Amalgamated Bank, Respondent,v.Helmsley-Spear, Inc., Defendant, Schneider & Schneider, Inc., et al., Appellants.BriefN.Y.June 1, 2015To Be Argued By: TYLER J. KANDEL Time Requested: 30 Minutes APL-2014-00063 New York County Clerk’s Index No. 603573/09 Court of Appeals STATE OF NEW YORK AMALGAMATED BANK, Respondent, —against— HELMSLEY-SPEAR, INC., Defendant, —and— SCHNEIDER & SCHNEIDER, INC. and LYNN C. SCHNEIDER, Appellants. BRIEF FOR RESPONDENT AMALGAMATED BANK d TYLER J. KANDEL MORDECAI GEISLER EMMET, MARVIN & MARTIN, LLP 120 Broadway New York, New York 10271 Telephone: (212) 238-3000 Facsimile: (212) 238-3100 Attorneys for Respondent Amalgamated Bank November 28, 2014 CORPORATE DISCLOSURE STATEMENT Pursuant to Rule 500.1(f) of the Rules of Practice of the Court of Appeals for the State of New York, for its Corporate Disclosure Statement, Respondent, Amalgamated Bank, states that it has no parents or affiliates. As of November 28, 2014, the following entities are subsidiaries of Amalgamated Bank: • Amalgamated CDE Inc. • Amalgamated Real Estate Management Company, Inc. (AREMCO) • Amdel, Inc. • New ABONY Company • The New Hillman Company • The New Amalgamated Company • 275 Property Holdings, Inc. • Atrium, LLC • Station Plaza, LLC -i- TABLE OF CONTENTS Page QUESTIONS PRESENTED ...................................................................................... 1 PRELIMINARY STATEMENT ............................................................................... 2 COUNTER-STATEMENT OF FACTS .................................................................... 5 Respondent Obtains the Judgment ........................................................................ 5 Respondent’s Post-Judgment Discovery .............................................................. 7 Respondent’s Supplemental Proceeding............................................................... 8 The Supreme Court Grants Appellants Intervention and Vacates the Judgment ....................................................................................................... 9 The Appellate Division’s Unanimous Reversal of the Supreme Court Order............................................................................................................ 10 ARGUMENT ........................................................................................................... 13 POINT I. THE APPELLATE DIVISION PROPERLY REVERSED THE SUPREME COURT AND PROPERLY REINSTATED THE JUDGMENT UNDER CPLR 5015(a) ................................................... 13 A. Parties Seeking to Vacate a Default Judgment Under CPLR 5015(a) Must Be “Interested Persons” ..................................................................... 13 B. Appellants Have Failed to Establish That They Are Interested Persons Under CPLR 5015(a) ..................................................................... 17 C. The Decision Reversing The Supreme Court’s Vacatur Of The Judgment Is Consistent With This Court’s Holding In Oppenheimer ........ 18 D. The Decision Is Also Consistent With Woodson v. Mendon Leasing Corp. ............................................................................................................ 21 E. The Decision Is Not In Conflict With The Third Department’s Decision In Bond v. Giebel ......................................................................... 24 POINT II. A REVERSAL OF THE DECISION WOULD HAVE UNPRECEDENTED IMPLICATIONS FOR THE FINALITY OF DEFAULT JUDGMENTS .............................................................. 28 CONCLUSION ........................................................................................................ 30 -ii- TABLE OF AUTHORITIES CASES Bond v. Giebel, 101 A.D.3d 1340 (3d Dep’t 2012). .................................................. 24, 25, 26, 27 Civil Service Bar Association, Local 237 v. New York, 64 N.Y.2d 188 (1984) .........................................................................................23 De Leon v. N.Y. City Transit Authority, 50 N.Y.2d 176 (1980) .........................................................................................18 McKenna v. County of Nassau, 61 N.Y.2d 739 (1984) .................................................................................. 22, 23 Oppenheimer v. Westcott, 47 N.Y.2d 595 (1979) ................................................................................. passim Woodson v. Mendon Leasing Corp., 100 N.Y.2d 62 (2003) ............................................................................ 21, 22, 23 STATUTES CPLR 3215(f) ............................................................................................................. 7 CPLR 5015(a) .................................................................................................. passim CPLR 5225(b) ............................................................................................................ 8 FED. R. CIV. P. 60(b)(3) .........................................................................................19 N.Y. DEBT. & CRED. LAW §§ 273, 276, 276-a and 278 ........................................ 8 QUESTIONS PRESENTED A. Is a fraudulent transferee of a judgment debtor’s assets an “interested person” under CPLR 5015(a) with standing to move to vacate a default judgment entered against the judgment debtor where (1) the fraudulent transferee conceded that the default judgment was not procured by fraud or other misconduct, (2) there is no other factual basis in the record and no legal basis to vacate the default judgment under other grounds set forth in CPLR 5015(a) or otherwise, and (3) there is no evidence in the record to support a finding that the fraudulent transferee would suffer any injustice if the default judgment is not vacated? The Appellate Division answered this question in the negative. B. Whether the Court’s decision in Oppenheimer v. Westcott, 47 N.Y.2d 595 (1979) entitles a non-party movant to vacatur of a default judgment in the “interest of justice” under CPLR 5015(a), where the non-party concedes that the default judgment was validly issued? The Appellate Division answered this question in the negative. 