Amalgamated Bank, Respondent,v.Helmsley-Spear, Inc., Defendant, Schneider & Schneider, Inc., et al., Appellants.BriefN.Y.June 1, 2015To be Argued by: WILLIAM FRIED (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. BRIEF FOR APPELLANTS 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: May 28, 2014 CORPORATE DISCLOSURE STATEMENT Appellant Schneider & Schneider Inc., for its Corporate Disclosure Statement pursuant to Rule SOO.l(t) of the Rules of Practice for the Court of Appeals of the State ofNew York, states that it has no parents or subsidiaries. It is affiliated with The Schneider Real Estate Group, S&S Endeavors, LLC and Schneider & Schneider 1031 Exchange, LLC. 1 TABLE OF CONTENTS TABLE OF AUTHORITIES ................................................................................. iv JURISDICTIONAL STATEMENT ....................................................................... 1 QUESTIONS FOR THE COURT OF APPEALS ................................................. 2 PRELIMINARY STATEMENT ............................................................................ 2 STATEMENT OF FACTS ..................................................................................... 5 The Complaint ......................................................................................... 5 Respondent Is Awarded a Default Judgment Against Helmsley Exceeding $2 Million .............................................................................. 6 The Trial Court Grants McCauley's Motion for Summary Judgment in Part ...................................................................................... 7 Respondent Commences Supplemental Proceeding Against Appellants ................................................................................................ 8 The Trial Court Stays the Underlying Action ......................................... 9 Appellants Seek Leave to Intervene in This Action and Vacate the Default Judgment. .............................................................................. 9 Respondent Dismisses Its Claims with Prejudice Against Defendant McCauley ............................................................................. 10 The Trial Court Grants Appellants' Motion to Intervene and Vacate the Default Judgment ................................................................ 10 The First Department Reverses the Trial Court's Decision .................. 12 ARGUMENT ........................................................................................................ 12 11 POINT I THE FIRST DEPARTMENT'S INTERPRETATION OF OPPENHEIMER IS CONTRARY TO THE DECISION'S PLAIN LANGUAGE AND THE THIRD DEPARTMENT'S INTERPRETATION OF THIS BINDING PRECEDENT ............... 12 POINT II PUBLIC POLICY WARRANTS REVERSAL ................................. 19 CONCLUSION ..................................................................................................... 22 iii TABLE OF AUTHORITIES Page State Cases Bond v. Giebel, 101 A.D.3d 1340, 956 N.Y.S.2d 267 (3d Dep't 2012) ............................ 4, 17, 18 Chase Manhattan Automotive Fin. Corp. v. Allstate Ins. Co., 272 A.D.2d 772, 708 N.Y.S.2d 174 (1st Dep't 2000) ....................................... 13 Congress Talcott Corp. v. Pacemakers Trading Corp., 161 A.D.2d 554, 556 N.Y.2d 55 (1st Dep't 1990) ............................................... 2 Eugene DiLorenzo, Inc. v. A. C. Dutton Lumber Co., Inc., 67 N.Y.2d 138, 501 N.Y.S.2d 8 (1986) ............................................................. 13 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) .......................................................... 16 Statutes CPLR § 1003 ........................................................................................................... 16 CPLR 5015 .................................................................................... 2, 4, 15, 16, 18, 19 CPLR 5015(a) .......................................................................................................... 12 CPLR 5015(a)(3) ..................................................................................................... 18 CPLR § 5225(b) ........................................................................................................ 8 CPLR. § 5602(a) ........................................................................................................ 1 N.Y Debt. & Cred. Law § 278 .................................................................................. 8 lV JURISDICTIONAL STATEMENT This Court has jurisdiction to determine this appeal pursuant to N.Y. C.P.L.R. § 5602(a) as this appeal is taken by permission of the Court of Appeals by Order dated March 27,2014. 