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No Appeal Lies from an Ex Parte, Sua Sponte, Judgment/Order

In affirming the dismissal of an inmate's action seeking to challenge the computation of his sentence (dismissal was based upon the inmate's failure to comply with the service requirements in an order to show cause), the Third Department noted that no appeal lies from an ex parte order, including an order entered sua sponte.  Apparently the remedy is a motion to vacate pursuant to CPLR 5015:

…[T]here is “no right of appeal from an ex parte [judgment/order], including [one] entered sua sponte,” such as Supreme Court's dismissal of the petition here … . Under the circumstances presented here, we decline to treat the notice of appeal from that judgment as an application for leave to appeal (see CPLR 5701 [c]…). Petitioner sought renewal pursuant to CPLR 2221 and, while perhaps more properly viewed as one to vacate pursuant to CPLR 5015, the judgment denying that motion presents the salient issues for review. Matter of Martin v Annucci, 2014 NY Slip Op 08539, 3rd Dept 12-4-14

 

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There Is No “Imminent Litigation” Requirement for the Application of the “Common-Interest Privilege”—Documents Generated During Merger Negotiations Among Two Corporations and Their Counsel May, Therefore, Be Protected by the Privilege, Which Is an Exception to the Rule that the Presence of a Third Party at a Communication Between Counsel and Client Destroys the Privilege

The First Department, in a full-fledged opinion by Justice Moskowitz, determined that the “common-interest privilege” may apply to documents created during merger negotiations among two corporations and their counsel.  The court found there is no requirement that litigation be imminent for the application of the privilege.  The underlying lawsuit was brought by a financial-guaranty insurer (Ambac) which alleged it was fraudulently induced by Countrywide to insure residential mortgage backed securities. Ambac sought discovery of documents relating to a merger between Countrywide and Bank of America Corporation (the subject of secondary claims by Ambac) which, it was alleged, would demonstrate Bank of America Corporation was on notice about Countrywide's alleged fraud. The First Department held that the merger-related documents could be protected by the common-interest privilege and sent the matter back to the motion court to determine whether particular documents are protected:

As noted above, the common-interest privilege is an exception to the rule that the presence of a third party at a communication between counsel and client will render the communication non-confidential … . The doctrine, a limited exception to waiver of the attorney-client privilege, requires that: (1) the communication qualify for protection under the attorney-client privilege, and (2) the communication be made for the purpose of furthering a legal interest or strategy common to the parties … . This Court has never squarely decided whether there is a third requirement: that the communication must affect pending or reasonably anticipated litigation. We answer that question today in the negative. Ambac Assur Corp v Countrywide Home Loans Inc, 2014 NY Slip Op 08510, 1st Dept 12-4-14

 

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Appellant, Who Was Only Mentioned in the Complaint As the Holder of a Second Mortgage, Properly Appeared in the Action by Serving a Notice of Appearance Which Entitled Appellant to Be Kept Informed of the Progress of the Proceeding—There Is No Filing Requirement for a Notice of Appearance

The Second Department explained that appellant properly appeared in the foreclosure action by the service of a notice of appearance because the complaint did not allege anything that appellant, who held a second mortgage, would be required to defend against.  Service of the notice of appearance, which did not need to be filed, entitled appellant to be kept informed of the progress of the action:

…[T]he appellant was not required to serve an answer where the complaint did not set forth any allegations that the appellant was required to defend against (see Vincent C. Alexander, Practice Commentaries, McKinney's Cons. Laws of NY, Book 7B, CPLR C320:1 at 130; 2—R320 Weinstein-Korn Miller, N.Y. Civ. Prac. ¶ 320.03). “A defendant who has no defense, and therefore serves no pleading, might nevertheless serve a notice of appearance so as to be kept apprised of the progress of the proceeding” (Vincent C. Alexander, Practice Commentaries, McKinney's Cons. Laws of NY, Book 7B, CPLR C320:1 at 130). Such was the situation here. The complaint contained no allegations about the appellant, except to state that he had a second mortgage on the property. Thus, the appellant properly proceeded by serving a notice of appearance only and was entitled to be kept apprised of the proceedings.