2 Plaintiff-Respondent, Amalgamated Bank (“Respondent”) respectfully submits this brief in opposition to the appeal of Intervenors-Appellants, Schneider & Schneider, Inc. (“S&S”) and Lynn C. Schneider (“Lynn Schneider,” and together with S&S, the “Appellants”) from the Appellate Division for the First Department’s Decision and Order, dated August 13, 2013 (the “Decision”), which reversed the Decision and Order, dated December 6, 2012, of the Supreme Court, New York County (Kornreich, J.) (the “Supreme Court Order”). PRELIMINARY STATEMENT In its unanimous Decision, the Appellate Division reversed the decision of the Supreme Court which vacated the default judgment, in the amount of $2,363,542.66, entered against Defendant, Helmsley-Spear, Inc. (“Helmsley- Spear”) in favor of Respondent (the “Judgment”). Appellants now seek reversal of the Decision and request that the Court vacate the Judgment. Respondent respectfully submits that the Appellate Division’s unanimous Decision should be affirmed. In reversing the Supreme Court Order, the Appellate Division concluded that Appellants failed to establish that they were entitled to vacatur of the Judgment under CPLR 5015(a). The Appellate Division also properly distinguished the facts in this case from the facts in Oppenheimer v. Westcott, 47 N.Y.2d 595 (1979). Specifically, the Appellate Division concluded that Oppenheimer did not support 3 Appellants’ position, because, unlike in that case, the Judgment is this case was not procured by fraud or other misconduct and the Judgment was not subject to vacatur for any other reason. In this appeal, Appellants argue that this Court’s decision in Oppenheimer mandates reversal of the Decision. However, the sole grounds upon which Appellants contend they are entitled to have the Judgment vacated is the fact that the Judgment was obtained by virtue of the intentional default of the judgment debtor, Helmsley-Spear, and that Respondent seeks to satisfy the Judgment through a supplemental proceeding to void and set aside fraudulent transfers made to Appellants by Helmsley-Spear of all or substantially all of Helmsley-Spear’s assets. Furthermore, Appellants misconstrue CPLR 5015(a) and advance a novel interpretation of Oppenheimer, which not only lacks any statutory support but also is at odds with this Court’s holding in the Oppenheimer decision itself and the holdings of other decisions of this Court. Moreover, a reversal of the Decision on the grounds advanced by Appellants would expand the category of “interested persons” who would have standing to move for vacatur of a default judgment far beyond the language or purpose of CPLR 5015(a). 4 This case does not present, as Appellants claim, a unique factual situation. The upshot of Appellants’ argument, if adopted by the Court, would effectively qualify all putative fraudulent transferees and garnishees as “interested persons” with standing to move for vacatur of indisputably valid default judgments, such as the Judgment in this case. Appellants’ contention, if adopted by this Court, would imperil the finality of valid default judgments by rendering any default judgment susceptible to vacatur solely by reason of a judgment creditor’s efforts to satisfy the judgment. Indeed, prudent counsel for judgment creditors would be compelled to discover the identities of potential parties who may be subject to enforcement proceedings under Article 52 of the CPLR and to name such persons at the outset as nominal defendants in the original action to preclude post-judgment attacks on any default judgment that may be entered. If successful on this appeal, Appellants’ arguments would fundamentally alter creditor’s rights jurisprudence in New York, and lead to a dramatic increase in pre-action discovery and motion practice, none of which is now required by any statute or precedent. For the reasons set forth below, Respondent respectfully requests that this Court affirm the Decision in its entirety. 5 COUNTER-STATEMENT OF FACTS Respondent Obtains the Judgment Respondent commenced this action against Helmsley-Spear and former defendant, James G. McCauley (“McCauley”),1 by the filing of the Summons and Complaint, dated November 23, 2009 (the “Complaint”) (R 22-38). In the Complaint, Respondent sought monetary damages for negligence and breach of contract arising from the preparation by Helmsley-Spear and McCauley of an appraisal of a six-story office building located in Yonkers, New York (the “Appraisal”) (R 25-26). It is undisputed that Appellants had no involvement with the Appraisal or any of the other facts and circumstances that give rise to this case.2 (R 11, 333, 335). Since Appellants had no involvement with the Appraisal, Respondent did not name Appellants as defendants in this action and, therefore, the Judgment did not determine any liability against Appellants. (R 235). 1 Respondent dismissed its claims against McCauley pursuant to a confidential settlement agreement by filing a Stipulation of Discontinuance with Prejudice with the Supreme Court on November 14, 2012. (R 10-11). Appellants state that the discontinuance against McCauley is “significant,” but fail to explain the relevance of the discontinuance to the question of whether the Judgment against a co-defendant should be vacated. (App. Br. at page 10). Similarly, Appellants further assert – without any basis in the Record – that no consideration was paid by McCauley. Again, Appellants fail to explain the relevance of that assertion to any of the issues before the Court. Respondent’s decision to discontinue this action against McCauley, and the confidential terms of Respondent’s settlement with McCauley, are simply irrelevant to this Court’s determination whether the Appellate Division’s Decision should be reversed. 