Amalgamated Bank, Respondent,v.Helmsley-Spear, Inc., Defendant, Schneider & Schneider, Inc., et al., Appellants.BriefN.Y.June 1, 2015To be Argued by: CHRISTOPHER J. SULLIVAN (Time Requested: 30 Minutes) APL-2014-00063 New York County Clerk’s Index No. 603573/09 Court of Appeals of the State of New York AMALGAMATED BANK, Respondent, – against – HELMSLEY SPEAR, INC., Defendant, – and – SCHNEIDER & SCHNEIDER, INC. and LYNN C. SCHNEIDER, Appellants. REPLY BRIEF FOR APPELLANTS CHRISTOPHER J. SULLIVAN WILLIAM FRIED MARISA A. LETO HERRICK, FEINSTEIN LLP 2 Park Avenue New York, New York 10016 Tel.: (212) 592-1400 Fax: (212) 529-1500 Attorneys for Appellants Schneider & Schneider, Inc. and Lynn C. Schneider Date Completed: December 15, 2014 TABLE OF CONTENTS Page TABLE OF CONTENTS................................................................................................................. i TABLE OF AUTHORITIES.......................................................................................................... ii PRELIMINARY STATEMENT.....................................................................................................1 POINT I APPELLANTS ARE “INTERESTED PERSONS” UNDER OPPENHEIMER...................................................................................... 3 POINT II JUDICIAL ASSISTANCE IS ALSO WARRANTED TO AVOID INJUSTICE......................................................................................... 6 POINT III RESPONDENT’S PUBLIC POLICY ARGUMENT IS WITHOUT MERIT...........................................................................................11 CONCLUSION 12 TABLE OF AUTHORITIES Page State Cases Bevelacqua v. Brooklyn Law School, 39 Misc. 3d 1216(A), 975 N.Y.S.2d 365 (Sup. Ct. Kings Cnty. 2013)............... 2 Bond v. Giebel, 101 A.D.3d 1340, 956 N.Y.S.2d 267 (3d Dep’t 2012)........................................9 Citibank, N.A. v. Keller, 133 A.D.2d 63, 518 N.Y.S.2d 409 (2d Dep’t 1987)............................................5 In re C iv. Serv. Bar Ass ’n., 64 N.Y.2d 188, 485 N.Y.S.2d 227 (1984)...........................................................9 Hensy Props., Inc. v. Lamagna, 23 A.D.2d 742, 258 N.Y.S.2d 495 (1st Dep’t 1965)...........................................6 Ladd v. Stevenson, 112N.Y. 325 (1889)............................................................................................1 Lafayette Trust Co. v. Beggs, 213 N.Y. 280(1915)............................................................................................2 Lane v. Lane, 175 A.D.2d 103, 572N.Y.S.2d 14 (2d Dep’t 1991)..................................4,5, 10 Marlinski v. Marlinski, 111 A.D.3d 1268, 974 N.Y.S.2d 200 (4th Dep’t 2013).......................................2 McKenna v. Cnty. o f Nassau, 61 N.Y.2d 739, 472 N.Y.S.2d 913 (1984)...........................................................9 Oppenheimer v. Westcott, 47 N.Y.2d 595, 419 N.Y.S.2d 908 (1979)................................................. passim Woodson v. Mendon Leasing Corp., 100 N.Y.2d 62, 760 N.Y.S.2d 727 (2003) 1,9 Statutes 22 NYCRR § 500.22(b)(4)........................................................................................6 CPLR § 5015 (McKinney 2014)...........................................................................1, 7 Miscellaneous http://www.merriam-webster.com.............................................................................9 in PRELIMINARY STATEMENT Since time immemorial, this Court has held inviolate a court’s discretion to vacate default judgments where justice so requires. Indeed, this Court has oft noted that the “power to do so does not depend upon any statute, but is inherent, and it would be quite unfortunate if it did not possess it to the fullest extent.” Ladd v. Stevenson, 112 N.Y. 325, 332 (1889); see also Woodson v. Mendon Leasing Corp., 100 N.Y.2d 62, 68, 760 N.Y.S.2d 727, 731 (2003) (emphasizing that “courts retain and exercise their inherent discretionary power in situations that warranted vacatur but which the drafters [of CPLR 5015(a)] could not easily foresee”). The First Department’s decision, which reversed the trial court’s decision vacating the default judgment entered against defendant Helmsley Spear, Inc. (“Helmsley”) based upon an erroneous interpretation of this Court’s decision in Oppenheimer v. Westcott, 47 N.Y.2d 595, 419 N.Y.S.2d 908 (1979), has flagrantly disregarded this Court’s long-standing tenet. Cognizant of the First Department’s error construing this Court’s seminal decision, Respondent makes various attempts to re-write it (and, at the same time, ignores or makes light of critical facts in this case).