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Dismissal of Federal Action Precluded Related Action in State Court—Res Judicata, Privity under Res Judicata Doctrine, Effect of Initial Forum Choice, and “First-in-Time” Rule Discussed

In a full-fledged opinion by Justice Moskowitz, the First Department determined that Supreme Court should have dismissed the state complaint because the dismissal of the related federal complaint controlled under the doctrine of res judicata.  The lawsuit was brought by the insurer (Syncora) of mortgage-backed securities issued by the defendant (JP Morgan [formerly known as Bear Stearns]). Syncora first sued in federal court where the action was dismissed based on the findings that the fraud allegations Syncora sought to add to the complaint were untimely and Syncora did not have standing because it was neither a buyer or a seller of the relevant securities.  Syncora then filed the state action asserting the same claims rejected as untimely by the federal court.  The opinion addresses several distinct issues: (1) the flexibility of the concept of “privity” in applying the doctrine of res judicata to the parties and “those in privity” with the parties; (2) a finding of “privity” can be based upon the plaintiff’s allegations about the relationship between a party and another entity; (3) a party which makes a strategic decision to first bring an action in one jurisdiction “is bound by the effects of the path it charted…”; and (4) dismissal of the complaint pursuant to CPLR 3211(a)(4) in favor of the earlier-filed federal action was warranted under New York’s “first-in-time” rule.  Syncora Guar Inc v JP Morgan Sec LLC, 2013 NY Slip Op 05602, 1st Dept, 8-13-13

 

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

 

Motion for Summary Judgment in Lieu of Complaint Should Have Been Denied—Question of Fact Re: Whether Spanish Document Was a Judgment

The First Department determined that a motion brought pursuant to CPLR 3213 to enforce a Spanish court’s award of damages against the defendant should not have been granted.  Experts disagreed about whether the Spanish document was an enforceable judgment.  The First Department explained the criteria for recognizing foreign decrees (CPLR 5302) and for determining a motion for summary judgment in lieu of a complaint (CPLR 3213):

A motion for summary judgment in lieu of a complaint (CPLR 3213) is based on an “instrument for the payment of money only or upon any judgment.” The statute allows a plaintiff an expedited procedure for entry of a judgment by filing and service of a summons and a set of motion papers that contain sufficient evidentiary detail for the plaintiff to establish entitlement to summary judgment (see David D. Siegel, Practice Commentaries, McKinney’s Cons Laws of NY, Book 7B, CPLR C3213:8).

CPLR 5302 provides that New York will recognize foreign decrees that are “final, conclusive and enforceable where rendered even though an appeal therefrom is pending.” Here, the parties’ Spanish law experts disagree as to whether the document here, denominated a “ruling” (“auto” in Spanish), is enforceable as a judgment. *  *  *

The conflicting evidence as to whether the ruling is final, conclusive and enforceable in Spain precludes plaintiff from obtaining an accelerated judgment pursuant to CPLR 3213.  Sea Trade Mar Corp v Coutsodontis, 2013 NY Slip Op 05599, 1st Dept 8-13-13

 

Supreme Court Does Not Have the Power to Dismiss a Complaint for Delay in Prosecution Absent 90-Notice (CPLR 3216)

The Second Department reversed Supreme Court’s dismissal of a complaint based on delay in prosecuting the action because the 90-day demand (CPLR 3216) had not been served on the plaintiff.  The First Department wrote:

CPLR 3216 permits a court to dismiss an action for failure to prosecute only after the court or the defendant has served the plaintiff with a written demand requiring the plaintiff to resume prosecution of the action and to serve and file a note of issue within 90 days after receipt of the demand, and also stating that the failure to comply with the demand will serve as the basis for a motion to dismiss the action. Here, the Supreme Court did not possess the power to dismiss this pre-note of issue action on the ground of a general lack of prosecution since the plaintiff had not received a 90-day demand pursuant to CPLR 3216(b) requiring the plaintiff to serve and file a note of issue … .  Armouth-Levy v New York City, 2013 NY Slip Op 05551, 2nd Dept, 8-7-13

 

