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PETITIONER STARTED PROCEEDINGS CONCERNING THE EXECUTOR’S HANDLING OF DECEDENT’S ASSETS IN SURROGATE’S COURT; AFTER RELIEF WAS DENIED WITHOUT PREJUDICE PETITIONER STARTED SIMILAR PROCEEDINGS IN SUPREME COURT, A COURT OF CONCURRENT JURISDICTION; THE EXECUTOR’S MOTION TO TRANSFER THAT PROCEEDING TO SURROGATE’S COURT SHOULD HAVE BEEN GRANTED (THIRD DEPT).

The Third Department, reversing Supreme Court, in a full-fledged opinion by Justice Garry, determined that Surrogate’s Court, not Supreme Court, was the proper forum for this proceeding concerning respondent-executor’s handling of decedent’s assets. Both respondent and petitioner are decedent’s children. Petitioner had commenced proceedings in Surrogate’s Court, and, after the requested relief was denied without prejudice, petitioner commenced a similar proceeding in Supreme Court:

“Supreme Court and . . . Surrogate’s Court have concurrent jurisdiction in matters involving decedents’ estates” … . Generally, where courts share concurrent jurisdiction, “it should continue to be exercised by that one whose process was first issued. Moreover, wherever possible, all litigation involving the property and funds of a decedent’s estate should be disposed of in . . . Surrogate’s Court” … . Supreme Court’s denial of a motion to transfer to Surrogate’s Court will not be disturbed absent an abuse of discretion … . * * *

Petitioner challenges the propriety of transactions allegedly made in breach of respondent’s fiduciary duty to decedent while decedent was alive, involving assets that would have become part of decedent’s estate. This matter falls squarely within the purview of Surrogate’s Court … . Since “all the relief requested may be obtained in . . . Surrogate’s Court and . . . Surrogate’s Court has already acted,” we find that Supreme Court should have granted respondent’s motion seeking to transfer the proceeding … . Matter of McNeil v McNeil, 2022 NY Slip Op 02173, Third Dept 3-31-22

Practice Point: Surrogate’s Court and Supreme Court have concurrent jurisdiction. Here a matter concerning the executor’s handling of decedent’s assets was commenced in Surrogate’s Court, and after relief was denied there, a second similar matter was commenced in Supreme Court. The executor’s motion to transfer the second proceeding to Surrogate’s Court should have been granted.

 

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ALTHOUGH DEFENDANTS WERE NOT PROPERLY SERVED IN THIS FORECLOSURE ACTION AND THEIR MOTION TO VACATE THE JUDGMENT WAS GRANTED ON THAT GROUND, THE DEFENDANTS’ ATTORNEY’S “LIMITED APPEARANCE” AT A SETTLEMENT CONFERENCE PROVIDED THE COURT WITH JURISDICTION OVER THE MATTER; THE MOTION TO VACATE SHOULD NOT HAVE BEEN GRANTED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined an attorneys “limited appearance” at a foreclosure settlement conference provided the court with jurisdiction over matter despite the fact defendants demonstrated they were not properly served with the summons and complaint:

… [A]n attorney appeared in the action on behalf of the defendants by filing notices of appearance that represented that counsel was making “a limited appearance for the settlement conference pursuant to CPLR Rule 3408.” However, neither the defendants nor counsel for the defendants raised any objection to personal jurisdiction at that time by either a timely motion to dismiss on that ground or by interposing a timely answer asserting lack of personal jurisdiction … . Although the notices of appearance purported to limit counsel’s appearance to the foreclosure settlement conferences, “such language ‘is not a talisman to protect the defendant[s] from [their] failure to take timely and appropriate action to preserve [their] defense of lack of personal jurisdiction'” … . Since the defendants had waived the defense of lack of personal jurisdiction by failing to timely assert it, that defense was not a proper basis on which to vacate the order and judgment of foreclosure and sale … . US Bank N.A. v Chkifati, 2022 NY Slip Op 02151, Second Dept 3-30-22

Practice Point: Here defendants proved they were not properly served with the summons and complaint in this foreclosure action and Supreme Court granted their motion to vacate the judgment. However the appellate court reversed because the defendants’ attorney’s “limited appearance” for the settlement conferenced provided the court with jurisdiction (just as if defendants had been properly served).