* 1 Significantly, Respondent has effectively conceded that if the First Department erred in its interpretation of Oppenheimer, Appellants should prevail. Regardless of 1 Appellants will only address some of Respondent’s more significant misstatements herein. 1 Respondent’s attempts at obfuscation, in reversing the trial court’s decision, the First Department plainly held that under Oppenheimer a party is required to establish either “fraud or misconduct” in order to vacate a default judgment. (R 543). No such limitation is found in Oppenheimer or in the CPLR. If left to stand, the First Department’s decision will significantly hamstring the New York courts and prevent them from applying the necessary discretion to vacate default judgments where justice so requires, as is the case here. Indeed, affirmance of the First Department’s decision which reinstated the default judgment could result in two non-parties to this action, who were given no opportunity to participate in this action, paying a significant default judgment rendered against a defendant (despite Respondent’s counsel’s admitted knowledge of their existence prior to entry of default) , on what is ultimately a baseless claim. The equities plainly lie on the side of these non-parties who seek 23 2 (R 240 If 9). 3 Most of Respondent’s claims were dismissed by the trial court in response to defendant McCauley’s motion for summary judgment. (R 81). Moreover, Respondent would undoubtedly face significant difficulty at trial establishing that an appraisal performed in late 2006 was “negligent” merely because a borrower defaulted in 2008 in the worst recession in real estate history. Contrary to Respondent’s contention (Resp. Br. at 5 n.2), such a fact regarding the economic conditions at the applicable time was a part of the record (R 450), and, regardless, New York courts may take judicial notice of it. See, e.g., Lafayette Trust Co. v. Beggs, 213 N.Y. 280, 286 (1915) (taking judicial notice of the financial depression of 1907); Marlinski v. Marlinski, 111 A.D.3d 1268, 1272, 974 N.Y.S.2d 200, 204 (4th Dep’t 2013) (dissenting in part) (taking judicial notice that on March 9, 2009 the Dow Jones “hit a 12-year low”); Bevelacqua v. Brooklyn Law School, 39 Misc. 3d 1216(A), at *10, 975 N.Y.S.2d 365 (Sup. Ct. Kings Cnty. 2013) (taking judicial notice of the “severe downturn in the economy”). Respondent also misstates the record when it argues that Appellants admitted that “they had no involvement with, 2 to intervene and defend against the claim, with no resultant prejudice to Respondent. For all of the reasons set forth below and in Appellants’ opening brief, Appellants respectfully request that the Court reverse the First Department’s decision and reinstate the trial court’s decision vacating the default judgment entered against defendant Helmsley. POINT I APPELLANTS ARE “INTERESTED PERSONS” UNDER OPPENHEIMER Respondent does not deny that without its default judgment against defendant Helmsley, Respondent simply has no basis to pursue Appellants for any recovery. Instead, Respondent argues that Appellants can only possess a cognizable “interest” in this action if the default judgment was procured by fraud or other misconduct. Resp. Br. at 14. However, this is not the law. As the trial court in this case providently recognized, because “[Respondent] is using the default judgment against Helmsley as a predicate for liability against [Appellants] in the Supplemental Proceeding,” Appellants constitute “interested persons” under Oppenheimer. (R 13). In Oppenheimer, this Court held that: nor any knowledge of, the facts and circumstances regarding the Appraisal.” Resp. Br. at 5 n.2. Indeed, Appellant Lynn Schneider has consistently taken the position that they were the owners of the company at the time and any trial would have involved them as possible witnesses and custodians of documents. 