2 Despite Appellants’ admission that they had no involvement with, nor any knowledge of, the facts and circumstances regarding the preparation of the Appraisal, Appellants assert without any support in the Record, that the value of the property that was the subject of the Appraisal “plummeted” as a result of “the historic real estate collapse in 2008.” (See App. Br. at pages 2, 3). 6 Shortly after being duly served with the Summons and Complaint, Helmsley-Spear’s then General Counsel, William E. Stempel, requested an extension of time for Helmsley-Spear and McCauley to answer to the Complaint. Respondent granted the requested extension.3 (R 318). McCauley retained counsel who appeared and filed an answer on behalf of McCauley. (R 39-43). After requesting and receiving an extension of time to answer, Helmsley- Spear chose, of its own volition, not to appear or file an answer to the Complaint, and instead defaulted. (R 44-45). Appellants conceded that Helmsley-Spear’s default was deliberate4 (R 410-411), and the Appellate Division also concluded that Helmsley-Spear intentionally defaulted. (R 541) (“[A]s the record makes clear, the default judgment resulted from Helmsley’s decision not to answer the complaint or otherwise appear in the action”). 3 Appellants once again, as they did before the Appellate Division, complain that Respondent did not attempt to locate Appellants after Respondent’s counsel’s communication with Helmsley-Spear’s former general counsel and prior to the entry of the Judgment. (App. Br. at pages 6-7). However, Respondent was not aware that Appellants had any previous involvement with Helmsley-Spear or that Appellants had looted Helmsley-Spear’s assets until after Respondent conducted post-judgment discovery. (R 241, 248-250). Moreover, Appellants do not specify what they believe Respondent should have done, other than “locate” Appellants. Respondent would not have had any basis to commence a proceeding against Appellants at that time to enforce a judgment against Helmsley-Spear, because that judgment had not yet been obtained. 4 In an apparent attempt to rationalize Helmsley-Spear’s intentional default, Appellants state that HSI Holdings, LLC is an entity “controlled by Kent Swig” and that “it was Swig’s responsibility to defend Helmsley.” (App. Br. at page 6). Appellants fail to cite to any source in the Record to support the assertion that Helmsley-Spear was not responsible for its own defense, nor would such facts be relevant to this appeal. 7 As a result of Helmsley-Spear’s deliberate decision not to answer or otherwise respond to the Complaint, the Supreme Court issued an Order, dated November 19, 2010, granting Respondent’s motion for default as to liability against Helmsley-Spear on Respondent’s cause of action for negligence. (R 44- 45). In granting that motion, the Supreme Court specifically found that the sworn affidavits submitted by Respondent in support of its motion met the requirements set forth in CPLR 3215(f) for entry of a default judgment. (R 44). The Supreme Court then referred the determination of Respondent’s damages, interest, fees, expenses, costs and disbursements to a Special Referee. (R 45). After conducting an extensive evidentiary hearing, the Special Referee issued a Decision & Judgment, dated January 27, 2011 (the “Referee’s Decision”) (R 61-77), finding that Respondent was entitled to recover damages in the sum of $2,289,600.00, plus interest. (R 76). Based on the Referee’s Decision, the Clerk of the Supreme Court of New York County entered the Judgment on March 30, 2011. (R 235-236). The Judgment remains wholly unsatisfied. (R 108, 241). Respondent’s Post-Judgment Discovery In an effort to collect the Judgment, Respondent served a series of subpoenas on non-parties to discover documents and information relating to Helmsley-Spear’s assets. (R 241). Through that discovery, Respondent learned that, pursuant to a Purchase Agreement, dated October 2, 2007 (the “Purchase Agreement”) (R 136- 8 171), among Appellant, S&S, as “Seller,” Appellant, Lynn Schneider, as “Stockholder,” and HSI Holdings, LLC as “Purchaser,” Appellants received transfers, for no consideration, of all or substantially all of the assets of judgment debtor, Helmsley-Spear (the “Fraudulent Transfers”). (R 108-110, 136, 198-99, 291-292). Appellants then sold most of those assets to HSI Holdings, LLC and Appellants retained $3,205,000, the entire amount of the consideration paid by HSI Holdings, LLC. (R 109-110, 136-137, 291-292). Helmsley-Spear received no consideration and was left judgment-proof. (R 110, 184-85, 294-295, 541). At the time the Fraudulent Transfers were made, Appellant, Lynn Schneider, was an officer of S&S, and was also President of, and owned 99% of the shares of, Helmsley-Spear. (R 106, 113, 191-194, 196, 295). Respondent’s Supplemental Proceeding After discovering the Fraudulent Transfers, Respondent filed a Verified Petition (the “Petition”) on March 14, 2012, commencing a supplemental proceeding in the Supreme Court, New York County, entitled Amalgamated Bank v. Schneider v. Schneider, Inc. and Lynn C. Schneider, Index No. 650776/2012 (Oing, J.) (the “Supplemental Proceeding”). (R 103-210). In the Petition, Respondent seeks a judgment against Appellants: (a) pursuant to New York Debtor and Creditor Law §§ 273, 276, 276-a and 278, voiding and setting aside the Fraudulent Transfers; and (b) pursuant to CPLR 5225(b), directing Appellants to 9 turn the Fraudulent Transfers over to Respondent or, in the alternative, awarding Respondent a money judgment against Appellants up to the full amount of the Judgment. (R 103-104, 118-130). Appellants filed a Verified Answer to the Petition, dated April 20, 2012, in which Appellants asserted only conclusory denials and factually and legally unsupported affirmative defenses. (R 272-287). Respondent then filed reply papers on May 11, 2012, which demonstrated that Appellants failed to identify any material issues of fact sufficient to preclude summary relief being granted to Respondent, and that Respondent was entitled, as a matter of law, to the entry of a judgment against Appellants for the relief sought in the Petition. (R 288-317). The