1 QUESTIONS FOR THE COURT OF APPEALS 1. Whether this Court's decision in Oppenheimer v. Westcott, 47 N.Y.2d 595, 419 N.Y.S.2d 908 (1979), applying CPLR § 5015, requires that a proposed intervenor prove fraud or other wrongdoing in order to vacate a default judgment that has been entered against a defendant, where the default judgment is being used as a predicate for intervenors' own liability. 2. Whether a court, sitting in equity, should vacate a default judgment, in the interest of justice, where plaintiff has never had to litigate the merits of its underlying claim premised upon a purportedly negligent appraisal which failed to "forecast" a recession and real estate market collapse by: (1) obtaining a significant default judgment against one of the defendants; (2) pursuing the default judgment against that defendant's former owner, who had no notice of the action prior to defendant's default; (3) dismissing its claims against the only remaining defendant on the eve oftrial; and (4) vigorously opposing the former owner's motion to intervene in the action, vacate the default judgment, and adjudicate the claim on the merits. PRELIMINARY STATEMENT It is the well-settled policy of the New York courts "to allow matters to proceed to trial on the merits."1 In overturning the trial court's decision which permitted Appellants to intervene, vacate a default judgment, and defend the underlying action on the merits, the First Department has undermined this established principle. In so doing, the First Department has also fundamentally misconstrued binding precedent from this Court, interpreting CPLR § 5015 to 1 Congress Talcott Corp. v. Pacemakers Trading Corp., 161 A.D.2d 554,554,556 N.Y.2d 55,56 (1st Dep't 1990) (citation omitted). 2 require Appellants to prove fraud or other wrongdoing to vacate the default judgment when no such requirement exists. Appellants present the instant appeal so that this Court can apply its own precedent, which Appellants submit is dispositive here. This action arose out of a late 2006 real estate appraisal provided to a bank in connection with a mortgage loan. Following the historic real estate market collapse in 2008, the value of the property plummeted and the bank challenged as negligent the appraisal conducted by the company and its employee (both named defendants) due to a purported under-valuation of the property. The company-- which was sold a year after the appraisal to developer Kent Swig -- defaulted in the lawsuit. The bank obtained a default judgment against the defendant - company, and then initiated a special proceeding in which it contends that the company's former owners (the owners at the time the appraisal was performed/ should be held liable for the default judgment on a theory that the assets of the company were fraudulently conveyed to them. The former owners had no notice of the claim prior to entry of the default judgment against the defendant - company and were provided with no opportunity to defend the claim on the merits. Indeed, the bank has vigorously opposed the former owners' efforts to intervene, and even 2 Respondent Lynn Schneider owned 99 percent of the shares of the company at the time of the appraisal. 3 went so far as to dismiss its claim, with prejudice, against the remaining defendant - employee on the eve of trial. Based on the First Department's ruling, which reversed the trial court's order that vacated the default judgment against the defendant- company and permitted Appellants to intervene in this action, the bank may pursue its special proceeding and its efforts to obtain a windfall in excess of $2 million without ever having to prove the merits of its claim. The First Department's narrow reading of Oppenheimer (which is directly at odds with the trial court's interpretation), to require Appellants to prove fraud or other wrongdoing to intervene and vacate the default judgment entered against defendant Helmsley-Spear, Inc. ("Helmsley"), contradicts the plain language of the Oppenheimer decision and conflicts with recent precedent from the Third Department. See Bond v. Giebel, 101 A.D.3d 1340, 956 N.Y.S.2d 267 (3d Dep't 2012). If left to stand, the First Department's decision, which significantly limits the scope of Oppenheimer (and the application ofCPLR § 5015), will render certain parties subject to default judgments, procured without their notice. Indeed, it leaves Appellants herein (the owners of the company at the time of the appraisal) with no opportunity to defend the claim on the merits. 