Contrary to the plaintiffs' further contention, the appellant was not required to file his notice of appearance with the Supreme Court. There is no statutory or other requirement that a notice of appearance, timely served upon a plaintiff, must also be filed with the clerk of the relevant court in order for a defendant to appear in the action … . Tsionis v Eriora Corp, 2014 NY Slip Op 08421, 2nd Dept 12-3-14

 

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Pleading Requirements for Piercing the Corporate Veil Described in Some Detail

The First Department determined questions of fact concerning whether the corporate veil should be pierced (alter-ego theory) had been raised.  The court explained the analytical criteria:

In order to state a claim for alter-ego liability plaintiff is generally required to allege “complete domination of the corporation [here PFLLC] in respect to the transaction attacked” and “that such domination was used to commit a fraud or wrong against the plaintiff which resulted in plaintiff's injury” … . Because a decision to pierce the corporate veil in any given instance will necessarily depend on the attendant facts and equities, there are no definitive rules governing the varying circumstances when this power may be exercised … .

If plaintiff prevails in proving that PFLLC owes it a debt …, the further allegations in the complaint are sufficiently pleaded to support plaintiff's claim that defendant is an alter-ego of PFLLC. The complaint asserts that with respect to the transaction at issue, defendant dominated and controlled the negotiations on behalf of PFLLC and actually provided the erroneous information which persuaded plaintiff to enter into the agreement. The allegations … sufficiently frame factual issues about whether defendant, as the parent company of PFLLC, commingled funds and disregarded corporate formalities … .

In addition, the allegations that defendant, through its domination of PFLLC, misrepresented the value of the assets sold and then caused PFLLC to become judgment proof, are also sufficient to support claims that defendant perpetrated a wrong or injustice against plaintiff, thus warranting intervention by a court of equity … . Wrongdoing in this context does not necessarily require allegations of actual fraud. While fraud certainly satisfies the wrongdoing requirement, other claims of inequity or malfeasance will also suffice … . Allegations that corporate funds were purposefully diverted to make it judgment proof or that a corporation was dissolved without making appropriate reserves for contingent liabilities are sufficient to satisfy the pleading requirement of wrongdoing which is necessary to pierce the corporate veil on an alter-ego theory … . Baby Phat Holding Co LLC v Kellwood Co, 2014 NY Slip Op 08364, 1st Dept 12-2-14

 

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Failure to Timely Raise a Late-Notice Defense to Coverage May Constitute a Waiver of the Defense

The First Department determined there existed a triable issue of fact whether the insurer of a gas plant operated by Long Island Light Company (LILCO) waived a late-notice-based disclaimer of coverage.  Under the common law, the failure to assert a known policy defense may constitute a waiver:

Waiver is the voluntary relinquishment of a known right and must be predicated upon knowledge of the facts upon which the existence of the right depends … . The failure to assert a known policy defense may constitute a waiver … . “Whether an insurer has waived the defense of late notice is ordinarily a question of fact, which is proved by evidence that the insurer intended to abandon that defense” … .

The evidence supports an inference that defendants knew of facts supporting a late notice defense long before disclaiming coverage in their answers. Long Is Light Co v American Re-Insurance Co, 2014 NY Slip Op 08363, 1st Dept 12-2-14


 

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The Third Dept Upheld the Statutory Amendment Cutting Off Reimbursement of Medicaid Overburden Expenses Incurred Prior to 2006—However the Court Imposed a Six-Month Grace Period Before the Amendment Kicks In [The Fourth Dept Dealt with the Same Question in a Decision Dated 11-14-14—Although the Fourth Dept Also Upheld the Amendment, It Did Not Impose a Grace Period and Did Not Use the Same Reasoning]