Supplemental Proceeding is currently stayed pending the determination of this Appeal. The Supreme Court Grants Appellants Intervention and Vacates the Judgment On May 15, 2012, a few days before the Supplemental Proceeding was scheduled for submission to Justice Oing, and in an obvious strategic effort to circumvent Justice Oing’s jurisdiction and delay the entry of judgment against Appellants, Appellants filed a motion to intervene in this action and for vacatur of the Judgment (the “Motion to Vacate Default Judgment”), and simultaneously filed a motion before Justice Oing to stay the Supplemental Proceeding. (R 16-17, 238- 10 239). Appellants moved for relief under CPLR 5015(a)(1), as well as nominally under CPLR 5015(a)(3) and “in the interest of justice.” (R 17).5 On December 6, 2012, the Supreme Court issued the Supreme Court Order granting the Motion to Vacate Default Judgment, which permitted Appellants to intervene, and vacated the Judgment. (R 9-15). Respondent then timely filed a Notice of Appeal of the Supreme Court Order. (R 1-7). The Appellate Division’s Unanimous Reversal of the Supreme Court Order In its Decision, the Appellate Division (i) unanimously reversed the Supreme Court Order in its entirety, (ii) denied Appellants’ Motion to Vacate Default Judgment; and (iii) reinstated the Judgment. (R 538). The Appellate Division first held that Appellants should not have been permitted to intervene. (R 540-541). Turning to the Supreme Court’s vacatur of the Judgment, the Appellate Division determined that Respondent “did not obtain the default judgment through fraud or through any other wrongdoing.” (R 541). The Appellate Division further stated that, “[r]ather, as the record makes clear, the default judgment resulted from Helmsley’s decision not to answer the complaint or otherwise appear in the action because it apparently believed itself to be judgment-proof and that plaintiff would be unable to satisfy the judgment against it.” (R 541). Accordingly, the Appellate 5 Notably, in their brief to the Appellate Division, Appellants did not argue that vacatur was warranted under CPLR 5015(a)(3) or in the interest of justice. 11 Division held, “intervenors cannot show that Helmsley had a reasonable excuse for the default.” (R 541). The Appellate Division also concluded that: Although intervenors might well have decided to choose a different course for the litigation, the decision to default was Helmsley’s to make, and Helmsley’s choice does not confer on intervenors the right to defend the action based on their status as former owners. 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 Helmsley. (R 542). Finally, the Appellate Division concluded that Appellants did not, and could not, establish a meritorious defense. Instead, the Appellate Division held that, “[o]n the contrary, the only defenses that intervenors have proposed actually belonged to Helmsley and McCauley; intervenors raise no defenses of their own interests.” (R 542). The court added that, “[o]f course, intervenors may raise whatever defenses they want to raise in the supplemental proceeding – the action that was actually commenced against them.” (R 542). In rendering the Decision, the Appellate Division distinguished the facts and holding in this Court’s decision in Oppenheimer v. Westcott, from those present in this case and declared that Oppenheimer “does not support” Appellants’ position. (R 542). The Appellate Division reasoned that, although in Oppenheimer the fraudulent transferee-movants were held to have possessed a legitimate interest in the default judgment at issue in that case under CPLR 5015(a), “[t]he Oppenheimer 12 Court did not, however, set aside the default judgment on that basis alone; the court merely allowed intervenors to intervene on that basis.” (R 542). The Appellate Division further noted that this Court’s decision to vacate the default judgment in Oppenheimer was based on the determination that the movants established that they were entitled to such relief under CPLR 5015(a)(3), because the plaintiff “had obtained the default judgment through fraud or wrongdoing, and indeed, the fraud or wrongdoing was the reason for the vacatur.” (R 543). By contrast, here, the Appellate Division specifically concluded that “no wrongful acts precipitated the default judgment in this case.” (R 543). The Appellate Division did not hold, as Appellants repeatedly and incorrectly contend (App. Br. at pages 2, 4, 15), that this Court’s decision in Oppenheimer requires a showing of fraud or wrongdoing to vacate a default judgment. Appellants subsequently moved the Appellate Division for leave to appeal the Decision to this Court. By Order, dated November 19, 2013, the Appellate Division unanimously denied Appellants’ motion for leave to appeal. (R 547). Appellants thereafter moved this Court for leave to appeal from the Appellate Division’s Decision. By Order, dated March 27, 2014, this Court granted Appellants leave to appeal, except for that part of the Decision that denied Appellants’ motion to intervene. (R 535-536). 13 ARGUMENT POINT I. THE APPELLATE DIVISION PROPERLY REVERSED THE SUPREME COURT AND PROPERLY REINSTATED THE JUDGMENT UNDER CPLR 5015(a) A. Parties Seeking to Vacate a Default Judgment Under CPLR 5015(a) Must Be “Interested Persons” CPLR 5015 (a) provides: The court which rendered a judgment or order may relieve a party from it upon such terms as may be just, on motion of any interested person with such notice as the court may direct, upon the ground of: 1. excusable default, if such motion is made within one year after service of a copy of the judgment or order with written notice of its entry upon the moving party, or, if the moving party has entered the judgment or order, within one year after such entry; or 2. newly-discovered evidence which, if introduced at the trial, would probably have produced a different result and which could not have been discovered in time to move for a new trial under section 4404; or 3. fraud, misrepresentation, or other misconduct of an adverse party; or 4. lack of jurisdiction to render the judgment or order; or 5. reversal, modification or vacatur of a prior judgment or order upon which it is based. CPLR 5015(a)(emphasis added). In Oppenheimer, this Court held that, to be an “interested person” with standing to move to vacate a default judgment under CPLR 5015(a), a moving party must satisfy the following two-pronged standard: (i) the moving party must 14 establish that it has some legitimate interest that will be served by the vacatur of the judgment; and (ii) judicial assistance is necessary to avoid injustice if the judgment is not vacated. 