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COMPREHENSIVE DISCUSSION OF THE PROCEDURES AND CRITERIA FOR THE ISSUANCE AND QUASHING OF SUBPOENAS IN THIS FRAUD ACTION STEMMING FROM HIGH CREDITWORTHINESS RATINGS GIVEN TO RESIDENTIAL MORTGAGE-BACKED SECURITIES (FOURTH DEPT).

The Fourth Department, reversing Supreme Court, determined plaintiff bank’s motion to quash defendant’s subpoena of a nonparty former employee of plaintiff should not have been granted. The decision provides an extensive discussion of the procedures and criteria for subpoenas and motions to quash, and refused to apply the standing requirement for governmental agency investigative subpoenas. . Plaintiff bank had invested in residential mortgage-backed securities (RMBS) to which defendant had given high creditworthiness ratings. The action sounded in fraud:

… [W]e reject defendant’s contention that plaintiff was not entitled to seek to quash the nonparty subpoena. CPLR 2304, which authorizes a motion to quash a subpoena, provides as relevant here that, “[i]f the subpoena is not returnable in a court, a request to withdraw or modify the subpoena shall first be made to the person who issued it and a motion to quash . . . may thereafter be made in the supreme court.” …

… [P]laintiff, in moving to quash the nonparty subpoena, failed to meet its burden of establishing “either that the discovery sought is ‘utterly irrelevant’ to the action[s] or that the ‘futility of the process to uncover anything legitimate is inevitable or obvious’ ” … . …

… [P]laintiff has not shown that the nonparty’s testimony would be utterly irrelevant or that it was inevitable or obvious that taking the nonparty’s deposition would be futile to uncovering anything legitimate … . …

… [P]laintiff’s own submissions suggest that the nonparty has at least some knowledge of plaintiff’s underwriting practices with respect to the non-prime loans at issue here … . M&T Bank Corp. v Moody’s Invs. Servs., Inc., 2021 NY Slip Op 00706, Fourth Dept 2-5-21

 

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AFTER TWICE ADMITTING OWNERSHIP OF THE AREA OF PLAINTIFF’S SLIP AND FALL, DEFENDANTS SHOULD NOT HAVE BEEN ALLOWED TO AMEND THEIR ANSWER TO DENY OWNERSHIP AFTER THE STATUTE OF LIMITATIONS HAD RUN (FIRST DEPT).

The First Department, reversing Supreme Court, determined defendants, after twice acknowledging ownership of the area of plaintiff’s slip and fall, should not have been allowed to amend their answer to deny ownership after the statute of limitations had run

[Defendants] may not amend their answer in this manner after the statute of limitations has expired; the amendment would be too prejudicial to plaintiff … . Jackson v 170 W. End Ave. Owners Corp., 2021 NY Slip Op 00625, First Dept 2-4-21

 

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PLAINTIFF IN THIS TAX LIEN FORECLOSURE ACTION DID NOT DEMONSTRATE DEFENDANT WAS PROPERLY SERVED WITH THE NOTICE TO REDEEM; THEREFORE PLAINTIFF WAS NOT ENTITLED TO ATTORNEY’S FEES FROM THE DEFENDANT (SECOND DEPT).

The Second Department determined plaintiff was not entitled to attorney’s fees in this tax lien foreclosure action because plaintiff did not demonstrate defendant was properly served with the notice to redeem:

Pursuant to Nassau County Administrative Code § 5-51.0(c), prior to the commencement of this action, the plaintiff was required to serve the defendant with a notice to redeem “by personal service, as defined in the Civil Practice Law and Rules of the State of New York” (see Nassau County Administrative Code § 5-51.0[a]). Here, the plaintiff purportedly served the defendant with the notice to redeem by “nail and mail” service (see CPLR 308[4]). However, contrary to the plaintiff’s contention, this service was ineffective, as the plaintiff failed to exercise the requisite due diligence in first attempting to serve the defendant pursuant to CPLR 308(1) or (2) … .

