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HERE THERE WAS A QUESTION OF FACT WHETHER THE CORPORATE VEIL SHOULD BE PIERCED SUCH THAT THE DEFENDANT HOSPITAL WOULD BE DEEMED VICARIOUSLY LIABLE FOR THE ALLEGED MALPRACTICE BY A CORPORATION OWNED BY A HOSPITAL EMPLOYEE AND WHOSE OFFICE WAS IN THE HOSPITAL (SECOND DEPT).

The Second Department, reversing (modifying) Supreme Court, determined there was a question of fact whether defendant hospital was vicariously liable for the purported medical malpractice by a corporation (Meeting House) under a piercing-the-corporate-veil theory:

Generally, … piercing the corporate veil requires a showing that: (1) the owners exercised complete domination of the corporation in respect to the transaction attacked; and (2) that such domination was used to commit a fraud or wrong against the plaintiff which resulted in plaintiff’s injury” … . “‘[T]he corporate veil will be pierced to achieve equity, even absent fraud, when a corporation has been so dominated by an individual or another corporation and its separate entity so ignored that it primarily transacts the dominator’s business instead of its own and can be called the other’s alter ego'” … . In determining whether to pierce the corporate veil, “[g]enerally considered are such factors as whether there is an overlap in ownership, officers, directors and personnel, inadequate capitalization, a commingling of assets, or an absence of separate paraphernalia that are part of the corporate form, such that one of the corporations is a mere instrumentality, agent and alter ego of the other” … .

… Meeting House failed to adhere to corporate formalities, such as holding board of directors’ meetings. Meeting House was owned and controlled by an employee of the hospital, whose office was in the hospital, pursuant to a contract with the hospital. The hospital had sole discretion over the number of shares and who would be the shareholders. Meeting House was also undercapitalized, since it appears that its assets consisted of a non-interest-bearing loan from the hospital … . Its budget and any amendments thereto had to be approved by the hospital. The common ownership, leadership, and control, and the common location on the grounds of the hospital and in the hospital itself, raised a triable issue of fact as to whether the corporate veil should be pierced … . Midson v Meeting House Lane Med. Practice, P.C., 2024 NY Slip Op 04261, Second Dept 8-21-24

Practice Point: Consult this decision for what it takes to raise a question of fact whether the corporate veil should be pierced in support of a vicarious liability theory.

 

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THE UNINSURED PLAINTIFF WAS AWARDED TENS OF MILLIONS OF DOLLARS, INCLUDING FUTURE MEDICAL COSTS, AFTER TRIAL FOR AN INJURY WHICH LEFT HIM PARALYZED; DEFENDANT REQUESTED A COLLATERAL SOURCE HEARING PURSUANT TO CPLR 4545 BECAUSE PLAINTIFF MAY BE ABLE TO RECOVER FUTURE MEDICAL COSTS UNDER THE PATIENT PROTECTION AND AFFORDABLE CARE ACT; IN A MATTER OF FIRST IMPRESSION THE SECOND DEPARTMENT HELD DEFENDANT WAS ENTITLED TO A COLLATERAL SOURCE HEARING (SECOND DEPT).

The Second Department, in a full-fledged opinion by Justice Ventura, in a matter of first impression, determined defendant in this negligence action was entitled to a hearing pursuant to CPLR 4545 concerning damages awarded for future medical expenses. Plaintiff, a bicyclist, was struck by a railroad tie which was dropped from above, and was paralyzed. Plaintiff was awarded tens of millions of dollars after trial. Defendant argued the uninsured plaintiff may be entitled to future medical costs under the Patient Protection and Affordable Care Act and requested a CPLR 4545 collateral source hearing:

This appeal presents a question of first impression in New York involving the effect of the Patient Protection and Affordable Care Act on collateral source offsets in personal injury actions, to wit: whether a defendant may be entitled to a collateral source hearing pursuant to CPLR 4545 for the purpose of establishing that an uninsured plaintiff’s future medical expenses will, with reasonable certainty, be covered in part by a private health insurance policy, as long as the plaintiff takes the steps necessary to procure the policy. Among other reasons, since providing a defendant an offset under such circumstances would serve the “ultimate goal of CPLR 4545 to eliminate duplicate recovery by a plaintiff” … , we conclude that the defendant was entitled to a hearing pursuant to CPLR 4545 to demonstrate the extent, if any, to which the plaintiff’s future medical expenses would be reduced by available insurance coverage. We express no opinion, however, about the appropriate outcome following the hearing.