 

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IF PLAINTIFFS IN A FRAUDULENT-CONVEYANCE AND ENFORCEMENT-OF-MONEY JUDGMENT PROCEEDING CAN BE FULLY COMPENSATED BY MONEY DAMAGES, IT IS ERROR TO ISSUE A PRELIMINARY INJUNCTION (FIRST DEPT),

The Frist Department, reversing Supreme Court, determined plaintiffs in this fraudulent conveyance action can be fully compensated by money damages. Therefore the preliminary injunction was not available relief:

In this action to set aside alleged fraudulent conveyances and other relief in aid of enforcement of money judgments, plaintiffs can be fully compensated by a monetary award, and thus an injunction will not issue because no irreparable harm will be sustained in the absence of such relief … . Medallion Fin. Corp. v Tsitiridis, 2022 NY Slip Op 02090, First Dept 3-29-22

Practice Point: If a plaintiff can be fully compensated by money damages, an injunction is not an available remedy.

 

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THERE WAS A FIDUCIARY RELATIONSHIP BETWEEN THE PARTIES AS PARTNERS AND CO-OWNERS OF A BUSINESS, GIVING RISE TO AN ABSOLUTE RIGHT TO AN ACCOUNTING, NOTWITHSTANDING THE EXISTENCE OF AN ADEQUATE REMEDY AT LAW (FIRST DEPT).

The First Department, reversing (modifying) Supreme Court determined the petitioners were entitled to an accounting for a business, Ocinomled, Ltd., because there was a fiduciary relationship between the parties as partners and co-owners of Ocinomled:

This Court has held “whenever there is a fiduciary relationship between the parties . . . there is an absolute right to an accounting notwithstanding the existence of an adequate remedy at law” … . It is undisputed that there is a fiduciary relationship between the parties as partners and co-owners of Ocinomled. An equitable accounting is “designed to require a person in possession of financial records to produce them, demonstrate how money was expended and return pilfered funds in his or her possession” … . While it is clear that respondents produced the full books and records, and the Special Referee went through thousands of documents and reviewed numerous expert reports, this is insufficient …, particularly because respondents’ bookkeeping was described as inadequate, and sometimes nonexistent, and there was evidence respondents intentionally destroyed key financial data during the litigation. Matter of Grgurev v Licul, 2022 NY Slip Op 02088, First Dept 3-29-22

Practice Point: There is a fiduciary relationship between partners and co-owners of a business giving rise to an absolute right to an accounting, despite the existence of an adequate remedy at law.

 

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SUPREME COURT SHOULD NOT HAVE ENTERED A DEFAULT JUDGMENT OF DIVORCE AGAINST THE HUSBAND, WHO WAS REPRESENTING HIMSELF, WHEN HE DID NOT APPEAR AT THE INQUEST; BOTH THE COURT AND THE WIFE WERE AWARE THE HUSBAND HAD BEEN DIAGNOSED WITH A SIGNIFICANT MENTAL HEALTH CONDITION (FIRST DEPT).

The First Department, reversing Supreme Court, determined the judgment of divorce should not have been entered after the husband, who was representing himself, failed to appear at an inquest. Both the court and his wife were aware he had been diagnosed with a mental health condition, resulting in episodes when he could not care for himself or protect his interests:

… [A]t the conclusion of the inquest, the court explicitly acknowledged that the husband’s absence was likely attributable to his mental health. Thus, before entering judgment upon the husband’s default, there should have been an inquiry into whether a guardian ad litem was necessary (see CPLR 1201, 1203 …). Because there was no inquiry, the judgment must be vacated and the matter remanded for further proceedings, including, if necessary, an inquiry into the husband’s current capacity … . Richard v Buck, 2022 NY Slip Op 02101, First Dept 3-29-22

Practice Point: Here both the court and the wife were aware the husband, who was representing himself and did not appear at the inquest, suffered from a significant mental health condition. The default judgment of divorce should not have been entered. The judgment was vacated. If necessary, Supreme Court should hold a hearing to determine the husband’s capacity.

 

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DEFENDANTS DID NOT DEMONSTRATE ACTUAL NOTICE OF THE SUMMONS WAS NOT RECEIVED IN TIME TO DEFEND THE ACTION, AND DID NOT PROVIDE A REASONABLE EXCUSE FOR THE DEFAULT; DEFENDANTS’ MOTION TO VACATE THE DEFAULT SHOULD NOT HAVE BEEN GRANTED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined defendant’s did not demonstrate they did not receive notice of the summons in time to defend the action, and did not demonstrate a reasonable excuse for the default. Therefore defendants’ motion to vacate the default judgment should not have been granted:

Pursuant to CPLR 317, a defaulting defendant that was “served with a summons, other than by personal delivery” may be permitted to defend the action upon a finding by the court that the defendant did not personally receive notice of the summons in time to defend and has a meritorious defense … . Service on a limited liability company by delivery of the pleadings to the Secretary of State does not constitute personal delivery … . “The mere denial of receipt of the summons and complaint is not sufficient to establish lack of actual notice of the action in time to defend for the purpose of CPLR 317” … .

