Kimso Apartments, LLC,, et al., Respondents,v.Mahesh Gandhi, Appellant, Arlington Filler, et al., Respondents.BriefN.Y.October 21, 2014TO BE ARGUED BY: ELI FEIT TIME REQUESTED: 15 MINUTES State of New York Court of Appeals BRIEF OF DEFENDANT-APPELLANT DICK BAILEY SERVICE (212) 608-7666 (718) 522-4363 (516) 222-2470 (914) 682-0848 Fax: (718) 522-4024 1-800-531-2028 Appellate Division, Second Department, Case No. 2011-09195 Supreme Court, Richmond County, Index No. 013489/2003 KIMSO APARTMENTS, LLC, successor by merger to KIMSO APARTMENTS, INC., and POONAM APARTMENTS, LLC, successor by merger to POONAM APARTMENTS, INC., Plaintiffs, 185-225 PARKHILL LLC, successor by merger to 185-225 PARKHILL CORP., Plaintiff-Respondent, -against- MAHESH GANDHI, Defendant-Appellant, ARLINGTON FILLER and DARSHAN SHAH, Defendants-Respondents. AMITY PARK ASSOCIATES, DREW INVESTMENT, INC., UNITHREE MANAGEMENT, INC., UNITHREE INVESTMENT CORP., UNITHREE SERVICES CORP., and EVEREADY SECURITY, INC., Additional-Counterclaim Defendants. COURT OF APPEALS NO. 2013-00297 Date Completed: December 10, 2013 HELLER HOROWITZ FEIT, P.C. Attorneys for Defendant-Appellant Mahesh Gandhi 292 Madison Avenue New York, New York 10017 (212) 685-7600 197033.1 i TABLE OF CONTENTS Page TABLE OF AUTHORITIES ............................................................................ iii PRELIMINARY STATEMENT AND SUMMARY OF ARGUMENT........... 1 ISSUES PRESENTED........................................................................................ 7 JURISDICTION OF THIS COURT................................................................... 8 SUMMARY OF FACTS AND PROCEDURAL BACKGROUND ................. 8 ADDITIONAL BACKGROUND FACTS....................................................... 12 ARGUMENT – THE APPELLATE DIVISION DECISION SHOULD BE MODIFIED TO REINSTATE THE JUDGMENT......... 18 Point I There Can be No Prejudice Suffered by a Party, as a Matter of Law, from the Grant of a Motion to Conform The Pleadings to the Proof to Assert a Claim Against the Party as to Which Claim a Formal Judicial and Informal Judicial Admission of Liability Has Already Been Made by The Party ................................................................................................ 18 A. The Legal Standards Governing a Motion Under CPLR 3025 ........................................................................ 18 197033.1 ii B. Gandhi’s Right to Recover the Purchase Price Under the Settlement Agreement Has Always Been Admitted by Plaintiffs and Was Part of the Case` ............................................ 20 C. Plaintiffs’ Formal Judicial Admissions of their Liability To Gandhi..................................................................................... 21 D. The Record is Replete with Informal Judicial Admissions That Gandhi is Entitled to Recover the Purchase Price Under The Settlement Agreement........................................................... 26 E. The Record Establishes that Plaintiffs Were on Notice That Gandhi Was Seeking Recovery of the Purchase Price Under The Settlement Agreement........................................................... 30 F. The Appellate Division’s Decision is Inconsistent with Applicable Principles and Caselaw.............................................. 32 Point II If Plaintiffs’ Appeal is Granted, on the Ground that The Settlement Agreement Somehow Did Not Broadly Release All Claims of the Parties, Then Gandhi is Entitled to Judgment on His Other Counterclaims Which Were Dismissed by the Trial Court.................... 36 CONCLUSION................................................................................................. 38 197034.1 iii TABLE OF AUTHORITIES CASES PAGE 715 Ocean Parkway Owners Corp. v. Klagsbrun, 74 A.D.3d 1314, 905 N.Y.S.2d 630 (2d Dept. 2010)................... 18, 19 Bevilacqua v. City of Niagara Falls, 66 A.D. 2d 988, 411 N.Y.S. 2d 779 (4th Dept. 1978)......................... 34 Bryant v. Broadcast Music, Inc., 60 A.D. 3d 799, 875 N.Y.S. 2d 226 (2d Dept. 2009)......................... 35 Caceras v. Zorbas, 74 N.Y.2d 884, 547 N.Y.S.2d 834 (1989).......................................... 34 Cave v. Kollar, 2 A.D.3d 386, 767 N.Y.S.2d 856 (2d Dept. 2003)............................. 