4 STATEMENT OF FACTS The facts relevant to this appeal are set forth in detail throughout the record on appeal, and will not be repeated at length but are fully incorporated by reference herein. The Complaint Briefly, the action was commenced on or about November 23, 2009 by Respondent, the Bank, against defendants Helmsley and James G. McCauley. (R 22). Respondent alleged that Helmsley, through its employee McCauley, negligently performed an appraisal in December 2006 of a property located at 86 Main Street, Yonkers, New York (the "Property") pursuant to a letter agreement entered into between Respondent and Helmsley (the "Helmsley Appraisal"). Id. ~~ 1, 9, 12. Respondent further alleges that the value of the Property at the time was "substantially less than the $12,225,000 Final Estimate of Value set forth in the Helmlsey Appraisal." Id. ~ 27. Respondent also claimed that it agreed to extend a mortgage loan to the borrower secured by the Property in the principal amount of $9,780,000, an amount equal to 80% of the estimated value, in reliance upon the Helmsley Appraisal. Id. ~ 29. The borrower subsequently defaulted in its obligations under the loan on or about May 1, 2008. !d. ~ 34. Respondent brought the underlying action to recover monetary damages from the defendant appraisers. !d. ~~ 67, 77. 5 Respondent Is Awarded a Default Judgment Against Helmsley Exceeding $2 Million In October 2007, Helmsley was sold by Appellant Lynn Schneider (who owned 99 percent of the shares) and her father Irving Schneider (who owned the remaining one percent) to HSI, an entity controlled by Kent Swig, a well- known real estate developer, in an arms-length transaction for consideration ($3,205,000.00). (R 19). The transaction involved the sale of the Schneiders' stock and the physical assets of the company. (R 482). At the time of the sale, Appellants had no indication that a lawsuit would be initiated against Helmsley in connection with the appraisal. (R 19). Moreover, subsequent to the sale, it was Swig's responsibility to defend Helmsley against any such action. While defendant McCauley served an answer to the Complaint (R 39), the new owners of Helmsley failed to answer and never defended the action. Significantly, Respondent's counsel admitted to having communications with the General Counsel of defendant Helmsley shortly after service of the summons and complaint in this action, in which Respondent 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 ~ 9). However, apparently no effort was made by Respondent's counsel at the 6 time to locate the "third party" before the default judgment was entered in this case. By decision and order of the Honorable Shirley Werner Kornreich, dated November 19, 2010, the trial court granted Respondent's motion for a default judgment as to the Respondent's negligence claim only. (R 44). On March 30, 2011, the trial court entered the default judgment against Helmsley in favor of Respondent in the amount of$2,363,542.66, inclusive of interest. (R 134). The Trial Court Grants McCauley's Motion for Summary Judgment in Part On February 17, 2011, the Trial Court granted in part a motion for summary judgment that was filed by defendant McCauley. (R 81 ). First, the Trial Court dismissed Respondent's cause of action for breach of contract, finding that there is no "clear and explicit evidence that McCauley, as agent of Helmsley, sought to make himself personally liable to the agreement" with Respondent, and that the breach of contract claim was in any event duplicative of Respondent's claim for negligence. (R 86-88). Second, the trial court dismissed Respondent's cause of action for negligence to the extent it was "based on McCauley's inclusion of any potential tax benefits from owning the property and on his decision not to include charges relating to parking spaces provided for Citibank under its lease." (R 94). Finally, the trial court ordered that the remainder of Respondent's 7 negligence claim should continue as there are triable issues of fact for a jury. (R 94-95). Respondent Commences Supplemental Proceeding Against Appellants On or about March 14, 2012, Respondent filed a Verified Petition against Appellants. (R 246). In its Verified Petition, Respondent alleged, among other things, that "[i]n connection with its efforts to enforce the [default] Judgment [against Helmsley], Amalgamated discovered that, in or about October 2007, Helmsley-Spear fraudulently transferred all, or substantially all, of its assets to S&S and/or Lynn Schneider, and its wholly owned subsidiary, Helmsley-Spear of Illinois, which transfers are voidable under NY D&C ~~ 273 and 276." (R 248-249 ~13). Respondent seeks an order