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Exclusion of Defense Counsel’s Colleague from a Wade Hearing Deprived Defendant of His Right to a Public Trial

The First Department, in a full-fledged opinion by Justice Richter, reversed a conviction finding the defendant was denied his right to a public trial. To protect the undercover officer and others, the defendant was excluded from the Wade hearing concerning the validity of the undercover officer’s identification of the defendant.  The trial court, in ordering partial closure of the courtroom, had allowed defense counsel, and colleagues of defense counsel, to be present during the hearing. During the hearing, defense counsel’s officemate was denied entry to the courtroom by the court officer stationed at the door, who had consulted with the sergeant inside the courtroom.  The First Department determined the exclusion of the defendant from the hearing was proper, but the exclusion of the attorney required reversal.  The court wrote:

Here, the undercover was the critical witness, and excluding defense counsel’s colleague from the courtroom during this time was not inconsequential. Furthermore, defense counsel explained that the excluded attorney was his officemate, with whom he had consulted about the case. The court also acknowledged that the excluded attorney had substantial experience in criminal defense cases. Although there would have been a problem even if the attorney had no such experience or connection to the case, the exclusion here was particularly troubling because defense counsel alerted the court that his colleagues might be coming, and the excluded attorney could have been of assistance to defense counsel during this critical phase of the trial … .  *  *  *

…[T]he exclusion of defense counsel’s colleague interfered with the very purpose of the requirement of a public trial. The requirement that the courtroom be open whenever possible and that closure orders be narrowly tailored “is for the benefit of the accused; that the public may see he is fairly dealt with and not unjustly condemned, and that the presence of interested spectators may keep his triers keenly alive to a sense of their responsibility and to the importance of their functions” …. Excluding defense counsel’s experienced colleague, who was familiar with the case, deprived defendant of his right to have this person present to assess the undercover’s testimony, and enabled the People to present the undercover’s testimony without the salutary effects of extra scrutiny.  People v Moise, 2013 NY Slip Op 05550, 1st Dept, 8-6-13

 

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DNA Evidence Which Excluded Defendant Was Not Enough to Warrant Vacation of Conviction, or Even a Hearing on the Motion to Vacate

Defendant was convicted of the rape of one victim and the murder of another during an incident in 1980.  Over a substantial dissent, the First Department determined that the recent DNA test results re: hairs found on the perpetrator’s hat and DNA found under the fingernails of the murder victim—results which ruled out the defendant—did not warrant vacation of defendant’s conviction pursuant to a CPL 440 motion, and did not warrant a hearing.  The First Department noted the strength of the identification evidence provided by the rape victim and the fact that only three of 18 hairs taken from the hat were tested by the defense.  The majority of the First Department wrote:

Defendant has not established that the newly discovered DNA evidence “is of such character as to create a probability that had such evidence been received at the trial the verdict would have been more favorable to [him]” … * * *

In deciding a CPL 440.10 motion, a hearing to develop additional facts is not “invariably necessary”; rather, CPL 440.30 contemplates that a court will make an initial determination on the written submissions whether the motion can be decided without a hearing … . Here, we find that even if the reliability of the evidence is assumed, defendant still did not establish a legal basis for ordering a new trial. Accordingly, the factual disputes in this case were not material, and defendant was not prejudiced by the absence of a hearing.

The dissent wrote:

I respectfully dissent, because I believe the motion court should have granted defendant further DNA testing and held an evidentiary hearing before determining his motion under CPL 440.10.  People v Jones, 2013 NY Slip Op 05547, 1st Dept 8-6-13

 

 

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Published Information Gleaned from Court Submission Privileged

The First Department determined that news articles based upon papers filed in court proceedings were privileged pursuant to Civil Rights Law section 74:

Defendants moved to dismiss the complaint on the ground that all of the published material was absolutely privileged under Civil Rights Law § 74, which protects “the publication of a fair and true report of any judicial proceeding.” Supreme Court granted the motion, and we affirm.