47 N.Y.2d at 602. Appellants failed to satisfy the foregoing standard. In this case, the only interest Appellants claim to possess to qualify them as interested persons is that they were named in the Supplemental Proceeding in which Respondent seeks to satisfy the Judgment from assets that were fraudulently transferred by the judgment debtor to Appellants. (App. Br. at pages 2, 14, 19). However, there is no basis under Oppenheimer, or any other precedent, to support Appellants’ claim that they have a “legitimate interest” in the Judgment solely because Respondent seeks to satisfy the Judgment in the Supplemental Proceeding. Similarly, with respect to the second prong of the “interested persons” test, Appellants also fail to establish that they would suffer any injustice by having to defend the Supplemental Proceeding. Appellants simply do not – and cannot – contend that the Judgment was invalidly obtained or that its vacatur would serve the interests of justice, unlike in Oppenheimer. In Oppenheimer, the plaintiff, Oppenheimer, was a principal of a company who arranged to sell his stock in the company to defendant, Hancock Securities Corporation (“Hancock”). 47 N.Y.2d at 600. Hancock was subsequently informed by the company’s president, defendant, Westcott, that the legal opinion 15 Oppenheimer obtained authorizing the sale was “not factual,” and, as a result, Hancock instructed Oppenheimer’s brokers to cancel the sale of the shares. Id. As a result of the cancellation, Oppenheimer commenced an action against Westcott, Hancock, the brokers, and others, for breach of contract and other claims. Id. Oppenheimer ultimately obtained a default judgment against Hancock, and then commenced a supplemental proceeding against an individual named Bernstein and certain others (the “Bernstein defendants”). Id. In the supplemental proceeding, Oppenheimer claimed that the Bernstein defendants had “looted” Hancock and rendered it insolvent, and that Oppenheimer was therefore entitled to satisfy his default judgment against Hancock from the Bernstein defendants. Id. In response, both Hancock and the Bernstein defendants moved in the main action pursuant to CPLR 5015(a)(3) to vacate the default judgment against Hancock. Id. The Supreme Court granted Hancock’s motion to vacate and denied the Bernstein defendants’ motion, but the Appellate Division for the First Department reversed and reinstated the judgment against Hancock and affirmed the denial of the Bernstein defendants’ motion. Id. at 601. This Court accepted the Bernstein defendants’ appeal and reversed the First Department’s decision in Oppenheimer, holding that the court had erred by failing to determine “the status of the Bernstein defendants as interested persons,” and instead affirmed the denial of the motion to vacate the default judgment “without 16 prejudice to an attack upon the Hancock judgment by the Bernstein defendants in the second action.” Id. at 602. The Court held that the Bernstein defendants were interested persons under CPLR 5015(a), expressly because the default judgment was improperly obtained through fraud or other misconduct: 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. Id. at 602 (emphasis added). After determining that the movants were interested persons under CPLR 5015(a), the Court addressed the merits of the vacatur motion and concluded that the default judgment should be vacated under CPLR 5015(a)(3) on the grounds that the judgment had been obtained by misconduct, if not fraud. Specifically, the Court held: [T]hat the default judgment against Hancock must be vacated, for the record is clear that Oppenheimer was guilty of misconduct, if not fraud, in at least two ways. 17 Id. at 603-04.6 As set forth below, the holding in Oppenheimer supports the affirmance of the Appellate Division’s Decision. B. Appellants Have Failed to Establish That They Are Interested Persons Under CPLR 5015(a) In Oppenheimer, this Court held that the movants satisfied the two-pronged standard to be deemed interested persons under CPLR 5015(a) solely on the ground that the default judgment had been procured by fraud or misconduct. 47 N.Y.2d at 602-03. By contrast, in this case, the Appellate Division unanimously determined that there was no basis to conclude that the Judgment had been invalidly obtained. Specifically, the Appellate Division correctly concluded that “no wrongful acts precipitated the default judgment in this case” (R 543), and Appellants have conceded that the Judgment was not obtained by fraud. In addition, the Appellate Division also held that Appellants failed to establish that (i) Helmsley-Spear had a justifiable excuse for its default or (ii) Appellants possessed meritorious defenses to the allegations asserted by 6 In that regard, the Court determined that, at the inquest, Oppenheimer claimed that Hancock’s refusal to pay for the shares of stock at issue caused him to default in the payment of a promissory note, and thus to forfeit 70,000 shares pledged as security for the note. 47 N.Y.2d at 604. The Court found, however, that Oppenheimer in fact only owned 11,334 shares. Id. Oppenheimer further failed to advise the trial court that his causes of action against the broker- defendants had been dismissed. Id. The Court noted that the broker-defendants’ liability was, in substantial part, if not entirely, joint with Hancock’s and their dismissal would inure to Hancock’s benefit. Id. The