 17(1)(a). Staff of the IOLA Fund assist in administering a fund of the State and implementing a state statutory program in pursuit of the legislative goal of improving the administration of justice within New York. Further, you have informed us that IOLA Fund staff participate in the state retirement system, receive full state medical and dental insurance, are subject to payroll withholding taxes, and are paid with State of New York checks, all of which are indicia of employee status for purposes of state defense and indemnification.

Accordingly, for all of the foregoing reasons, we are of the view that IOLA staff members, like the trustees, are entitled to state defense and indemnification pursuant to the terms of Public Officers Law § 17 for their Fund-related acts and omissions.

B. Source of Defense and Indemnification Funds

You also ask whether section 17 indemnification costs arising from the acts or omissions of IOLA Fund employees are covered by state funds or the IOLA Fund's own revenues. You note that interest from New York lawyers' IOLA trust accounts, rather than tax revenue, finances the IOLA Fund.

We find no statutory basis indicating that the IOLA Fund should be treated any differently than other agencies whose employees are covered under Public Officers Law § 17 simply because it is not taxpayer-funded. Generally, the payment of judgments or settlements in suits against state departments and agencies brought in the Court of Claims, and in suits against officers and employees indemnified pursuant to Public Officers Law § 17, come from appropriations of general state funds designated for these purposes. Budget Bulletin B-1129, issued by the Division of the Budget on October 27, 1992, describes other litigation costs the IOLA Fund would need to pay from its own funds, should it incur them. These include, for example, backpay awards in any court against the State or the IOLA Fund; monetary awards in any court, other than the Court of Claims, against the State or the IOLA Fund; and certain counsel fees and other litigation expenses awarded under the Equal Access to Justice Act.

CONCLUSION

In sum, we conclude that IOLA Fund staff members are eligible for state-provided defense and indemnification subject to the limitations and procedural requirements set forth in Public Officers Law § 17(3) and (4). Further, we conclude that state budget appropriations will cover section 17 indemnification costs, except under special circumstances set forth in Budget Bulletin B-1129.

Very truly yours,

ELIOT SPITZER
Attorney General