pursuant to Section 278 of Article 10 of the Debtor and Creditor Law setting aside any fraudulent transfers by judgment debtor, Helmsley, to Appellants, and an order pursuant to CPLR § 5225(b) directing that they tum over monies sufficient to satisfy the default judgment entered against Helmsley in full. (R 269). In effect, Respondent seeks to hold Appellants (who were non-parties to this action at the time) liable for a judgment in the amount of $2,363,542.66, based on a default by a party, not under Appellants' control at the time, without an opportunity to defend on the underlying merits of the case. 8 The Trial Court Stays the Underlying Action On March 29, 20 12, Respondent entered into a stipulation with defendant McCauley to adjourn the June 2012 trial date to December 4, 2012 "for the purpose of Plaintiff pursuing execution of the judgment it has obtained in this action as against judgment debtor, Helmsley-Spear, Inc. in a supplemental proceeding now pending in the New York State Supreme Court for New York County." The trial court "So Ordered" the stipulation on April 17, 2012. (R 211). Appellants Seek Leave to Intervene in This Action and Vacate the Default Judgment Just two months after Respondent filed its Supplemental Proceeding against Respondents, Appellants sought leave to intervene in the underlying action and vacate the default judgment against Helmsley ("Appellants' Motion"). (R 16). Along with Appellants' Motion, Appellants submitted an answer to the complaint in the underlying action. (R 522). Only upon commencement of the Supplemental Proceeding did Appellants believe they had standing to intervene in the underlying action. Respondent opposed the Motion. 9 Respondent Dismisses Its Claims with Prejudice Against Defendant McCauley Significantly, following oral argument on Appellants' Motion and only one month before trial, on November 14, 2012, Respondent filed a stipulation of discontinuance with prejudice against McCauley. Upon information and belief, no consideration was paid by McCauley for the discontinuance. The Trial Court Grants Appellants' Motion to Intervene and Vacate the Default Judgment After extensive briefing (including a sur-reply submission by Respondent), oral argument and several court conferences, the trial court granted Appellants' Motion in its entirety on December 6, 2012, concluding that this Court's decision in Oppenheimer is determinative of Appellants' Motion because "plaintiff is using the default judgment against Helmsley as a predicate for liability against movants in the Supplemental Proceeding." (R 8). The Trial Court specifically considered and rejected each of Respondent's arguments as follows. First, with respect to the issue of timeliness of Appellants' Motion, the Trial Court held: Amalgamated argues that movants' motion is not timely because movants waited over a year to move after they became aware of the default judgment against Helmsley. Movants contend that the proper calculation of time should begin when the Supplemental Proceeding was commenced and that their motion was filed merely two months thereafter. Movants' argument is more persuasive 10 (R 12-13). because the commencement of the Supplemental Proceeding is what created a real possibility that movants would face liability for Helmsley's default judgment. Second, with respect to the issue of Appellants' interest in the underlying action, the trial court recognized: (R. 13). Amalgamated contends that movants should not be allowed to intervene because they are not technically "bound" by the default judgment. This argument misses the point of intervention. Amalgamated's ultimate recovery on that judgment is likely to come from movants in the Supplemental Proceeding, and thus, Movants' interests are impacted. Indeed, the circumstances presented in this case -- a default judgment against a defendant being used as a predicate for liability against the proposed intervener in a separate proceeding - - are not unique, and courts have permitted intervention in similar circumstances. Finally, the Trial Court found that "movants have established that they are capable of putting forth a meritorious defense without the need to delay the trial." (R 14). The Trial Court no doubt recognized its own decision granting defendant McCauley's motion for summary judgment in part. Appellants (in essence, the former employer of McCauley) share McCauley's defenses. In fact, Appellants will undoubtedly rely on McCauley's testimony at trial. Moreover, limited discovery is necessitated in a case such as this involving an allegedly negligent appraisal where Respondent already has the appraisal at issue, as well as retained its own expert in support of its claims. 