Court thus found that the withholding of that information from the court was “clearly misconduct, if not fraud, warranting vacatur of the judgment.” Id. 18 Respondent in this case. (R 541-543). Significantly, Appellants do not challenge on this appeal these holdings of the Appellate Division. Accordingly, Appellants have abandoned those grounds as bases for vacating the Judgment. See, e.g., De Leon v. N.Y. City Transit Auth., 50 N.Y.2d 176, 180, n.2 (1980) (“In the present appeal from the order of the Appellate Division reinstating the unfavorable verdict, plaintiff has abandoned any arguments concerning the conduct of defense counsel and has chosen instead to rely solely upon his contention that the trial court’s instructions to the jury were erroneous.”). Respondent respectfully submits that there is no basis for this Court to determine that: (i) Appellants possess a legitimate interest in the vacatur of the Judgment, and (ii) judicial assistance is required to avoid injustice if the Judgment is not vacated. Appellants have therefore failed to establish that they are interested persons under CPLR 5015(a), and thus lack standing to move to vacate the Judgment. See Oppenheimer, 47 N.Y.2d at 602-603. C. The Decision Reversing The Supreme Court’s Vacatur Of The Judgment Is Consistent With This Court’s Holding In Oppenheimer Appellants contend that the Appellate Division “plainly erred by reversing the Supreme Court’s decision to vacate the default judgment herein based on this Court’s decision in Oppenheimer which is dispositive.” (App. Br. at page 13). Specifically, Appellants argue that the Appellate Division’s Decision “artificially 19 limits the application of Oppenheimer to circumstances of fraud or other wrongdoing.” (App. Br. at page 15). However, the Appellate Division did not limit the application, artificially or otherwise, of Oppenheimer to circumstances where fraud or other wrongdoing exists. Instead, the Appellate Division correctly determined that, unlike in Oppenheimer, the Judgment in this case was not procured by fraud or misconduct, and that there were no other grounds presented to the Supreme Court that warranted the vacatur of the Judgment under CPLR 5015(a). (R 541-543). Appellants further claim that the following passage in the Oppenheimer decision stands for the proposition that the holding in Oppenheimer was not limited to circumstances where a default judgment was vacated on the basis of fraud or misconduct: The inclusion in CPLR 5015 (subd [a], par 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 (US Code, tit 28, Appendix) 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. (App Br. at page 15, quoting Oppenheimer, 47 N.Y.2d at 603). Contrary to Appellants’ contention, in the foregoing passage the Court simply recognized that CPLR 5015(a)(3) and its Federal counterpart, Rule 60(b)(3) of the Federal Rules of Civil Procedure, broadened the existing common law, which had required a showing of fraud as the sole basis on which vacatur should be 20 warranted, to also include showings of misrepresentation or other misconduct. Id. Respondent does not dispute the legislative history of CPLR 5015(a)(3) as discussed in Oppenheimer. See id. In any event, again, Appellants do not contend that the Judgment was procured by misrepresentation or other any other misconduct, or that the Judgment should be vacated under CPLR 5015(a)(3). Finally, Appellants argue that “New York courts have long employed their ‘inherent power’ to vacate such judgments.” (App. Br. at page 13). In that regard, Appellants simply claim that they “are the only persons with an interest in vacating the default judgment, as Helmsley is purportedly judgment proof and McCauley has been dismissed with prejudice.” (App. Br. at page 19). The only interest, however, that Appellants claim to possess for vacating the default judgment is that “Respondent is using its default judgment against Helmsley as a basis for its supplemental proceeding against Appellants and a predicate for their liability.” (App. Br. at page 14). Appellants identify no other basis for their claimed entitlement to vacatur of the Judgment.7 Under Oppenheimer, the fact that Respondent seeks to satisfy its Judgment by voiding the Fraudulent Transfers that were made to Appellants, does not alone 7 Appellants claim they are entitled to defend the underlying negligence claim against Helmsley-Spear in this case “on the merits.” (App. Br. at pages 4, 8). However, as the Appellate Division stated, Appellants have no right to do so because their right, if any, to act on behalf of Helmsley-Spear ended in 2007 when they transferred their ownership of it. (R 542). 21 establish that Appellants possess a legitimate interest that would be served by vacating the Judgment. Unlike in Oppenheimer, where the movants challenged the validity – not the satisfaction – of the default judgment, here, Appellants did not, and cannot, challenge the validity of the Judgment. Respondent respectfully submits that the Decision is entirely consistent with this Court’s decision in Oppenheimer. D. The Decision Is Also Consistent With Woodson v. Mendon Leasing Corp. Appellants next attempt to find support for their “broader interpretation of Oppenheimer” in this Court’s decision in Woodson v. Mendon Leasing Corp., 100 N.Y.2d 62 (2003). (App. Br. at page 16). In that regard, Appellants rely on the Court’s observation in Woodson, in dicta, that CPLR 5015(a) “does not provide an exhaustive list as to when a default judgment may be vacated,” but represents “a codification of the principal grounds upon which courts have traditionally vacated default judgments as part of their ‘inherent discretionary power.’” 