3 Without a valid judgment against Hancock, Oppenheimer has no claim against the Bernstein defendants. In light o f that fact and o f Hancock’s insolvency, it is manifest that no one has a greater or more legitimate interest in setting aside Oppenheimer’s judgment against Hancock than they do. Id. at 602, 419 N.Y.S.2d at 911 (emphasis added). The facts of Oppenheimer are nearly identical to the facts of this case. There is no dispute that Respondent has no claim against Appellants without its judgment against Helmsley (which is for all intents and purposes insolvent). Lane v. Lane, 175 A.D.2d 103, 572 N.Y.S.2d 14 (2d Dep’t 1991) is also instructive. There, the infant plaintiff was injured in a fire and his mother filed suit against the owners of the building in which the fire occurred on her son’s and her own behalf. The building was owned by the plaintiffs uncle, aunt, father and estate of his grandmother. The estate had an insurance policy and the insurer agreed to represent the estate in the litigation. The intervenor was the attorney hired to represent the estate. The other three defendants never appeared and a default judgment was granted against them. Later, two of the defaulting defendants assigned to plaintiffs any claims they might have against the attorney for the estate. Id. at 104, 572 N.Y.S.2d at 15. Plaintiffs later commenced an action for legal malpractice against the attorney claiming that he had agreed to represent the two defaulting defendants who had assigned their rights to plaintiffs and sought 4 the full amount of the default judgment from the attorney. The attorney’s motion for leave to intervene and vacate the default judgment was granted. In affirming the trial court’s order, the Second Department held: In light of the fact that the defendants [] are not interested in vacating the default judgment, it appears that no one has a greater interest in vacating the default that[sic] Scheer. Indeed, it is clear that without a valid default judgment against those defendants, the plaintiffs’ legal malpractice claim against Scheer is worthless. As such, we find that Scheer has standing to move to vacate the default judgment. Id. at 105, 572 N.Y.S.2d at 16 (citing Oppenheimer) (emphasis added); see also Citibank, N.A. v. Keller, 133 A.D.2d 63, 64, 518 N.Y.S.2d 409, 410 (2d Dep’t 1987) (finding former wife an “interested person” for purposes of vacating default judgments entered against former husband where “an action in partition could be commenced by the defendant [husband’s] judgment creditors” and her “right to exclusive possession of the marital property might thereby be affected”). Applicable precedent makes clear that Appellants are “interested persons” under New York law. 5 POINT II JUDICIAL ASSISTANCE IS ALSO WARRANTED TO AVOID INJUSTICE While Respondent characterizes this case as “far from unique” (Resp. Br. at 28)4, the unique factual circumstances present here demonstrate that justice dictates reversal of the First Department’s decision and vacatur of the default against defendant Helmsley. First, the default was excusable.5 678 While Respondent has contended f \ 7below that defendant Helmsley intentionally defaulted ’ , Respondent does not dispute (nor can it), that Appellants had no notice of the pending litigation nor control over defendant Helmsley at the time of the default. Second, the interest of justice will unquestionably be served by an adjudication of the action on the merits. Indeed, the Respondent’s dismissal of its 4 Perhaps Respondent categorizes this case as such because it simply has ignored the facts. Indeed, criteria for this Court taking the case on appeal include that it presents questions that “are novel or of public importance.” 22 NYCRR § 500.22(b)(4). 5 Respondent erroneously contends that Appellant somehow abandoned this argument. Resp. Br. at 17-18. 6 New York courts have even granted motions to vacate a default judgment where the default was deemed deliberate, albeit with costs assessed. See, e.g., Hensy Props., Inc. v. Lamagna, 23 A.D.2d 742, 258 N.Y.S.2d 495 (1st Dep’t 1965). 7 It is unsurprising that Respondent can opine as to the intentions of defendant Helmsley at the time given Respondent’s questionable conversation with Helmsley’s counsel, Mr. Stempel. 