… [W]e modify the amended judgment by deleting the award of damages for the plaintiff’s future medical expenses and … remit this matter to the Supreme Court … , for a collateral source hearing on the issue of those expenses, with entry of an appropriate second amended judgment thereafter. Liciaga v New York City Tr. Auth., 2024 NY Slip Op 04257, Second Dept 8-21-24

Practice Point: If an uninsured plaintiff, who was awarded damages to cover future medical costs, may be entitled to future medical costs under the Patient Protection and Affordable Care Act, defendant may be entitled to a CPLR 4545 collateral source hearing.​

 

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BECAUSE THE ALLONGE ENDORSED IN BLANK WAS NOT FIRMLY AFFIXED TO THE NOTE AS REQUIRED BY THE UCC, THE BANK IN THIS FORECLOSURE ACTION DID NOT DEMONSTRATE STANDING TO BRING THE ACTION (SECOND DEPT). ​

The Second Department, reversing Supreme Court, determined the bank in this foreclosure action did not demonstrate iT had standing to bring the action. The purported allonge endorsed in blank was not attached to the note:

 “A plaintiff may establish … its standing as the holder of the note by demonstrating that a copy of the note, including an endorsement in blank, was among the exhibits annexed to the complaint at the time the action was commenced” … . “A promissory note [is] a negotiable instrument within the meaning of the Uniform Commercial Code” ( … see UCC 3-104[2][d]). A “holder” is “the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession” (UCC 1-201[b][21][A]; see 3-301 … ). Where an instrument is endorsed in blank, it may be negotiated by delivery (see UCC 3-202[1]; 3-204[2] …). “An indorsement must be . . . on the instrument or on a paper so firmly affixed thereto as to become a part thereof” (UCC 3-202[2]).

… [T]he plaintiff failed to make a prima facie showing that it had standing to commence the action. Although the plaintiff attached a copy of the note and a purported allonge endorsed in blank to the complaint, the plaintiff failed to demonstrate that the purported allonge “was so firmly affixed [to the note] as to become a part thereof, as required by UCC 3-202(2)” … . Moreover, an affidavit of an assistant secretary of the plaintiff’s servicer/attorney-in-fact, submitted in support of the plaintiff’s motion, inter alia, for summary judgment on the complaint insofar as asserted against the defendant, to strike his answer, and for an order of reference, was also insufficient to demonstrate the plaintiff’s compliance with UCC 3-302(2), as it was bereft of any reference to the purported allonge … . Lakeview Loan Servicing, LLC v Florio, 2024 NY Slip Op 04256, Second Dept 8-21-24

Practice Point: The UCC requires that an allonge endorsed in black be firmly affixed to the note.​

 

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THE COVID TOLL OF THE STATUTE OF LIMITATIONS RENDERED THIS NEGLIGENCE ACTION AGAINST A MUNICIPALITY TIMELY (SECOND DEPT). ​

The Second Department, reversing Supreme Court, determined the COVID toll of the statute of limitations applied and the negligence action against defendant municipality was timely commenced:

The plaintiff alleged that he was injured on May 24, 2019, when he was seated on a swing that collapsed at a playground owned and operated by the defendants, causing him to fall to the ground. Thereafter, the defendants moved for summary judgment dismissing the complaint as time-barred, arguing that the action was not timely commenced within the applicable one-year and 90-day statute of limitations. In an order dated August 3, 2022, the Supreme Court granted the defendants’ motion. The plaintiff appeals.

