Attorney General: The Honorable John P. Burke, Department of Banking, 2002-032 Formal Opinion, Attorney General of Connecticut

Attorney General's Opinion

Attorney General, Richard Blumenthal

September 19, 2002

The Honorable John P. Burke
State of Connecticut
Department of Banking
260 Constitution Plaza
Hartford, CT 06103-1800

Dear Commissioner Burke:

1 I am writing in response to your request for a formal opinion regarding the protection of public deposits pursuant to Connecticut General Statutes, §36a-330 et seq. The issue presented is whether funds belonging to the City of West Haven ($454,761) that were deposited into a Connecticut Interest on Lawyers' Trust Account ("IOLTA") constitute a public deposit within the meaning of sections 36a-330 et seq. of the Connecticut General Statutes. Based upon the following discussion, it is our opinion that the $454,761 deposit is a "public deposit" as defined in Conn. Gen. Stat. §36a-330(4) that is entitled to the statutory protections in Conn. Gen. Stat. § 36a-330 et seq.


I. Factual Background

The $454,761 deposit, which is the subject of your inquiry, consisted of municipal taxpayer moneys that were to be used by the City for the purchase of open space and conservation land. The law firm of Yolen & Perzin, LLC has represented the City of West Haven ("City") on numerous real estate and litigation matters over the past five years. The City retained the firm of Yolen & Perzin to represent it with regard to the City's acquisition of certain real property to be used as open space and conservation land. The City delivered a check to the law firm to be used for the purchase of this real property. The check was drawn on the City's account at First Union Bank in the amount of $454,761.18, dated May 16, 2002, and was made payable to "Yolen & Perzin, LLC, Trustee." Attorney Timothy Yolen deposited the check into the firm's client fund account at the Connecticut Bank of Commerce ("Bank").1 Attorney Yolen has stated to this Office that he made clear to the vice president of the Bank that the deposit consisted of municipal funds. A copy of the canceled check indicates that the check was processed on May 20, 2002. On June 26, 2002, the Connecticut Bank of Commerce was closed by the Connecticut Department of Banking and the Federal Deposit Insurance Corporation (&quo;FDIC") was appointed receiver of the Bank. The real estate closing to complete the City's purchase of the land and transfer title of the land was originally scheduled during the week prior to the Bank's closing. However, the real estate closing was postponed until June 28, 2002, just two days following the Bank's closing. Had the real estate closing gone forward prior to the closing of the Bank, the City's funds would have been withdrawn and delivered to the seller of the property.

II. Connecticut Law Concerning the Protection of Public Deposits

The Connecticut General Assembly has taken specific action to protect state and municipal funds deposited in banking institutions located in Connecticut. "All public deposits in qualified public depositories shall be protected against loss, as provided in sections 36a-330 to 36a-338, inclusive." Conn. Gen. Stat. § 36a-331. "Public deposit" is defined as:

(A) moneys of this state or of any governmental subdivision of this state or any commission, committee, board or officer thereof, any housing authority or any court of this state and (B) moneys held by the Judicial Department in a fiduciary capacity.

Conn. Gen. Stat. §36a-330(4). In order to secure public deposits, every qualified public depository must maintain and segregate from its other assets collateral based on percentages specifically provided in the statute. Conn. Gen. Stat. §36a-333. A "qualified public depository" is "a bank, Connecticut credit union, federal credit union or an out-of-state bank that maintains in this state a branch, as defined in section 36a-410, which receives or holds public deposits and segregates eligible collateral for public deposits as described in section 36a-333." Conn. Gen. Stat. §36a-330(5).

The Connecticut banking statutes define "deposit" as "funds deposited with a depository" (Conn. Gen. Stat. §36a-2(18)) and "public deposit" as "moneys of this state or of any governmental subdivision of this state." Conn. Gen. Stat. 36a-330(4). In this case, the Connecticut Bank of Commerce was a qualified public depository, and the $454,761 deposited in the Bank were moneys of a governmental subdivision of this state. The deposit of these public moneys constitutes a "public deposit" irrespective of the fact that the moneys were placed in the law firm's client fund account. The statutes protect "deposits" rather than accounts. There is no statutory requirement that the City's moneys had to be deposited into an account in the City's name in order to qualify as a "public deposit."2