8 While Respondent quibbles over whether it was Kent Swig’s responsibility to defend Helmsley (Resp. Br. 6 n.4), as recognized by the trial court (R 11), notably, it is undisputed that it was not Appellants’ responsibility to defend Helmsley at the time of the default. 6 case against the only remaining defendant McCauley makes clear that it had no intention of actually pursuing its claim on the merits if it collects its judgment — on default — from Appellants. Notably, the trial court had already dismissed the Respondent’s breach of contract claim and certain aspects of its negligence claim against defendant McCauley before Respondent voluntarily discontinued the action against McCauley. And, Respondent was seeking to hold defendant Helmsley vicariously liable for the alleged negligence of its employee, McCauley. As such, the merits of the case remaining against McCauley (and Helmsley) were questionable. Appellants, the former owners of Helmsley9, owned Helmsley at the time of the appraisal and would share the same meritorious defense as Helmsley (and its former employee, McCauley).10 Moreover, permitting Appellants to step in and defend the case when Respondent is seeking to in effect nullify the sale of Helmsley to recover the default judgment from Appellants through the Supplemental Proceeding would be entirely appropriate. Finally, Oppenheimer (and CPLR 5015) does not require that Appellants establish that the default was procured by fraud or other wrongdoing to establish that an injustice would occur absent vacatur, as Respondent contends. 9 Appellant Lynn Schneider owned 99 percent of the shares of Helmsley. (R 538). 10 Respondent also erroneously contends that Appellant somehow abandoned this argument. Resp. Br. at 17-18. 7 Resp. Br. at 27. While Oppenheimer did involve a potential fraud on the court, this Court also noted that: The inclusion in CPLR 5015 (subd [a], [3]) of ‘misrepresentation, or other misconduct’ is based upon the parallel wording of rule 60 (subd [b], par [3]) of the Rules of Civil Procedure [] and broadens the basis for relief by motion beyond that recognized in prior case law, which required the movant to establish the commission of a fraud. Id. at 603, 419 N.Y.S.2d at 911 (citations omitted). The discretion afforded to the courts in this area is quite broad. See supra 1. Indeed, it is clear from the very quotation upon which Respondent relies that this Court intended Oppenheimer to be applied more broadly. Oppenheimer states: Without a valid judgment against Hancock, Oppenheimer has no claim against the Bernstein defendants. In light of that fact and of Hancock’s insolvency, it is manifest that no one has a greater or more legitimate interest in setting aside Oppenheimer’s judgment against Hancock than they do. Moreover, if in fact the default judgment was obtained by fraud or misconduct, judicial assistance will avoid the injustice that would be visited upon the Bernstein defendants were they required to undertake the costly defense of a baseless action. Resp. Br. at 16 (citing Oppenheimer, 47 N.Y.2d at 602, 419 N.Y.S.2d at 911) (emphasis added). The Court’s use of the term “moreover,” which means “in addition to what has been said”11, makes clear that the fraud or misconduct was an 11 http://www.merriam-webster.com. 8 additional reason justifying the Court’s decision to permit intervention and vacatur of the default judgment (not the only reason, as the First Department ruled). Moreover, Respondent’s attempt to re-interpret Woodson, 100 N.Y.2d 62, 760 N.Y.S.2d 727, to support its position fails. Resp. Br. at 22. While the Court reinstated the default judgment there, the decision makes clear that the Court considered both whether the facts supported fraud or misconduct and whether it was otherwise appropriate under the “court’s inherent discretionary power” to vacate the default. See id. at 69, 760 N.Y.S.2d at 732. Respondent’s attempt at distinguishing Bond v. Giebel, 101 A.D.3d 1340, 956 N.Y.S.2d 267 (3d Dep’t 2012), similarly falls short. Indeed, the very language upon which Respondent relies makes clear that the default was not procured by fraud or wrongdoing and was vacated by the Third Department anyway because it “offends [the court’s] sense of justice and propriety.” Resp. Br. at 25 (citing Bond, 101 A.D.3d at 1342 43, 956 N.Y.S.2d at 269).12 Nevertheless, Respondent’s own actions (or lack thereof) do raise