18 Dinizio and Cook, Inc. v. Duck Creek Marina at Three Mile Harbor, Ltd., 32 A.D.3d 989, 821 N.Y.S.2d 649 (2d Dept. 2006)..................... 18, 19 Falkowski v. 81 and 3 Watertown, Inc., 288 A.D.2d 890, 732 N.Y.S.2d 497 (4th Dept. 2001)......................... 22 Figueiredo v. New Palace Painters Supply Co., Inc., 39 A.D. 3d 363, 833 N.Y.S. 2d 492 (2d Dept. 2007)......................... 35 Gonfiantini v. Zino, 184 A.D.2d 368, 584 N.Y.S.2d 847 (1st Dept. 1992) ................... 18, 19 In the Matter of Jada W., 104 A.D. 3d 861, 961 N.Y.S. 2d 524 (2d Dept. 2013)................... 6, 34 In the Matter of Liquidation of Union Indemnity Insurance Company of New York v. American Centennial Insurance Company, 89 N.Y. 2d 94 (1996).......................................................................... 26 Loomis v. Civetta Corinno Constr. Corp., 54 N.Y.2d 18, 23, 444 N.Y.S.2d 571, 573 (1981).............................. 19 197034.1 iv Mal Dunn Associates, Inc. v. Kranjac, 145 A.D.2d 472, 535 N.Y.S.2d 430 (2d Dept. 1988)......................... 21 Murray v. City of New York, 43 N.Y.2d 400, 401 N.Y.S.2d 773 (1977)................................ 5, 33, 34 Pascavage v. City of Cohoes, 95 A.D. 2d 969, 464 N.Y.S. 2d 306 (3d Dept. 1983)......................... 34 People v. Brown, 98 N.Y. 2d 226, 746 N.Y.S. 2d 422 (2002)....................................... 22 Russell v. Gaines, 209 A.D.2d 939, 619 N.Y.S.2d 420 (4th Dept. 1994)......................... 25 Thailer v. LaRocca, 174 A.D.2d 731, 571 N.Y.S.2d 569 (2d Dept. 1991)......................... 18 Urraro v. Green, 106 A.D.2d 567, 483 N.Y.S.2d 80 (2d Dept. 1984)........................... 22 Weisberg v. My Mill Holding Corp., 205 A.D. 2d 756, 613 N.Y.S. 2d 680 (2d Dept. 1994)....................... 35 Zegarowicz v. Ripatti, 77 A.D.3d 650, 911 N.Y.S.2d 69 (2d Dept. 2010)............................. 22 STATUTES CPLR §3017(a) ............................................................................................. 36 CPLR §3025(c) .......................................................................... 18, 30, 33, 34 CPLR3212(b) ................................................................................................ 11 CPLR 5601(a)(1)(i)......................................................................................... 8 Labor Law §240(1) ....................................................................................... 25 197034.1 v OTHER AUTHORITIES Black's Law Dictionary, 9th Ed., (2009)........................................................ 21 Prince, Richardson on Evidence, §8-215 at 523 (Farrell, 11th Ed.) .............. 22 Prince, Richardson on Evidence, §8-219 at 530 (Farrell, 11th Ed.) .............. 26 197027.2 COURT OF APPEALS NO. 2013-00297 STATE OF NEW YORK COURT OF APPEALS - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X KIMSO APARTMENTS, LLC, successor by merger to KIMSO APARTMENTS, INC., POONAM APARTMENTS, LLC, successor by merger to POONAM APARTMENTS, INC., 185-225 PARKHILL LLC, successor by merger to 185-225 PARKHILL CORP., Plaintiffs-Respondents, -against- MAHESH GANDHI, Defendant-Appellant, -against- ARLINGTON FILLER, DARSHAN SHAH, AMITY PARK ASSOCIATES, DREW INVESTMENT, INC., UNITHREE MANAGEMENT, INC., UNITHREE INVESTMENT CORP., UNITHREE SERVICES CORP. and EVEREADY SECURITY, INC., Defendants-Respondents. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- -X BRIEF OF DEFENDANT-APPELLANT MAHESH GANDHI Preliminary Statement and Summary of Argument Defendant-Appellant Mahesh Gandhi (“Appellant” or “Gandhi”) submits this Brief in support of his Appeal from the Decision and Order of the Appellate Division, Second Department, dated March 13, 2013 (A4-6) (the “Appellate Division Decision”).1 In the Appellate Division Decision, the Second Department modified a 1 All parenthetical references are to Appellant’s Appendix. 