Pursuant to General Municipal Law § 50-i and CPLR 217-a, an action against a municipality to recover damages for personal injuries must be commenced within one year and 90 days after the happening of the event upon which the claim is based. Here, the defendants established, prima facie, that the applicable statute of limitations started to run from January 5, 2020, the date on which the plaintiff turned 18 years old (see CPLR 208), and that the action was not timely commenced within one year and 90 days from that date by April 5, 2021 … . However, in opposition, the plaintiff established that Executive Order (A. Cuomo) No. 202.8 (9 NYCRR 8.202.8), which was issued in connection with the COVID-19 public health crisis, and subsequent executive orders extending the duration thereof, tolled the applicable statute of limitations for a 228-day period from March 20, 2020, to November 3, 2020, and thus, the action was timely commenced prior to the expiration of the statute of limitations on November 19, 2021 … . Fuhrmann v Town of Riverhead, 2024 NY Slip Op 04248, Second Dept 8-21-24

Practice Point: Here the COVID toll of the statute of limitations extended the time for commencing the negligence action against the municipality by 228 days.

 

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THE REFEREE’S REPORT IN THIS FORECLOSURE ACTION WAS INADMISSIBLE HEARSAY BECAUSE THE BUSINESS RECORDS UPON WHICH THE REPORT WAS BASED WERE NOT PRODUCED (SECOND DEPT). ​

The Second Department, reversing Supreme Court, determined the referee’s report in this foreclosure action should not have been confirmed because the business records on which the referee’s calculations were based were not attached to the referee’s affidavit, rendering the affidavit hearsay:

… [T]he referee’s report was based upon her review … of the note and mortgage, the summons and complaint, and an affidavit of merit and amount due, which listed the amount due to the plaintiff. However … the affidavit constituted inadmissible hearsay and lacked probative value because the affiant failed to produce the business records purportedly relied upon in making her calculations … . Countrywide Home Loans Servicing, L.P. v Weberman, 2024 NY Slip Op 04240, Second Dept 8-21-24

Practice Point: An affidavit which purports to rely on records which are not attached is inadmissible hearsay.

 

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THE SIX-MONTH EXTENSION FOR COMMENCEMENT OF AN ACTION UNDER CPLR 205(A) IS NOT AVAILABLE WHEN THE PRIOR ACTION WAS VOLUNTARILY DISCONTINUED; HERE THE CPLR 205(A) EXTENSION WAS NOT AVAILABLE FOR A STATE ACTION WHICH PLAINTIFF ATTEMPTED TO COMMENCE AFTER VOLUNTARILY DISCONTINUING A SIMILAR FEDERAL ACTION (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the six-month extension for the commencement of an action codified in CPLR 205 (a) was not available to the plaintiff because a similar federal action had been voluntarily discontinued by the plaintiff. Plaintiff had sued in federal court for violations of the Fair Labor Standards Act and the Labor Law. Plaintiff discontinued that action and brought a state action under the Labor Law. Because plaintiff could not take advantage of CPLR 205 (a), the state action was time-barred:

“CPLR 205(a) extends the time to commence an action after the termination of an earlier related action, where both actions involve the same transaction or occurrence or series of transactions or occurrences” … . However, the six-month grace period provided under CPLR 205(a) is not available where the previous action has been terminated by “a voluntary discontinuance, a failure to obtain personal jurisdiction over the defendant, a dismissal of the complaint for neglect to prosecute the action, or a final judgment upon the merits” … .

CPLR 205(a) was not applicable to this action, since the similar and timely commenced federal action was terminated by means of a voluntary discontinuance. A discontinuance effectuated pursuant to either CPLR 3217(a) or (b) constitutes a voluntary discontinuance for purposes of CPLR 205(a) … . Pursuant to a similar provision in the Federal Rules of Civil Procedure, an action may be voluntarily dismissed either by a stipulation or notice, pursuant to Federal Rules of Civil Procedure rule 41(a)(1), or by a court order, pursuant to Federal Rules of Civil Procedure rule 41(a)(2). Thus, since the discontinuance here was affirmatively requested by the plaintiff and was granted pursuant to Federal Rules of Civil Procedure rule 41(a)(2), CPLR 205(a) was not available to extend the limitations period beyond the termination of the federal action … . Castillo v Suffolk Paving Corp., 2024 NY Slip Op 04239, Second Dept 8-21-24

Practice Point: Here plaintiff voluntarily discontinued a federal action and brought a similar action in state court. Because the federal action was voluntarily discontinued, the six month extension for commencing an action under CPLR 205 (a) was not available to plaintiff and the state action was time-barred.