11 The First Department Reverses the Trial Court's Decision The First Department reversed the trial court's decision on August 13, 2013, holding, in part, that Oppenheimer was inapplicable because "fraud or wrongdoing was the reason for the vacatur" in Oppenheimer which the First Department found was not present here. (R 538). Appellants subsequently moved the First Department for leave to appeal to the Court of Appeals, which was denied on November 19, 2013. On March 27, 2014, the Court of Appeals granted Appellants leave to appeal the First Department's decision, but for the denial of Appellants' motion for intervention which was dismissed as it "does not finally determine the action." ARGUMENT POINT I THE FIRST DEPARTMENT'S INTERPRETATION OF OPPENHEIMER IS CONTRARY TO THE DECISION'S PLAIN LANGUAGE AND THE THIRD DEPARTMENT'S INTERPRETATION OF THIS BINDING PRECEDENT Pursuant to CPLR § 5015(a), a court may vacate a default judgment it has entered "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 .. . (3) fraud, misrepresentation, or other misconduct of an adverse party." As the statute makes clear, "any interested person" may seek relief from a default judgment. Moreover, 12 New York courts have long employed their "inherent power" to vacate such judgments. Indeed, the decision to vacate a default judgment lies within the discretion of the trial court and should not be reversed unless the decision reflects an "abuse of discretion." Eugene DiLorenzo, Inc. v. A.C. Dutton Lumber Co., Inc., 67 N.Y.2d 138, 140, 501 N.Y.S.2d 8, 9 (1986); Chase Manhattan Automotive Fin. Corp. v. Allstate Ins. Co., 272 A.D.2d 772, 773, 708 N.Y.S.2d 174, 175 (1st Dep't 2000). The First Department plainly erred by reversmg the trial court's decision to vacate the default judgment herein based on this Court's decision in Oppenheimer which is dispositive. In Oppenheimer, the Court of Appeals reversed the denial of a motion by the principals of an insolvent corporation to vacate a default judgment against the corporation. Plaintiff Oppenheimer filed suit against Hancock, among others, alleging breach of contract, among other claims. Oppenheimer's complaint against one of the defendants was dismissed but the action against Hancock was severed and continued as to Hancock which defaulted on the eve of trial due to insolvency. Oppenheimer subsequently obtained a default judgment in the amount of $267,473.71 against Hancock. !d. at 600, 419 N.Y.S.2d at 910. When the judgment proved uncollectible from Hancock, Oppenheimer commenced a second action against Bernstein and others alleging they looted Hancock, causing it to 13 become insolvent and judgment proof, and sought to recover the amount of the judgment. Over one year later, as the action against Bernstein was set for trial, the Bernstein defendants sought leave to intervene in the first action and vacate the default entered against Hancock. /d. In granting the vacatur of the default judgment, the Court recognized that: 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. /d. at 602, 419 N.Y.S.2d at 911. The trial court in this action agreed that Oppenheimer bore a striking resemblance to the instant action. Here, Respondent brought suit against Helmsley and McCauley on breach of contract and negligence claims. Having obtained a default against Helmsley, through no fault of Appellants who were not parties to the action and had no notice of it, Respondent commenced suit against Appellants to attempt to recoup the more than $2 million default judgment against them based on allegedly fraudulent transfers. Accordingly, Respondent is using its default judgment against Helmsley as a basis for its supplemental proceeding against Appellants and a predicate for their liability. 14 The First Department's decision herein artificially limits the application of Oppenheimer to circumstances of fraud or other wrongdoing. However, the plain language of this Court's decision in Oppenheimer dictates otherwise: 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). Indeed, this Court appears to favor a broader application of CPLR § 5015 than that attributed by the First Department: 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. Oppenheimer, 47 N.Y.2d at 602, 419 N.Y.S.2d at 911 (emphasis added). This Court's use of the term "moreover" clearly indicates that the fraud or misconduct 15 was an additional reason justifying the Court's decision to vacate the default judgment (not the only reason). This broader interpretation of Oppenheimer is reinforced by more recent case law from