2 September 7, 2011 Judgment against Plaintiffs-Respondents (“Plaintiffs” or the “Companies”) in favor of Gandhi in the amount of $2,186,187 (the “Judgment”), rendered after a ten-day bench trial before the Supreme Court, Richmond County (Hon. John A. Fusco, J.S.C.). The Second Department held that Justice Fusco had “improvidently exercised [his] discretion” by granting Gandhi’s application to conform the pleadings to the proof to include a counterclaim for monies due and owing to Gandhi under the settlement agreement between the parties of August 14, 2002 (the “Settlement Agreement”) – and thus in effect vacated the money judgment in Gandhi’s favor. The Second Department concluded that such a vacatur was required because “[t]he belated amendment of the [Appellant’s] answer prejudiced the plaintiff corporations, since they had no opportunity to present defenses to the counterclaim.” (A6) However, the Second Department agreed with Justice Fusco’s determination that the Plaintiffs were not entitled to any “set off” against their liability to Gandhi (premised upon Gandhi’s alleged failure to pay certain non-recourse promissory notes to the Companies), on the grounds that any obligation to pay those notes was released under the terms of the Settlement Agreement. Leave to appeal was granted by this Court on October 22, 2013. (A2-3) In support of his motion for leave to appeal, Appellant demonstrated that Plaintiffs did 3 not – and more importantly could not – make a showing that they suffered any conceivable “prejudice” by the grant of Appellant’s at-trial motion to assert a claim for the recovery of monies admitted by Plaintiffs in their pleadings in this action to be due and owing to Gandhi. For example, the prayer for relief in Plaintiffs’ initial Complaint stated that Plaintiffs “are entitled to a common law right of offset of the amounts . . . against the amounts owed by [Plaintiffs] to Gandhi pursuant to the [Settlement] Agreement . . .” (A29; emphasis supplied). And paragraph 55 of Plaintiffs’ Amended Reply recited that “pursuant to the Settlement Agreement, plaintiffs agreed to pay Gandhi the sum of $1,648,000 for his [shareholder] interest ...” (A83) Indeed, the Second Cause of Action in the Plaintiffs’ Amended Complaint sought a declaratory judgment “that Plaintiffs are entitled to a common law right of offset of the amounts [allegedly due from Gandhi under the non-recourse promissory notes] against the amounts owed by Plaintiffs to [Gandhi] pursuant to the Settlement Agreement.” (A35) (For additional examples of formal judicial admissions, see infra, at pp. 21-25; emphasis supplied.) Because Plaintiffs are conclusively bound by these formal judicial admissions, Plaintiffs were absolutely precluded from presenting any defenses to Gandhi’s claim (which defenses were in any event never identified); and Plaintiffs were therefore and as a matter of law not capable of being prejudiced by any purported “lack of 4 opportunity” to present and litigate them. In any event, the record also reflects that Plaintiffs had actual notice and ample opportunity to present any defense (although none existed) to their admitted obligation to make payments to Gandhi under the Settlement Agreement. (See infra, at pp. A21-25) Separate and apart from these conclusive judicial admissions as to Gandhi’s right to receive the monies which form the basis for the Judgment, Plaintiffs also directly and unambiguously admitted the debt owing to Appellant in informal judicial admissions contained in their trial testimony and pre-trial affidavits. To take one example among many: in a February 25, 2004 affidavit, Arlington Filler, one of the principals of Plaintiffs, stated “that the plaintiff’s [sic] have a total liability to Gandhi in the amount of $1,476,626 with interest from February 1, 2004 at the rate of 8% per annum pursuant to a certain agreement dated August 14, 2002.” (A836; emphasis supplied.) Plaintiffs’ trial testimony also acknowledged the debt owed to Appellant; and that the only issue to be litigated at trial concerned the extent and amount of any “set off” (an issue which was determined adverse to the Plaintiffs). For example, at trial Mr. Filler testified: Q. “And tell me what you are seeking in this litigation? What is it you want? A. “Restitution, I guess would be the word; payment of 5 what belongs to us. Q. “And what belongs to you? A. Setoff between what is owed to Mr. Gandhi and what Mr. Gandhi owes to us, and we would like a setoff.” (A237; emphasis supplied) (For additional examples of informal judicial admissions, see infra, at pp. 26-29.) Given