Intervention Not Available to Vacate a Default Judgment—Default Judgment is Not on the Merits and Therefore Has No Res Judicata Effect on Putative Intervenors

The First Department determined a motion to intervene in an action which ended in a default judgment should not have been granted.  Plaintiff sued defendant, which defaulted. Defendant had transferred its assets to the parties seeking to intervene to vacate the default.  Plaintiff had sued the intervenors alleging the transfer of assets from the defendant to the intervenors was fraudulent (the “supplemental proceeding”). The First Department explained:

“[T]he potentially binding nature of the judgment on the proposed intervenor is the most heavily weighted factor in determining whether to permit intervention” … .Here, however, intervenors cannot intervene by arguing that the default judgment has a res judicata effect on the supplemental proceeding and adversely affects their rights in that proceeding. The default judgment has no res judicata effect on intervenors because a default is not a determination on the merits as is necessary to invoke that doctrine … . Likewise, intervenors were not parties to the default action … .  Further, plaintiffs did not obtain the default judgment through fraud or through any other wrongdoing… .  Intervenors’ right to act for defendant ended with the 2007 sale—an event that occurred four years before the clerk entered the default judgment against [defendant].  Amalgamated Bank v Helmsley-Spear, Inc, 2013 NY Slip Op 05600, 1st Dept 8-13-13