100 N.Y.2d at 68. It bears noting that Appellants did not cite or rely on Woodson in the briefs they submitted to the Supreme Court or to the Appellate Division, nor did this Court cite to or rely on Oppenheimer in the Woodson decision. Nevertheless, the Court’s decision in Woodson actually supports the affirmance of the Appellate Division’s Decision. In Woodson, this Court reinstated a default judgment because, as in this case, there was no evidence that 22 the plaintiff had engaged in fraud, misrepresentation or misconduct in obtaining the default judgment: Regardless of whether we accept plaintiff’s or ATIC’s interpretation of the decision, we conclude that Supreme Court abused its discretion in vacating the default judgment. If (as ATIC argues) Supreme Court’s decision is read as having found that plaintiff was guilty of fraud, misrepresentation or misconduct and setting aside the default judgment on that basis, we hold that the court abused its discretion because the record does not support any such conclusion. On the other hand, if (as plaintiff argues) Supreme Court’s decision made no finding of fraud, misrepresentation or misconduct, then the decision appears to have been based on the court’s inherent discretionary power to vacate its own judgments. This also amounted to an abuse of discretion under the facts before us. Id. at 69 (emphasis added). As a result, it made no difference to this Court in Woodson whether the Supreme Court granted vacatur of the default judgment under CPLR 5015(a)(3) or under the court’s inherent discretionary power. Under either scenario, the Court held that, to justify vacatur of a default judgment, there must be evidence of fraud, misconduct or misrepresentation. Id. Similarly, in this case, the Appellate Division reinstated the Judgment because “no wrongful acts precipitated the default judgment in this case.” (R 543). Earlier precedent of this Court confirms the principle underlying the holding in Woodson. For example, in McKenna v. County of Nassau, 61 N.Y.2d 739 (1984), this Court affirmed the Second Department’s decision modifying an order reopening a judgment that had confirmed an arbitration award: 23 The errors alleged by the County of Nassau on the motion to vacate the prior judgment do not constitute grounds for relief under CPLR 5015. Special Term abused its discretion in reopening its judgment to correct a perceived error of law that could have been raised on the prior appeals to the Appellate Division and to this court. A court’s inherent power to exercise control over its judgments is not plenary, and should be resorted to only to relieve a party “from judgments taken through [fraud], “mistake, inadvertence, surprise or excusable neglect.” (Ladd v. Stevenson, 112 NY 325, 332). 61 N.Y.2d at 741-42 (emphasis added). See also Civil Service Bar Ass’n, Local 237 v. New York, 64 N.Y.2d 188, 199 (1984) (Meyer, J., concurring) (citing Oppenheimer and concluding that a judgment may be vacated pursuant to CPLR 5015(a)(3) “when it is established that the judgment sought to be vacated is infirm in consequence of fraud, misrepresentation or other misconduct practiced on the court in which the judgment was granted.”). The common principle throughout this Court’s decisions is that, although courts have inherent discretionary power to vacate default judgments, that inherent power does not, by itself, warrant vacatur of a default judgment unless there is also a cognizable ground for exercising that power, such as fraud, mistake, inadvertence, surprise or excusable neglect, none of which are present in this case. Accordingly, based upon the principles set forth in this Court’s decisions in Oppenheimer, McKenna and Woodson, the Decision should be affirmed. 24 E. The Decision Is Not In Conflict With The Third Department’s Decision In Bond v. Giebel In further support of their argument that the Judgment should be vacated, Appellants argue that the Appellate Division’s Decision is inconsistent with the Third Department’s decision in Bond v. Giebel, 101 A.D.3d 1340 (3d Dep’t 2012). (App. Br. at pages 17-19). The facts and the holding in Bond, however, are readily distinguishable from the facts and holdings in this case. Specifically, in Bond, the Third Department found evidence of collusion between the litigants which offended the court’s sense of justice, a far cry from the facts and circumstances present in this case. In Bond, the driver and passenger of a car that was involved in an accident failed to appear in an action in which they were named as defendants and a default judgment was subsequently entered against them for $1.2 million. Id. at 1341. Shortly after the default judgment was entered, the defendants notified their insurance carrier, Progressive, which disclaimed coverage on the basis of lack of timely notice of the litigation. Id. The defendants then entered into an agreement with the plaintiff pursuant to which the defendants assigned to the plaintiff their rights against Progressive and their insurance broker in exchange for a percentage of the plaintiff’s recovery in excess of $300,000. Id. The plaintiff, the defendants’ assignee, commenced an action against Progressive to recover part of the default judgment. Id. Progressive then moved to 25 intervene in the personal injury action, as the defendants’ insurer, to vacate the default judgment that was entered against the defendants. Id. The Supreme Court denied Progressive’s motion on the ground that intervention would cause prejudice to plaintiff. Id. at 1341-42. The Third Department reversed, and applied the standard set forth in Oppenheimer to determine whether Progressive was an “interested person” with standing to move to vacate the default judgment under CPLR 5015(a). Id. at 1342. In applying the Oppenheimer standard, the Third Department held that Progressive satisfied the first prong of the interested person test under CPLR 5015(a), because “by virtue of the assignment agreement, Progressive is the only person or entity with an interest in vacating the default judgment.” Id. Applying the second prong of the interested person test, the Third Department further reasoned that: [The defendants] have the potential to benefit financially by allowing that judgment to remain in effect. Without the judgment, neither plaintiff nor the [defendants] would stand to reap any significant benefit from action No. 2. Thus, the particular terms of the assignment agreement place the [defendants] in the unusual position of opposing Progressive’s motion to vacate the substantial judgment entered against them. While the collusive nature of the assignment agreement may not have led to the default judgment, the financial benefit that the [defendants] stand to gain as a result of that agreement clearly provides them with an incentive to act in unison with plaintiff going forward. At the very least, to allow such a result offends our sense of justice and propriety and cannot be condoned. 