 

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HERE THE MARINA OWNER SERVED THE BOAT OWNER WITH A NOTICE OF SALE (FOR FAILURE TO PAY STORAGE FEES) BY MAIL; THE LIEN LAW REQUIRES AN INITIAL ATTEMPT AT PERSONAL SERVICE OF THE NOTICE OF SALE BEFORE RESORTING TO SERVICE BY MAIL; THE FAILURE TO MAKE AN ATTEMPT AT PERSONAL SERVICE BEFORE SELLING THE BOAT VIOLATED THE LIEN LAW; THE SALE OF THE BOAT THEREFORE CONSTITUTED CONVERSION (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the defendant did not properly serve the plaintiff pursuant to the Lien Law. Defendant, a marina-owner, sought to satisfy a garagekeeper’s lien by selling plaintiff’s boat because plaintiff had stopped making payments for storage of the boat. Defendant did not attempt personal service, as required by the Lien Law, and instead served plaintiff by mail. Plaintiff was entitled to summary judgment on the conversion cause of action:

A lienor may satisfy a lien against personal property by selling such property … . However, before such sale is held, the lienor “must serve a notice of sale, by personal service, within the county where [the] lien arose, unless the person to be served cannot with due diligence be found within such county” (… see Lien Law § 201). After exercising due diligence in attempting personal service of the notice of sale, a lienor may then resort to service “by certified mail, return receipt requested, and by first-class mail” to the owner’s last known place of residence … . “[I]nasmuch as a garagekeeper’s lien is a statutory creation in derogation of common law,” the failure to comply with the statutory service requirements “renders service defective” … . The unauthorized disposition of property by a lienor to a third party without proper notice to the owner entitles the owner to damages for conversion … . …

… Since the defendant admitted that it had not exercised due diligence in attempting to serve the notice of sale by personal service before resorting to the statutory alternative of service by mail, the defendant failed to raise a triable issue of fact as to whether it properly served the plaintiff with the notice of sale before disposing of the plaintiff’s boat … . Slattery v Strong’s Mar., LLC, 2024 NY Slip Op 04219, Second Dept 8-14-24

Practice Point: The Lien Law requires a garagekeeper to attempt to personally serve a notice of sale before resorting to service by mail. The failure to attempt personal service of the notice of sale essentially nullifies the notice. A subsequent sale of the property to satisfy the garagekeeper’s lien constitutes conversion.​

 

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THE USUAL PROHIBITIONS RE: VACATING ORDERS ISSUED OPON A PARTY’S DEFAULT DO NOT APPLY IN CHILD CUSTODY MATTERS; TO MODIFY CUSTODY, A FULL AND PLENARY HEARING IS NECESSARY; IF A PARTY DOES NOT APPEAR IN A MODIFICATION PROCEEDING, AN INQUEST SHOULD BE HELD TO CREATE A RECORD (SECOND DEPT).

The Second Department, reversing Family Court, noted that courts should be more willing to vacate orders issued upon a party’s default in child custody matters. Mother had defaulted and custody was modified awarding custody to father. Mother’s motion to vacate the modification order should have been granted:

Although the determination of whether to relieve a party of an order entered upon his or her default is a matter left to the sound discretion of the Family Court … , “the law favors resolution on the merits in child custody proceedings” … . “Thus, the ‘general rule with respect to opening defaults in civil actions is not to be rigorously applied to cases involving child custody'” … .