The legislative history shows that the public deposit statutes were originally enacted in 1967 to protect state and municipal funds that are deposited in a closed or failed depository bank. During the presentation of the original statute protecting public deposits, Senator Caldwell expressed that the bill was designed to provide security for state, town, city, village, and county deposits. Senate Proc., 1967, Vol. 12 part 4, p. 1690. During the presentation of the bill in the House, then House Representative Weicker stated, "This is excellent legislation, it …in fact guarantees that if any disaster, which we have not had, that would occur to a bank in the state, from having as support of the disaster any public funds deposited by any political sub-division." House Proc., 1967, Vol. 12 part 9, p. 168. In 1991, the legislature updated the collateral requirements to increase security and better protect public deposits. While introducing the new collateral requirements Senator Casey stated,

We, as individuals, are protected by the Federal Deposit Insurance Corporation up to $100,000 each. But as taxpayers when the money comes to the Treasury of the State of Connecticut or the Treasury of a city or town where taxpayers send their taxes there is no such protection as an accumulated amount. But with this legislation we will be changing that and the amount of protection will be based, as I said, on the strength of an institution and the amount will be varied from 10% for the strongest institutions to 120% for the weakest and so there is going to be a sliding scale based on strength to put the risk, the cost of risk at the point of the institution and not with the taxpayers as we have right now.

Thus, both the plain wording of the statutes and the clear legislative intent to protect taxpayer funds plainly demonstrate that the $454,761 deposit, consisting of funds belonging to the City of West Haven, is a "public deposit" requiring protection from loss under the Connecticut General Statutes. "Loss" is defined as the "issuance of an order of supervisory authority restraining a qualified public depository from making payments of deposit liabilities or the appointment of a receiver for a qualified public depository." Conn. Gen. Stat. §36a-330(3). A loss has occurred in this case where the Bank has been closed and the FDIC has been appointed receiver. Section 36a-334 sets forth the procedure to be followed when a loss occurs.3

Also worthy of noting is that the FDIC wrote a letter to the Connecticut Department of Banking, dated July 17, 2002, that lists the sum of $454,761 among the public fund accounts that may "qualify for protection under the State law."

Based on the foregoing, the $454,761 deposit is a public deposit that clearly qualifies for protection under Connecticut General Statutes, §36a-330 et seq.

We hope that this information is of assistance to you. Please do not hesitate to call me if you have any questions or comments regarding this matter.

Very truly yours,


Joan C.G. Grear
Assistant Attorney General


1The law firm's client fund account is a Connecticut Interest on Lawyers' Trust Account in which accrued interest is to be remitted to the Connecticut Bar Foundation.

2Whether the Connecticut Bank of Commerce followed the statutory requirements to segregate collateral for the City's deposit does not affect our determination that the deposit of the City's funds in the Bank was a "public deposit," entitled to the statutory protections. It is the bank's responsibility to segregate collateral for public deposits.

3Section 36a-334 provides:

When the commissioner determines that a loss has occurred, the commissioner shall as soon as possible make payment to the proper public officers of all public deposits subject to such loss, pursuant to the following procedure: (1) For the purposes of determining the sums to be paid, the commissioner or receiver shall, within twenty days after issuance of a restraining order or taking possession of any qualified public depository, ascertain the amount of public deposits held by the depository as disclosed by its records and the amount thereof covered by deposit insurance and certify the amounts to each public depositor having public funds on deposit in the depository; (2) within ten days after receipt of such certification, each such public depositor shall furnish to the commissioner verified statements of its deposits in the depository as disclosed by its records; (3) upon receipt of such certificate and statements, the commissioner shall ascertain and fix the amount of such public deposits, net after deduction of any deposit insurance, and assess the same against the depository in which the loss occurred; (4) the assessment made by the commissioner shall be payable on the second business day following demand, and in case of the failure of the qualified public depository so to pay, the commissioner shall immediately take possession of the eligible collateral segregated by the depository pursuant to sections 36a-330 to 36a-338, inclusive, and liquidate the same for the purpose of paying such assessment; (5) upon receipt of the assessment, the commissioner shall reimburse the public depositors of the depository in which the loss occurred to the extent of the depository's net deposit liability to them.

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