Where, as here, a plaintiff fails to properly serve the notice to redeem prior to commencing a foreclosure action, the plaintiff is precluded from recovering attorney’s fees from the person to whom the notice was required to be sent, provided that the person “offers to pay the penalties allowed by law at any time before final judgment is entered” (Nassau County Administrative Code § 5-51.0[f]). Here, the defendant offered to pay the penalties allowed by law in a letter … , nearly one month prior to entry of the final judgment … . DBW TL Holdco 2014, LLC v Kirk, 2021 NY Slip Op 00543, Second Dept 2-3-21

 

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THE JUDGMENT LIEN WAS NOT DOCKETED UNDER THE SELLER’S SURNAME; THEREFORE THE BUYER’S ACTION FOR A JUDGMENT QUIETING TITLE WAS PROPERLY GRANTED (SECOND DEPT).

The Second Department determined plaintiff-buyer was entitled to judgment on his quiet title cause of action and to a declaration that the property is not subject to the defendant’s judgment lien. The judgment was not docketed under the seller’s surname:

… [T]he plaintiff demonstrated, prima facie, his entitlement to judgment as a matter of law on the cause of action to quiet title and for a declaration that the real property at issue is not subject to the defendant’s judgment lien. In support of his motion, the plaintiff submitted, among other things, the deposition transcript of a supervisor of the Docket Department of the Kings County Clerk’s Office (hereinafter the supervisor). The supervisor testified at her deposition that the judgment at issue was not docketed under “Paul”—the surname of the title owner of the property. Thus, no valid lien against the property was created (see CPLR 5018[c][1] …). Moreover, there is no dispute that the plaintiff had no actual or constructive notice of a judgment lien on the property … .

In opposition, the defendant failed to raise a triable issue of fact. Any alleged defects in the docketing procedure employed by the Kings County Clerk’s Office are not attributable to a bona fide purchaser of the property … . Charles v Berman, 2021 NY Slip Op 00542, Second Dept 2-3-21

 

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SETTLEMENT CONFESSIONS OF JUDGMENT WERE VALID AND SHOULD NOT HAVE BEEN VACATED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the settlement confessions of judgment were valid and should not have been vacated. The Second Department noted that vacating a judgment entered by filing a confession of judgment requires bringing a plenary action, which the defendants did not do. But, because Supreme Court reached the merits, the Second Department reversed on the merits:

“Generally, a person seeking to vacate a judgment entered upon the filing of an affidavit of confession of judgment must commence a separate plenary action for that relief”… . Here, as acknowledged by the Supreme Court in its order, the grounds for vacatur relied upon by the defendants do not fall within an exception to the general rule. Accordingly, the court should have denied the defendants’ motion for failure to commence a plenary action … . However, the court did address the merits of the defendants’ motion, and in the interest of judicial economy, we also consider the merits.

“Construction of an unambiguous contract is a matter of law, and the intention of the parties may be gathered from the four corners of the instrument and should be enforced according to its terms” … . Here, contrary to the Supreme Court’s determination, there is no language in the merchant agreements limiting the plaintiff’s authority to file the settlement confessions of judgment. Moreover, the settlement agreement and settlement confessions of judgment clearly and unambiguously permitted the plaintiff to file the settlement confessions of judgment in the event the defendants breached the terms of the settlement agreement. Ace Funding Source, LLC v Myka Cellars, Inc., 2021 NY Slip Op 00538, Second Dept 2-3-21

 

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ONLY THE HUSBAND TOOK OUT A MORTGAGE AND DEFENDANTS DENIED THE ALLEGATION IN THE COMPLAINT THAT THE WIFE’S INTEREST WAS SUBJECT TO AN EQUITABLE MORTGAGE; THEREFORE THE BANK’S MOTION FOR SUMMARY JUDGMENT IN THIS FORECLOSURE ACTION SHOULD NOT HAVE BEEN GRANTED; THE COURT NOTED THAT “NEITHER ADMITTED NOR DENIED” IN AN ANSWER TO A COMPLAINT IS DEEMED AN ADMISSION (SECOND DEPT).

