NEW YORK LITIGATION: WHY THE RULES COUNT
When someone sues you or your company, you have to pick a lawyer who knows the rules of the game. The rules are intricate and, even two situations that look similar, are not always governed by the same rules. When even judges can apply the wrong rule, it is better to know what should have happened, so you can decide what your options are. That is what a good attorney does: she explains what your options are, and your realistic chances of success with each, so you can best protect your interests.
A recent appellate decision makes this point. 1259 Lincoln Place Corp. v Bank of N.Y., 2018 NY Slip Op 02177, Appellate Division, Second Department, was decided on March 28, 2018. It really is a fight over a lot of money, disguised as an attempt to quiet title pursuant to RPAPL Art. 15; and the fight ultimately turned on which set of rules should be used to decide the dispute. The trial court selected one, and the Appellate Division determined that another should have been used.
The facts are straightforward: A bank took a mortgage on a property in Brooklyn. The mortgage secured a large loan. The borrower evidently defaulted so the bank attempted to foreclose and filed a notice of pendency against the property. The problem was, the borrower apparently did not own the property; even worse, the Bank already paid approximately $200,000 in property taxes on it. The titled owner wanted to keep its property, so it sued the Bank to quiet title; i.e., it asked the court to declare it was the rightful owner of the property and to cancel the notice of pendency. The titled owner made a summary judgement motion, which means it asked the court to declare it the rightful owner of the property without a trial, just based on the motion papers alone. Faced with losing the case outright, the Bank came up with a backup plan: It tried to assert a new claim that it should have an equitable lien; i.e., it paid out money to maintain the property (the real estate taxes), which the rightful owner received the benefit of, so it is only fair that the Bank should get the money back. The problem was that it needed the court’s permission, so it made a cross-motion to assert a counterclaim for an equitable lien to at least recover some of the money it paid.
A defendant normally has two chances to allege any defenses or counterclaims it wants without needing anyone’s permission: in its answer, or within 20 days after it serves the answer, which is the deadline for serving an amended answer. If the Defendant waits any longer, however, it needs its adversary’s consent or the court’s permission before it can do so. New York CPLR 3025 is the relevant statute, and it provides, in pertinent part:
Rule 3025. Amended and supplemental pleadings
(a) Amendments without leave. A party may amend his pleading once without leave of court within twenty days after its service, or at any time before the period for responding to it expires, or within twenty days after service of a pleading responding to it.
(b) Amendments and supplemental pleadings by leave. A party may amend his or her pleading, or supplement it by setting forth additional or subsequent transactions or occurrences, at any time by leave of court or by stipulation of all parties. Leave shall be freely given upon such terms as may be just including the granting of costs and continuances. Any motion to amend or supplement pleadings shall be accompanied by the proposed amended or supplemental pleading clearly showing the changes or additions to be made to the pleading.
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The trial court denied the Bank’s cross-motion to amend its answer to assert a counterclaim because it held that the Bank did not properly establish that it paid the property taxes on the property. The trial court held that the Bank had to establish that it paid the property taxes, through evidence in admissible form. That means the Bank should have offered evidence that could have been considered at trial or in a motion for summary judgement. The problem was, it was not either a trial or a motion for summary judgement, so a different set of rules applied. To amend its answer, and assert the counterclaim for an equitable lien, the Bank did not have to prove it would succeed/win on the claim; all it had to do was show that the claim was not totally improper or wrong. As the Second Department held at 1259 Lincoln Place Corp. v. Bank of New York, 159 A.D.3d 1004, 1005–06 (2nd Dept. 2018):
The Supreme Court improvidently exercised its discretion in *1006 denying that branch of the defendant’s cross motion which was for leave to amend its answer to assert a counterclaim for an equitable lien of at least $200,000 based upon its alleged payment of real estate taxes. In the absence of “prejudice or surprise resulting directly from the delay in seeking leave” to amend a pleading, such applications “are to be freely granted ‘unless the proposed amendment is palpably insufficient or patently devoid of merit’ ” (Castle Peak 2012-1 Loan Trust Mtge. Backed Notes, Series 2012-1 v Sottile, 147 AD3d 720, 722 , quoting Lucido v Mancuso, 49 AD3d 220, 222 ; see CPLR 3025 [b]; Davis v South Nassau Communities Hosp., 26 NY3d 563, 580 ). Here, the court denied leave to amend the answer based upon its determination that the defendant had failed to lay a proper foundation, under the business records exception to the hearsay rule, for the admission of a document which allegedly demonstrated that the defendant had paid real estate taxes on the subject property. However, “[n]o evidentiary showing of merit is required under CPLR 3025 (b)” (Lucido v Mancuso, 49 AD3d at 229). Since the defendant’s proposed counterclaim was not palpably insufficient or patently devoid of merit, and since no prejudice or surprise would result from granting leave to amend the answer, the branch of the defendant’s cross motion seeking that relief should have been granted.
[Emphasis by bold and underlining, supplied]
The appellant made the right decision by perfecting its appeal. There is a large amount of time and expense involved in perfecting an appeal, there is never a guarantee of how an appellate court will decide an issue, and simply because you believe you know what is correct does not mean a panel of judges will agree. A reasoned decision on whether to appeal, however, can be made only with a complete understanding of the law, including what parts are applicable to a particular case. Knowing what should happen is the best way to determine what might happen, so you can overcome a potential problem if and when it occurs.
Go raibh maith agat