It is undisputed that all statements claimed to be libelous are part of a “report of [a] judicial proceeding” (Civil Rights Law § 74) since the article reports on court papers, i.e., the FBI affidavit. Russian Am Found Inc v Daily News LP, 2013 NY Slip Op 05549, 1st Dept 8-6-13

 

Sheetrock Resting on Blocks Satisfied Height Differential in Labor Law 240(1) Action

The First Department determined that plaintiff was not entitled to summary judgment on her Labor Law 240(1) claim which was based on injuries from sheetrock boards which slipped from where they were leaning against a wall and resting on blocks of wood two feet high.  The two-foot height differential was sufficient to implicate 240(1).  However the record was not sufficient to find, upon a summary judgment motion, that the injuries were proximately caused by the absence of a safety device.  Rodriguez v DRLD Dev Corp, 2013 NY Slip Op 05548, 1st Dept 8-6-13.

 

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Lawsuit Alleging Lehman Brothers’ Substitution of Toxic Securities for High Value Securities Can Go Forward

In a full-fledged opinion by Justice Saxe, the First Department determined plaintiff Aetna Life Insurance Company had sufficiently alleged causes of action stemming from Lehman Brothers’ alleged removal of high-grade securities from a trust account and replacement of those securities with toxic subprime-mortgage-backed securities. The First Department summarized the facts and its rulings as follows:

Aetna asserts that defendants [replaced the high value securities with toxic securities] as part of an effort to prop up Lehman Brothers’ financial position in the final days prior to its 2008 collapse. The complaint alleges causes of action for breach of the Connecticut Unfair Trade Practices Act (CUTPA) (Conn Gen Stat § 42-110b[a] et seq.); breach of fiduciary duty; negligence; and recklessness. We affirm the determination of the motion court holding that the allegations are sufficient to support each of the causes of action, and modify only to the extent of denying dismissal of the negligence claims against the individual defendants.  Aetna Life Ins Co v Appalachian Asset Mgt Corp, 2013 NY Slip Op 05506, 1st Dept 7-30-13

 

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16-Ounce “Portion Cap Rule” for Sugary Drinks Invalid

In a full-fledged opinion by Justice Renwick, the First Department determined the “portion cap rule” (limiting the volume of certain “sugary drink” products to 16 ounces) was invalid because the Board of Health “overstepped the boundaries of its lawfully delegated authority” when it promulgated the rule.  In so finding, the First Department applied the analysis used by the Court of Appeals in Boreali v Axelrod, 71 NY2d 1 (1989):

We must … examine whether the Board of Health exceeded the bounds of its legislative authority as an administrative agency when it promulgated the Sugary Drinks Portion Cap Rule. Boreali illustrates when the “difficult-to-demarcate line” between administrative rulemaking and legislative policymaking has been transgressed. In Boreali, the PHC [Public Health Council] promulgated regulations prohibiting smoking in a wide variety of public facilities following several years of failed attempts by members of the state legislature to further restrict smoking through new legislation. Boreali found the regulations invalid because, although the PHC was authorized by the Public Health Law to regulate matters affecting the public health, “the agency stretched that statute beyond its constitutionally valid reach when it used the statute as a basis for drafting a code embodying its own assessment of what public policy ought to be” (id. at 9). Boreali relied on four factors in finding that the PHC’s regulations were an invalid exercise of legislative power. First, Boreali found the PHC had engaged in the balancing of competing concerns of public health and economic costs, “acting solely on [its] own ideas of sound public policy” (id. at 12). Second, the PHC did not engage in the “interstitial” rule making typical of administrative agencies, but had instead written “on a clean slate, creating its own comprehensive set of rules without benefit of legislative guidance” (id.). Third, the PHC’s regulations concerned “an area in which the legislature had repeatedly tried — and failed — to reach agreement in the face of substantial public debate and vigorous lobbying by a variety of interested factions” (id.). Boreali [*9]found that the separation of powers principles mandate that elected legislators rather than appointed administrators “resolve difficult social problems by making choices among competing ends” (id.). Fourth, Boreali found that the agency had overstepped its bounds because the development of the regulations did not require expertise in the field of health (id. at 14).  Matter of New York Statewide Coalition … v NYC Dept of Health and Mental Hygiene, 2013 NY Slip Op 05505, 1st Dept 7-30-13

 

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