The Second Department, reversing Supreme Court, determined plaintiff bank did not demonstrate its foreclosure action could affect the wife’s (Gloria’s) interest in the property based on the husband’s (David’s) mortgage. It was not necessary for defendants to claim that Gloria’s interest was not subject to an equitable mortgage as an affirmative defense. [Although not related to the equitable mortgage issue, the Second Department noted that “Neither Admitted nor Denied” in an answer to an allegation in a complaint should be deemed to admit the allegation (see CPLR 3018[a] …)]:

… [W]e disagree with the plaintiff’s contention that the defendants, by not pleading it as an affirmative defense, waived their defense to the cause of action relating to the alleged equitable mortgage on Gloria Saff’s interest in the subject property. “CPLR 3018, which governs responsive pleadings, draws a distinction between denials and affirmative defenses” … . “Denials generally relate to allegations setting forth the essential elements that must be proved in order to sustain the particular cause of action” and “[t]hus a mere denial of one or more elements of the cause of action will suffice to place them in issue” … . A defendant, however, must plead, as an affirmative defense, “all matters which, if not pleaded, would be likely to take the adverse party by surprise or would raise issues of fact not appearing on the face of a prior pleading” … . Here, the defendants, in their answer, denied the allegations in the complaint relating to the existence of an equitable mortgage on Gloria Saff’s interest in the subject property. As the denials of an equitable mortgage were in response to allegations in the complaint, they would not take the plaintiff by surprise. * * *

Where spouses own property as tenants by the entirety, a conveyance by one spouse, to which the other has not consented, cannot bind the entire fee … . The mortgage executed by David Saff did not encumber Gloria Saff’s interest in the subject property, and the plaintiff failed to submit evidence demonstrating that it held an equitable mortgage on Gloria Saff’s interest in the subject property. Thus, the Supreme Court should have denied those branches of the plaintiff’s motion which were for summary judgment on the causes of action to foreclose the mortgage and for a judgment declaring that the plaintiff has an equitable mortgage against the interest of Gloria Saff in the subject property. U.S. Bank N.A. v Saff, 2021 NY Slip Op 00590, Second Dept 2-3-21

 

RATHER THAN DISMISSING THE COMPLAINT, SUPREME COURT SHOULD HAVE ORDERED THE NECESSARY PARTIES SUMMONED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the motion to dismiss should not have been granted on the ground plaintiffs failed to join necessary parties. The court should have ordered the parties summoned:

Necessary parties are those “who ought to be parties if complete relief is to be accorded between the persons who are parties to the action or who might be inequitably affected by a judgment in the action” (CPLR 1001[a] …). Here, the Supreme Court correctly determined that the Limited Partnership and the third limited partner, Ai Ying Zheng, are necessary parties to this action … . …

… [A]s the Limited Partnership and Ai Ying Zheng are subject to the jurisdiction of the Supreme Court, the court should have “order[ed][them] summoned,” rather than granting the motion to dismiss the complaint for failure to join necessary parties (CPLR 1001[b]…). Ji Juan Lin v Bo Jin Zhu, 2021 NY Slip Op 00550, Second Dept 2-3-21

 

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A PLENARY ACTION WAS REQUIRED TO SET ASIDE THE STIPULATION OF SETTLEMENT WHICH WAS INCORPORATED BUT NOT MERGED INTO THE JUDGMENT OF DIVORCE (SECOND DEPT).