this Court: Under CPLR 5015(a), a court is empowered to vacate a default judgment for several reasons, including excusable neglect; newly discovered evidence; fraud, misrepresentation or other misconduct by an adverse party; lack of jurisdiction; or upon the reversal, modification or vacatur of a prior order. These categories represent a codification of the principal grounds upon which courts have traditionally vacated default judgments as part of their 'inherent discretionary power'. It thus follows that section 5015(a) does not provide an exhaustive list as to when a default judgment may be vacated. Indeed, the drafters of that provision intended that courts retain and exercise their inherent discretionary power in situations that warranted vacatur but which the drafters could not easily foresee. Woodson v. Mendon Leasing Corp., 100 N.Y.2d 62, 68, 760 N.Y.S.2d 727(2003) (citations omitted) (emphasis added).3 3 Moreover, while the Oppenheimer court dismissed the intervention motion due to "non- finality" Gust as the Court herein) it permitted the moving non-parties to participate in the ordered inquest and joined them as necessary parties to the proceeding sua sponte pursuant to CPLR § 1003. Oppenheimer, 47 N.Y.2d at 601-602, 419 N.Y.S.2d at 910. Significantly, the author of the majority opinion noted his agreement with the dissenters who wrote: We would reverse both the denial of the Bernstein defendants' motion to intervene and the motion to vacate the default judgment against Hancock Securities Corporation. While, as a practical matter, the result reached by the majority permits the Bernstein defendants to participate in the inquest, our analysis takes a different path. Instead of joining the Bernstein defendants as necessary parties sua sponte pursuant to CPLR 1003, the better route -- and the 16 The First Department's limited interpretation of Oppenheimer also conflicts with that of the Third Department in Bond v. Giebel, 101 A.D.3d 1340, 956 N.Y.S.2d 267. In Bond, the plaintiff was injured in a snowmobile collision with a parked car. ld at 1340, 956 N.Y.S.2d at 268. The plaintiff commenced an action against the owners of two cars (one with which he collided, and the one parked in front of it). The first car was owned by defendant Giebel and the second was owned and/or driven by the O'Rourkes, and insured by Progressive Insurance. Id. at 1341, 956 N.Y.S.2d at 268. A default judgment was entered against the O'Rourkes for $1.2 million. The O'Rourkes subsequently notified Progressive of the judgment. Progressive disclaimed coverage on the basis that it had not received notice of the lawsuit as required under the policy. The O'Rourkes subsequently assigned their rights against Progressive to the plaintiff in exchange for plaintiffs agreement to pay the O'Rourkes 40 percent of any recovery from Progressive in excess of $300,000. The plaintiff subsequently filed suit against Progressive to recover part of the default judgment. Id. one chosen and litigated by the parties -- would be to retain jurisdiction over the motion to intervene. Under this view, the motion to intervene would be deemed inextricably entwined with the CPLR 5015 motion and hence final. On the merits, the denial of the motion to intervene was an abuse of discretion as a matter oflaw. !d. at 604-605, 419 N.Y.S.2d at 912 (citations omitted) (emphasis added). The Court of Appeals did not question the standing of the non-party principals whom the plaintiff sought to hold liable for the default judgment to intervene in the action, nor did the trial court here. 17 Progressive sought permission to vacate the default judgment entered against the O'Rourkes, intervene in the underlying action and, upon intervention, file a summary judgment motion dismissing the complaint. The trial court denied Progressive's request. Id. The Third Department overturned the trial court's decision. Relying upon Oppenheimer, the Third Department explained, "[ c ]onsistent with the legislative goal of 'assur[ing] that a broad class of persons, not limited to parties in the formal sense, could move [for relief pursuant to CPLR 5015]' it has been held in this context that 'all that is necessary is that some legitimate interest of the moving party will be served and that judicial assistance will avoid injustice."' !d. at 1342, 956 N.Y.S.2d at 269. The Court further noted that "Progressive is the only person or entity with an interest in vacating the default judgment, as the O'Rourkes have the potential to benefit financially by allowing the judgment to remain in effect." Significantly, the Third Department specifically noted that while fraud may not have led to the default judgment, to allow the default judgment to stand "offends our sense of justice and propriety." Id. at 1342- 43, 956 N.Y.S.2d at 269.4 The Third Department held that intervention was appropriate on the same grounds. Id. at 1344, 956 N.Y.S.2d at 2671. 