The affidavit … submitted by the … defendants in support of their motion, amounted to nothing more than a mere denial of receipt of the summons and complaint … . … [T]he … defendants did not contend that the address it had on file with the Secretary of State was incorrect … .

… [T]he … defendants’ mere denial of receipt of the summons and complaint, without more, was insufficient to demonstrate a reasonable excuse for its default pursuant to CPLR 5015(a)(1) … .Andrews v Wartburg Receiver, LLC, 2022 NY Slip Op 01980, Second Dept 2-23-22

Practice Point: A denial of the receipt of the summons and complaint, without more, does not demonstrate actual notice of the summons was not received in time to defend, and does not demonstrate a reasonable excuse for a defaulting.

 

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ALTHOUGH NONPARTY JP MORGAN DID NOT APPEAR IN THE UNDERLYING FORECLOSURE, IT COULD RECOVER SURPLUS FUNDS BASED UPON DEFENDANTS’ DEFAULT ON A CREDIT-LINE LOAN SECURED BY THE PROPERTY; JP MORGAN’S ACTION WAS NOT TIME-BARRED BECAUSE THE CREDIT-LINE DEBT WAS NEVER UNEQUIVOCALLY ACCELERATED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined nonparty JP Morgan was entitled to the surplus funds remaining after a foreclosure sale based upon the defendants’ (Breuers’) default on a credit-line loan secured by the property. The defendants’ argument that the credit-line action was time-barred was rejected because the debt was never accelerated. Pursuant to RPAPL 1361, JP Morgan did not have to appear in the underlying foreclosure action to preserve a claim to the surplus funds:

Where, as here, “the acceleration of the maturity of a mortgage debt on default is made optional with the holder of the note and mortgage, some affirmative action must be taken evidencing the holder’s election to take advantage of the accelerating provision, and until such action has been taken the provision has no operation” … .

… [T]he Breuers failed to demonstrate … that the statute of limitations began to run on JP Morgan’s entire claim at the time of the Breuers’ initial default in 2010. A letter introduced into evidence during the hearing, in which JP Morgan informed the Breuers of its intent to accelerate the maturity of the loan and to commence foreclosure proceedings if the Breuers’ default was not cured, was not sufficient to accelerate the debt, because it did not reflect a “clear and unequivocal” election to accelerate … . …

… [T]he applicable statute which governs proceedings to recover surplus funds from a foreclosure sale, RPAPL 1361, did not require JP Morgan to appear in the action to foreclose the primary mortgage prior to the entry of the judgment of foreclosure and sale, in order to preserve its claim to surplus funds … . Wells Fargo Bank, N.A. v Breuer, 2022 NY Slip Op 02037, Second Dept 3-23-22

Practice Point: Although nonparty JP Morgan did not appear in the underlying foreclosure proceedings, it was entitled to the surplus funds remaining after the foreclosure sale based upon defendants’ default on a credit-line loan secured by the property.

 

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IF THE 2008 FORECLOSURE ACTION COMMENCED BY AEGIS WAS VALID, THE INSTANT FORECLOSURE ACTION BY A DIFFERENT BANK WOULD BE TIME-BARRED; PLAINTIFF BANK RAISED A QUESTION OF FACT BY SUBMITTING EVIDENCE THAT AEGIS DID NOT POSSESS THE NOTE AND MORTGAGE AT THE TIME THE 2008 ACTION WAS COMMENCED AND THEREFORE DID NOT HAVE STANDING TO FORECLOSE (SECOND DEPT).

The Second Department, reversing Supreme Court, determined plaintiff raised a question of fact whether Aegis, the company which started a foreclosure action in 2008, had standing to commence that action. Therefore there was a question of fact whether the Aegis action accelerated the debt and started the running of the six-year statute of limitations:

… [P]laintiff proffered the affidavit of Sherry Benight, a document control officer for Select Portfolio Servicing, Inc. (hereinafter SPS), the servicer and attorney-in-fact for the plaintiff. Based upon her review of SPS’s business records, Benight averred that pursuant to a pooling and servicing agreement (hereinafter PSA), dated January 1, 2006, the original note was transferred to SPS, in its capacity as servicer and attorney-in-fact, on May 14, 2008, and SPS has remained in physical possession of the note since that date. Benight attached to her affidavit copies of the PSA, and a mortgage loan schedule listing the subject loan, note, and mortgage. This evidence was sufficient to raise triable issues of fact as to whether Aegis lacked standing to commence the prior action, and whether this action is time-barred … . U.S. Bank N..A. v Nail, 2022 NY Slip Op 02034, Second Dept 3-23-22

Practice Point: If a bank did not possess the note and mortgage at the time it commenced a foreclosure action, the action is a nullity.