The Second Department, reversing Supreme Court, determined Supreme Court did not have the authority to declare certain portions of the stipulation of settlement invalid. A plenary action was necessary:

… [A] plenary action was required to seek to set aside the stipulation of settlement, which was incorporated but not merged into the judgment of divorce … . There are exceptions to this general rule, such as where reformation of a separation agreement is sought to conform the agreement with the intent of the parties … , or where the matrimonial action is still pending and was not terminated with entry of a judgment … , or in certain circumstances where enforcement of child support is sought … . None of these exceptions are applicable here.

In view of the foregoing, those branches of the plaintiff’s cross motion which were to vacate the provisions of the stipulation of settlement concerning equitable distribution and maintenance should have been denied. Jagassar v Deonarine, 2021 NY Slip Op 00549, Second Dept 2-3-21

 

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BEFORE PETITIONER INMATE’S ARTICLE 78 PETITION WAS CONSIDERED RESPONDENT VOLUNTARILY REVERSED THE GUILTY FINDINGS ON THE PRISON DISCIPLINARY VIOLATIONS; PETITIONER WAS NOT ENTITLED TO ATTORNEY’S FEES PURSUANT TO THE EQUAL ACCESS TO JUSTICE ACT UNDER THE “CATALYST THEORY” (THIRD DEPT).

The Third Department determined petitioner inmate was not entitled to attorney’s fees as a prevailing party pursuant to the Equal Access to Justice Act [EAJA] (CPLR Article 86). Petitioner contested guilty findings on several prison disciplinary violations and brought an Article 78 proceeding. Before the Article 78 petition was considered the respondent reversed the disposition and expunged it from petitioner’s prison record. Petitioner then sought attorney’s fees as the prevailing party:

Petitioner contends that he is entitled to counsel fees because he prevailed in the litigation under the “catalyst theory.” [The catalyst theory posits that a petitioner is a prevailing party if the desired result is achieved because the proceeding brought about the voluntary change in the respondent’s conduct … .] * * *

Although this Court has not decided whether it will adopt the catalyst theory in EAJA cases, when this Court has been asked to adopt the catalyst theory in other counsel fee award cases, it has declined to do so as the “United States Supreme Court has clearly held that a voluntary resolution of a matter lacks the necessary judicial imprimatur to warrant an award of [counsel] fees” … . … [T]he Court of Appeals specifically agreed … . The same reasoning applies here. The change in the legal relationship was accomplished prior to answering the petition, was based on the voluntary actions of the Department of Corrections and Community Supervision, and was “not enforced by a consent decree or judgment of Supreme Court” … . Matter of Clarke v Annucci, 2021 NY Slip Op 00473, Third Dept 1-28-21

 

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DEFENDANT ATTORNEY’S AFFIDAVIT IN SUPPORT OF ADMITTING LAW-FIRM BUSINESS RECORDS DID NOT INDICATE THE AFFIANT WAS FAMILIAR WITH THE RECORD KEEPING PRACTICES AND PROCEDURES OF THE LAW FIRM; THEREFORE THE COURT SHOULD NOT HAVE CONSIDERED THE RECORDS IN THE SUMMARY JUDGMENT PROCEEDINGS (SECOND DEPT).

The Second Department, reversing Supreme Court, determined defendants failed to lay a proper foundation for the admissibility of business records (the Matter Ledger Card) which purported to describe the legal work done by defendants for plaintiff:

We agree with the plaintiff that the court should not have considered these documents because the defendants failed to submit them in admissible form … .

The defendants failed to lay a proper foundation for the admissibility of the Matter Ledger Card pursuant to CPLR 4518. “A proper foundation for the admission of a business record must be provided by someone with personal knowledge of the maker’s business practices and procedures” … . [Defendant’s] affidavit failed to set forth that he “was personally familiar with [the law firm’s] record keeping practices and procedures” and, as a result, failed to lay a proper foundation for the admission of the Matter Ledger Card concerning the plaintiff’s payment history … . Anghel v Ruskin Moscou Faltischek, P.C., 2021 NY Slip Op 00403, Second Dept 1-27-21

 

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