The Third Department, in a full-fledged opinion by Justice McCarthy, determined that a 2012 amendment to the Social Services Law (section 61) eliminated the requirement that counties be reimbursed by the state for certain medicaid expenses (so-called “Overburden expenses”) incurred prior to 2006, when the medicaid “Cap Statute” was enacted.  The 4th Department dealt with the same issues in Matter of County of Niagara v Shah, 2014 NY Slip Op 07781, 4th Dept 11-14-14.  Although the two courts came to similar, but not identical, conclusions, it is interesting to see the substantial differences in reasoning and result.  Unlike the 4th Department, the Third Department imposed a six-month grace period, starting from the date of the decision, before the prohibition against reimbursement for pre-2006 expenses kicks in. The Third Department dealt with several issues, including:  (1) whether a political subdivision of a state can make a due process claim against the state (the court deemed the issue waived); (2) the amendment of the statute essentially imposed a statute of limitations and therefore did not extinguish a vested right to reimbursement; (3) the amendment is not unconstitutional because the new statute of limitations does not retroactively affect any substantive rights; (4) the special facts exception did not apply; (5) petitioner was entitled to a writ of mandamus requiring payment of the pre-2006 expenses (because of the grace period):

Social Services Law § 368-a and the 2012 amendment can be read together and “interpreted to achieve legislative objectives that are not inherently inconsistent with each other” … . This Court has already held that, under Social Services Law § 368-a (1) (h), petitioner’s right to reimbursement of overburden expenditures accrued when petitioner made payment to the state for those expenses for which no local share was owed, i.e., prior to January 1, 2006 … . The 2012 amendment did not specifically repeal any part of Social Services Law § 368-a or affect the counties’ inherent right to reimbursement. Rather, the amendment simply imposed a statute of limitations for the payment of claims for such reimbursement. A statute of limitations does not impair an underlying substantive right, but may deprive a litigant of any remedy … . In April 2012, the Legislature could have reasonably decided that, to promote finality of claims and effectuate accurate budgeting, reimbursements from more than six years earlier could be barred. Although petitioner contends that DOH was required by statute to reimburse all counties for overburden expenditures incurred prior to 2006, and that DOH did not comply with its statutory obligations, “[a] statute of limitations may apply even when conduct inconsistent with a statute or the state constitution is alleged” … . Matter of County of St. Lawrence v Shah, 2014 NY Slip Op 08278, 3rd Dept 11-26-14

 

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If the Action Challenging Governmental Action Could Have Been Brought in an Article 78 Proceeding, No Matter How the Action Is Labelled, the Four-Month Statute of Limitations Applies

The collection of assessments by the defendant from hydroelectric power plants was deemed illegal in a federal lawsuit brought by a hydroelectric power plant.  Plaintiff, a different hydroelectric power plant, thereafter sought return of the assessments it had paid for six years (between 2002 and 2008) in an action for unjust enrichment.  The Third Department determined that action could have been brought as an Article 78 proceeding challenging the assessments as they were imposed.  Therefore the four-month Article 78 statute of limitations applied, rendering the action untimely:

…Supreme Court erred in applying a six-year statute of limitations because, even though plaintiffs have now labeled their cause of action as one for unjust enrichment, they could have raised their claim for refunds in a CPLR article 78 proceeding challenging each annual assessment, for which the applicable statute of limitations is four months (see CPLR 217 [1]).

“Where, as here, governmental activity is being challenged, the immediate inquiry is whether the challenge could have been advanced in a CPLR article 78 proceeding” … . Thus, whether plaintiffs’ “claims are subject to the four-month statute of limitations period under CPLR article 78 . . . turns on whether the parties’ rights could have been resolved in an article 78 proceeding” … . Indeed, the analysis does not depend upon how plaintiffs label their claims but, rather, we “must look to the underlying claim and the nature of the relief sought and determine whether such claim could have been properly made in another form” … . The purpose of this rule, which results in the imposition of a short statute of limitations to governmental action, is to ensure “that the operation of government [will] not be trammeled by stale litigation and stale determinations” … . Northern Elec Power Co LP v Hudson River-Black Riv Regulating District, 2014 NY Slip Op 08280, 3rd Dept 11-26-14

 

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Procedure for Determining a Motion to Dismiss Pursuant to CPLR 3211 (a)(7) Where the Defendant Submits Evidence Explained/Elements of Gross Negligence Explained

The Second Department, in finding the complaint adequately pled gross negligence (re: packing and transporting an art collection), explained the analytical criteria for dealing with a motion to dismiss pursuant to CPLR 3211 (a)(7) where evidence is submitted by the defendant:

“On a motion to dismiss pursuant to CPLR 3211(a)(7) for failure to state a cause of action, the complaint must be construed liberally, the factual allegations deemed to be true, and the nonmoving party must be given the benefit of all favorable inferences” … . The court is limited to “an examination of the pleadings to determine whether they state a cause of action,” and the “plaintiff may not be penalized for failure to make an evidentiary showing in support of a complaint that states a claim on its face” … . “The test of the sufficiency of a pleading is whether it gives sufficient notice of the transactions, occurrences, or series of transactions or occurrences intended to be proved and whether the requisite elements of any cause of action known to our law can be discerned from its averments'” … .

“A court is, of course, permitted to consider evidentiary material submitted by a defendant in support of a motion to dismiss pursuant to CPLR 3211(a)(7)” …, and, if it does so, “the criterion then becomes whether the proponent of the pleading has a cause of action, not whether he has stated one'” … . “Yet, affidavits submitted by a defendant will almost never warrant dismissal under CPLR 3211 unless they establish conclusively that [the plaintiff] has no cause of action” … .

Gross negligence “differs in kind, not only degree, from claims of ordinary negligence” … . “To constitute gross negligence, a party’s conduct must smack of intentional wrongdoing or evince a reckless indifference to the rights of others” … . “Stated differently, a party is grossly negligent when it fails to exercise even slight care or slight diligence” … . Ordinarily, the question of gross negligence is a matter to be determined by the trier of fact … . Dolphin Holdings Ltd v Gander & White Shipping Inc, 2014 NY Slip Op 08316, 2nd Dept 11-26-14

 

Motion to Intervene Should Have Been Granted—Criteria Explained

The Third Department determined that the church elders’ motion to intervene should have been granted.  The church at issue had been funded by the man after whom the church was named more than one hundred years ago. The petitioner sought to have the restrictions on the fund removed so that it could be used to support any local Presbyterian church, rather than just the church founded with the fund. The elders of the church founded with the fund sought to intervene:

“Intervention is liberally allowed by courts, permitting persons to intervene in actions where they have a bona fide interest in an issue involved in that action” … . “Whether intervention is sought as a matter of right under CPLR 1012 (a), or as a matter of discretion under CPLR 1013, is of little practical significance since a timely motion for leave to intervene should be granted, in either event, where the intervenor has a real and substantial interest in the outcome of the proceedings” … .

Here, decedent was a wealthy philanthropist who funded the construction of a church building, and he provided trust funds that have benefitted that church for over 100 years. The congregation provided some proof reflecting that decedent may have intended assistance to the church bearing his name to have precedence over any particular denominational affiliation. Although it is premature to determine whether the congregation will prevail, nonetheless the congregation will be impacted by this proceeding and should be afforded the opportunity to present its position. Matter of Jermain, 2014 NY Slip Op 08274, 3rd Dept 11-26-14

 

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Mistrial Declaration Over Defendant’s Objection Was “Manifestly Necessary”—Double Jeopardy Prohibition Not Triggered

The Second Department determined the trial judge had no choice but to declare a mistrial when defense counsel could not proceed because of a conflict and new counsel needed a two-month adjournment.  Because the mistrial, granted over defendant’s objection, was “manifestly necessary” the double jeopardy prohibition of a second trial was not triggered:

The double jeopardy clauses of the New York State and United States Constitutions protect an accused from multiple prosecutions for the same offense . “In a jury trial, once the jury is empaneled and sworn, jeopardy attaches, and the defendant has a valued right to have his trial completed by a particular tribunal'” … .

When a mistrial is granted over the defendant’s objection or without the defendant’s consent, a retrial is precluded unless ” there was manifest necessity for the mistrial or the ends of public justice would be defeated'” … . “Manifest necessity” means a ” high degree of necessity'” based on reasons that are ” actual and substantial'” … . Moreover, before declaring a mistrial, a court must explore all appropriate alternatives and must provide a sufficient basis in the record for resorting to this “drastic measure” …  . Matter of Roey v Lopresto, 2014 NY Slip Op 08340, 2nd Dept 11-26-14