questions regarding the propriety of Respondent’s procurement of the default. Significantly, one of Respondent’s attorneys, Tyler Kandel, has admitted that he 12 McKenna v. Cray, o f Nassau, 61 N.Y.2d 739, 740-41, 472 N.Y.S.2d 913, 914 (1984), upon which Respondent also relies, is completely irrelevant. There, the Court concluded that it was inappropriate for Special Term to reopen a judgment based upon a perceived error of law that could have been but was not raised on prior appeals to the Appellate Division. Respondent also relies upon a “concurring” opinion in In re Civ . Serv. Bar Ass’n., 64 N.Y.2d 188, 485 N.Y.S.2d 227 (1984), rather than the Court’s actual decision which has no application here. 9 personally had communications with the General Counsel of defendant Helmsley shortly after service of the summons and complaint in this action, in which he was advised that “Helmsley-Spear’s assets had been transferred and/or sold to a third party, and, therefore, any judgment entered against it in this action would essentially be unenforceable.” (R 240 f 9). It is unclear whether Respondent was advised of Appellants’ existence or the transactions which it now claims to be fraudulent at that time. However, if Respondent was aware — and there was 1 3substantial media coverage of the sale — it certainly begs the question why Respondent would not notify Appellants of the action or their potential liability then. See Lane, 175 A.D.2d at 106, 572 N.Y.S.2d at 16 (vacating the default judgment where “[i]t appears that the defaulting defendants did not defend themselves in the personal injury action because of an alleged understanding among the parties that the plaintiffs would not pursue the defaulting defendants for the satisfaction of the default judgment”). During the oral argument on the motion to intervene, the issue of Mr. Kandel’s conversation with Helmsley’s general counsel was discussed. Despite Mr. Kandel’s insistence that he was unaware of the existence of Appellants at the time (Resp. Br. at 6 n.3), the trial court’s comments are quite telling: 13 Articles about the sale appeared in several publications, including, inter alia, The New York Post and The Real Deal. 10 THE COURT: It appears to me that you had no difficulty as soon as you got a judgment finding Schneider & Schneider — (R 434). Accordingly, justice warrants reversal of the First Department’s decision and vacatur of the default judgment. POINT III RESPONDENT’S PUBLIC POLICY ARGUMENT IS WITHOUT MERIT Cognizant of the strong public policy of this Court favoring a resolution of cases on the merits, Respondent attempts to proffer its own purported public policy in response. Respondent contends that reversal of the First Department’s decision will have the effect of impairing the finality of judgment, including default judgments, and requiring plaintiffs in any action to discover the identities of potential fraudulent transferees and name those persons as defendants in the original action in order to obtain a money judgment. See Resp. Br. at 28. However, as Appellants set forth in their opening brief, the unique factual circumstances presented by this case render any concerns that a ruling in Appellants’ favor would somehow wreak havoc on the litigation system by opening up the floodgates to numerous potential intervenors and impairing the finality of default judgments (as Respondent has contended) a nullity. Opening Br. 20 . 11 Thus, far from setting a general precedent, the trial court recognized the unique circumstances in this case warranted vacatur of the default in the interest of justice and in furtherance of the over-riding public policy of New York courts to allow matters to proceed to trial on the merits. Accordingly, Respondent’s public policy argument should be rejected. CONCLUSION For all of the foregoing reasons, and those set forth in Appellants’ opening brief, Appellants respectfully request that the Court reverse the First Department’s decision, and reinstate the trial court’s decision vacating the default judgment entered against defendant Helmsley. Dated: New York, New York December 12, 2014 Christopher J. Sullivan William R. Fried Marisa A. Leto 2 Park Avenue New York, NY 10016 (212) 592-1400 Attorneys for Appellants Schneider & Schneider, Inc. and Lynn Schneider 12