Moreover, modification of an existing order of custody and parental access may be made only “‘upon a showing that there has been a subsequent change [in] circumstances such that modification is required to protect the best interests of the child'” … . “‘A custody determination, whether made upon the default of a party or not, must always have a sound and substantial basis in the record'” … . “Generally, the court’s determination should be made only after a full and plenary hearing and inquiry, or, where a party failed to appear, after an inquest” … . Matter of Paez v Bambauer, 2024 NY Slip Op 04205, Second Dept 8-14-24

Practice Point: Child custody should not be modified without a full and plenary hearing, or an inquest (if a party fails to appear).

Practice Point: The rigorous rules re: vacating an order issued upon a party’s default are relaxed in child custody matters.

 

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ONCE AGAIN, BECAUSE THE RELEVANT BUSINESS RECORDS WERE NOT ATTACHED TO THE AFFIDAVITS, THE STATEMENTS IN THE AFFIDAVITS WERE HEARSAY; PLAINTIFF BANK DID NOT PROVE STANDING TO FORECLOSE OR DEFENDANT’S DEFAULT (SECOND DEPT). ​

The Second Department, reversing Supreme Court, determined the bank in this foreclosure action did not prove standing and did not prove defendant’s default because the relevant business records were not attached to the relevant affidavits (yet another of the hundreds of reversals on this issue):

… “‘[i]t is the business record itself, not the foundational affidavit, that serves as proof of the matter asserted'” … . Thus, “[w]hile a witness may read into the record from the contents of a document which has been admitted into evidence, a witness’s description of a document not admitted into evidence is hearsay” … . In addition, “‘[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'” … . Here, neither affidavit relied upon by the plaintiff to establish its physical possession of the note stated that the affiant had personal knowledge of … the plaintiff’s record-keeping practices, and the affiants did not annex the records that they relied upon to their affidavits. Thus, the affidavits were inadmissible hearsay lacking in evidentiary value.

Likewise, without the submission of the business records upon which she relied, Ballard’s assertions regarding the defendant’s alleged default on the loan were inadmissible … . HSBC Bank USA, N.A. v Pacifico, 2024 NY Slip Op 04198, Second Dept 8-14-24

Practice Point: If the business records described in an affidavit are not attached, the statements in the affidavit about the records are inadmissible hearsay.

 

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​HERE THE DEFENDANTS DID NOT PRESENT A REASONABLE EXCUSE FOR FAILING TO APPEAR OR ANSWER AND DID NOT DEMONSTRATE THE EXISTENCE OF A POTENTIALLY MERITORIOUS DEFENSE; THE JUDGE SHOULD NOT HAVE, SUA SPONTE, GRANTED DEFENDANTS AN EXTENSION OF TIME TO ANSWER (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the judge should not have, sua sponte, granted defendants an extension of time to answer the complaint in the face of plaintiff’s cross-motion to enter a default judgment, The defendants did not demonstrate a reasonable excuse for failing to appear or answer or the existence of a potentially meritorious defense:

… [I]n support of that branch of the plaintiff’s cross-motion which was for leave to enter a default judgment on the issue of liability against the defendants, the plaintiff submitted proof of service of the summons and complaint, proof of the facts constituting the claim, and proof of the defendants’ default in answering or appearing … . The defendants’ motion, which was, in effect, pursuant to CPLR 3211(a)(4), was untimely, since it was made after the time to file an answer had lapsed … . By not opposing the facially adequate branch of the plaintiff’s cross-motion which for leave to enter a default judgment, in form or in effect, the defendants did not meet their burden of establishing a reasonable excuse for their default and demonstrating the existence of a potentially meritorious defense to the action. Accordingly, that branch of the plaintiff’s cross-motion which was for leave to enter a default judgment on the issue of liability against the defendants should have been granted … , and the Supreme Court erred by, sua sponte, granting the defendants an extension of time to answer the complaint … . Digital Direct & More, Inc. v Dialectic Distrib., LLC, 2024 NY Slip Op 04196, Second Dept  8-14-24

Practice Point: Here is another example of the appellate courts cracking down on “sua sponte” rulings on motions which have no support in the record.

 

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