4 Indeed, the Third Department noted that "[i]n recognition of the strong preference for deciding cases on their merits, we are of the view that, even if the circumstances of this case do not fall squarely within CPLR 5015(a)(3), Supreme Court should have exercised its inherent discretion to vacate the challenged default judgment in the interest of justice." Id at 1343, 956 N.Y.S.2d at 270. 18 So to here, Appellants 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 (by Respondent) from the case. Even in the absence of fraud, to allow the default judgment to stand (and prevent an adjudication on the merits) would likewise be unjust here. As set forth above, the plain language of Oppenheimer undermines the First Department's interpretation of this Court's binding precedent. Indeed, the Third Department's broader interpretation of Oppenheimer (which does not limit the scope of the decision to cases involving fraud or other wrongdoing) is the more accurate interpretation of this Court's precedent. Accordingly, this Court should overturn the First Department's decision and vacate the default judgment. POINT II PUBLIC POLICY WARRANTS REVERSAL The First Department's interpretation of Oppenheimer severely limits the discretion of the courts (and their application of CPLR § 5015), and, if left to stand, will prevent those with a significant interest in a litigation from protecting their own interests. Moreover, in this instance, the decision conflicts with the long standing policy of the New York courts "to allow matters to proceed to trial on the merits." Indeed, Respondent has never had to litigate the merits of its underlying case by (1) choosing to pursue a significant default judgment ($2,363,542.66) it 19 fortuitously obtained against Helmsley against Appellants, (2) initiating a supplemental proceeding against Appellants based on questionable claims of fraudulent conveyance, (3) attempting to block at all costs Appellants from intervening in the underlying action and vacating the default judgment entered against Helmsley, an entity which was owned by Appellant Lynn Schneider at the time the appraisal was performed, and (4) dismissing its claims against the only remaining defendant, James McCauley, with prejudice on the eve of trial. Respondent should not be permitted to avoid proving its claim. Moreover, 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 previously has contended) a nullity. Indeed, Appellants are not some remote unrelated parties. Rather, Appellant Lynn Schneider was the principal owner of Helmsley at the time of the preparation of the appraisal at issue in the case. Appellant Schneider & Schneider was the company formed by Lynn Schneider and her father, Irving Schneider, at the time they sold Helmsley to Kent Swig. Any trial on the merits of Respondent's negligence claim would have necessarily 20 involved Appellants (as potential witnesses and custodians of documents). 5 Moreover, the ease with which Respondent managed to locate Appellants after the default judgment was entered begs the question why they were not contacted prior to entry of the default judgment in the first place. Thus, the unique factual circumstances presented by this case, and the clear public policy to allow matters to proceed to trial on the merits, militates in favor of vacatur. 5 In fact, as one of Respondent's own attorneys has admitted, Helmsley's general counsel told him that Helmsley's assets had been transferred and/or sold to a third-party and that Helmsley would probably not answer the complaint. (R 240 ~ 9). Thus, at the same time it commenced this action against Helmsley, Respondent was aware that Helmsley would default and also that Helmsley' s assets had already been transferred to third-parties. Nevertheless, there is no evidence that Respondent made any attempt to determine who had obtained those assets until after it obtained a default judgment. At that time, Respondent had no trouble locating Appellants in order to start a fraudulent conveyance action to collect on the default judgment. 21 CONCLUSION For all of the foregoing reasons, 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 Helms ley. Dated: New York, New York May 28,2014 RRICK, FEINST ( Marisa A. Leto 2 Park Avenue New York, NY 10016 (212) 592-1400 Attorneys for Appellants Schneider & Schneider, Inc. and Lynn Schneider 22