26 Id. at 1342-43 (emphasis added). Thus, the Third Department’s conclusion in Bond that Progressive possessed a legitimate interest in the vacatur of the default judgment was based upon the collusion between the plaintiff and the defendants. Moreover, the “collusive nature” of their assignment agreement and the financial benefit the defendants stood to gain as a result of that agreement offended the Third Department’s sense of justice and led it to conclude that judicial assistance was required to avoid the injustice of subjecting Progressive to the enforcement of the default judgment. After determining that Progressive was an interested person under CPLR 5015(a), the Third Department addressed the merits of Progressive’s motion to vacate the default judgment. Again, the Third Department held that, because of their collusion, the plaintiff and the defendants had a disincentive to prevent the entry of a default judgment that was based on erroneous facts. Progressive was therefore entitled to vacatur of the default judgment because failure to vacate the default judgment would jeopardize the integrity of the judicial process: Furthermore, the collusive nature of the assignment agreement created a disincentive for the [defendants] to ensure that the judgment was in conformance with the law and the facts. Indeed, it is undisputed that such judgment was based upon a factual error that could impact the determination as to whether the location of the [defendants’] vehicle was a substantial factor in causing plaintiff’s injuries – and, therefore, the extent of the [defendants’] liability, if any – and that the amount of the judgment exceeds the amount permitted by CPLR 3215(b). Thus, regardless of the merits of action No. 2, vacatur of the 27 default judgment in action No. 1 will uphold the integrity of the judicial process under the particular circumstances of this case. Id. at 1343-44 (emphasis added). In this case, unlike the “particular circumstances” in Bond, there was no collusion between Respondent and any other party, and Appellants fail to cite any evidence that would offend the Court’s sense of justice. To the contrary, as the Appellate Division concluded, there was no fraud or other infirmity, such as excusable default, in connection with the entry of the Judgment. In addition, Appellants failed to identify any injustice, as was present in Oppenheimer and Bond, which requires the judicial assistance of vacating the Judgment. Accordingly, this Court should affirm the Appellate Division’s Decision. 28 POINT II. A REVERSAL OF THE DECISION WOULD HAVE UNPRECEDENTED IMPLICATIONS FOR THE FINALITY OF DEFAULT JUDGMENTS A reversal of the Appellate Division’s unanimous Decision would have significant repercussions on the finality of default judgments and on efforts by judgment creditors to satisfy such judgments. Contrary to Appellants’ contention, the situation in this case is far from unique. If Appellants arguments were adopted by the Court, fraudulent transferees such as Appellants, as well as garnishees and other third parties subject to supplemental proceedings to satisfy a default judgment, would have an unqualified right to seek the vacatur of validly obtained default judgments and to re-litigate the underlying action “on the merits” simply because the judgment creditor sought to satisfy or enforce the judgment. Prudent plaintiff’s counsel in any action seeking a money judgment would be compelled to identify, through pre-action discovery, potential fraudulent transferees, garnishees other persons who might be subject to a turnover order or other form of supplemental proceeding, and to name such persons as additional defendants in the original action. In addition, a reversal of the Decision by this Court would no doubt lead to the substantial broadening of the scope of pre-action discovery, a significant increase in the number of parties named in litigation, and an explosion of motion practice. If potential fraudulent transferees, garnishees and persons who would be 29 subject to enforcement proceedings were named as defendants in the underlying actions for liability against the primary defendants, the numbers of motions to dismiss would also increase exponentially as these additional defendants would likely seek dismissal as having no connection whatsoever with the matters alleged against the primary defendants. A reversal of the Decision and resulting vacatur of the indisputably valid Judgment would also eviscerate the procedural safeguards set forth in CPLR 5015(a) preserving the finality of default judgments. Such a result would render any valid default judgment susceptible to vacatur solely by reason of the judgment creditor’s efforts to satisfy the judgment, a development that would wreak havoc in commercial litigation in New York. Accordingly, Appellant respectfully requests that this Court affirm the Decision in its entirety. 30 CONCLUSION For all the foregoing reasons, Plaintiff-Respondent, Amalgamated Bank, respectfully requests that the Court: (1) affirm the Decision and Order, dated August 13, 2014, of the Appellate Division for the First Department in its entirety; and (2) grant such other and further relief as the Court deems just, proper and equitable. Dated: New York, New York November 28, 2014 EMMET, MARVIN & MARTIN, LLP By: /s/ Tyler J. Kandel Tyler J. Kandel Mordecai Geisler 120 Broadway New York, New York 10271 (212) 238-3000 Attorneys for Plaintiff-Respondent Amalgamated Bank