 

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DEFENDANTS’ PARTICIPATION IN A SETTLEMENT CONFERENCE DID NOT WAIVE THEIR RIGHT TO MOVE TO DISMISS THE FORECLOSURE ACTION AS ABANDONED PURSUANT TO CPLR 3215 (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the foreclosure complaint should have been dismissed as abandoned because the plaintiff did not move for a default judgment within a year (CPLR 3215(c)). The fact that the defendants participated in a settlement conference did not waive their right to move to dismiss the complaint as abandoned:

… [T]he plaintiff failed to take steps to initiate proceedings for the entry of a default judgment against the defendants within one year after their default in the action, and has set forth no reasonable excuse for said failure … .

Contrary to the plaintiff’s contention, the defendants did not waive their right to seek dismissal pursuant to CPLR 3215(c). The defendants’ participation in a settlement conference did not result in a waiver of their right to seek dismissal pursuant to CPLR 3215(c) since they did not actively litigate the action before the Supreme Court or participate in the action on the merits … . Moreover, the defendants’ failure to move to vacate their default in answering the complaint or appearing in this action did not operate as a waiver of their right to seek dismissal of the complaint pursuant to CPLR 3215(c) … . PennyMac Corp. v Weinberg, 2022 NY Slip Op 02010, Second Dept 3-23-22

Practice Point: Participation in a settlement conference does not waive a defendant’s right to move to dismiss a foreclosure action as abandoned based on plaintiff bank’s failure to move for a default judgment within a year.

 

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A LOCAL ONLINE NEWS OUTLET SHOULD NOT HAVE BEEN EXCLUDED FROM A FAMILY COURT HEARING REGARDING WHETHER A DEPUTY COUNTY ATTORNEY SHOULD BE DISQUALIFIED FROM A NEGLECT PROCEEDING ON CONFLICT OF INTEREST GROUNDS; THE OUTLET IS ENTITLED TO A TRANSCRIPT OF THE HEARING (FOURTH DEPT). ​

The Fourth Department, reversing Family Court, determined appellant, an online local news outlet, should not have been excluded from an attorney-disqualification hearing and was entitled to a transcript of the hearing. The respondent in a neglect proceeding had moved to disqualify the deputy county attorney on conflict of interest grounds. Appellant’s owner deemed the motion newsworthy because the deputy county attorney had just been elected City-Court Judge. When appellant’s owner attempted to attend the disqualification hearing he was denied entry:

… “[T]he general public may be excluded from any hearing under [Family Court Act] article [10] and only such persons and the representatives of authorized agencies admitted thereto as have an interest in the case” (§ 1043). In making that determination, however, “[a]ny exclusion of courtroom observers must . . . be accomplished in accordance with 22 NYCRR 205.4 (b)” … . That rule provides that “[t]he general public or any person may be excluded from a courtroom [in Family Court] only if the judge presiding in the courtroom determines, on a case-by-case basis based upon supporting evidence, that such exclusion is warranted in that case” … . The rule further provides certain nonexclusive factors that a Family Court judge may consider in exercising his or her discretion, and requires that the judge make findings prior to ordering any exclusion … .

… [T]he court abused its discretion in excluding appellant from the hearing on the underlying disqualification motion. … [T]he court violated 22 NYCRR 205.4 (b) by failing to make findings prior to ordering the exclusion, and … there is no indication … that the court rendered its determination based on … evidence or considered any of the relevant factors in exercising its discretion. Moreover, … the court lacked an adequate basis to exclude appellant from the hearing on the disqualification motion … . * * *

… [T]he release of the transcript is consistent with Family Court Act § 166 and 22 NYCRR 205.5. … [T]he statute provides in relevant part that although “[t]he records of any proceeding in the family court shall not be open to indiscriminate public inspection[,] . . . the court in its discretion in any case may permit the inspection of any papers or records” … . The statute thus “does not render Family Court records confidential, but merely provides that they are not open to indiscriminate public inspection” … . The statute makes clear that Family Court “has the discretionary statutory authority to permit the inspection of any record by anyone at any time … .Matter of Rajea T. (Niasia J.), 2022 NY Slip Op 01940, Fourth Dept 3-18-22

Practice Point: Although the general public can be excluded from Family Court Article 10 proceedings, the judge exercising the discretion to exclude an observer must make certain findings in accordance with 22 NYCRR 205-4 (b). Family Court here made no findings and abused its discretion by excluding the news outlet. The court proceeding concerned whether the county attorney handling the neglect case should be disqualified on conflict of interest grounds, and did not concern the underlying allegations of neglect. The news outlet is entitled to a transcript of the hearing.

 

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