the admissions contained in the record, the Appellate Division’s Decision is impossible to reconcile with this Court’s decision in Murray v. City of New York, 43 N.Y.2d 400, 404-05, 401 N.Y.S.2d 773, 774-75 (1977), which held that a claim of prejudice cannot, as a matter of law, defeat a motion to conform the pleadings to the proof when there is “a variance … between a pleading and proof admitted at the instance or with the acquiescence of a party …” Here, Plaintiffs have repeatedly “admitted proof” and “acquiesce[d]” (in the form of affidavits, trial testimony and pleadings) as to their liability to Gandhi to make the payments required under the Settlement Agreement. The Appellate Division’s Decision and Order is also inconsistent with other decisions from the Second Department rendered before and after the Decision and Order in this case. Those decisions uniformly hold that where there is an “opportunity to defend against the allegations not alleged in the [pleading]”, there can be no prejudice as a matter of law and a motion to conform the pleadings to the proof is 6 appropriate. In the Matter of Jada W., 104 A.D. 3d 861, 961 N.Y.S. 2d 524 (2d Dept. 2013). Because the record in this case makes it crystal clear that no surprise or prejudice could have been or was suffered by Plaintiffs – both because of their formal and informal judicial admissions and because Gandhi’s request for payment under the Settlement Agreement was, in Justice Fusco’s words, always “an intrinsic counterclaim since the onset of this litigation” (A17) – Gandhi’s at-trial motion to conform the pleadings to the proof was providently granted by the trial court and was not an abuse of discretion; and should not have been reversed by the Appellate Division. Accordingly, this Court should reinstate the Judgment. * * * Appellant anticipates that Plaintiffs will maintain that the Settlement Agreement only provided for a limited release between the parties, so that the non- recourse promissory notes executed by Gandhi in favor of the Companies remained a potential liability. It is Appellant’s position, of course, that the Appellate Division correctly affirmed the trial court’s determination that all claims between the parties were encompassed within the terms of the Settlement Agreement and the releases contained therein. In the event, however, that this Court adopts Respondents’ position that the Settlement Agreement only provided for a limited release, Appellant should 7 then be entitled to prevail on his counterclaims for monies due to him from Respondents with respect to the repayment of funds loaned by Gandhi to the Companies. (A797-820) The Companies’ liability for these amounts is established by undisputed documentary evidence and was never controverted by Plaintiffs at trial. Point II of this Brief sets forth the basis for Appellant’s recovery of a judgment on these counterclaims. Issues Presented 1. Where there have been formal judicial admissions of liability made in various pleadings by a party, and where the record reflects numerous informal judicial admissions on the same issue, which issue is never contested at trial, can that party claim deprivation of a “potential” defense to liability in order to defeat a motion by the counter-party to conform the pleadings to the proof so as to assert a claim against the party for affirmative relief flowing from the admitted liability? 2. In the absence of any identified actual defense to a claim sought to be added at trial, can the non-movant make a sufficient showing of prejudice or surprise to defeat a motion to conform the pleadings to the proof on the theoretical ground that the non-movant was not afforded the “opportunity” to present a defense? 8 3. In the event that this Court determines that the release in the Settlement Agreement is a limited release, is Appellant entitled to recover judgment on his Second, Third and Eighteenth Counterclaims in the principal amount of $1,369,342 (plus interest), given the undisputed evidence at trial which establishes the existence of the loans and their non-payment? Jurisdiction of this Court This Court has jurisdiction over this Appeal pursuant to CPLR 5601(a)(1)(i) because the Appellate Division’s Decision modifying the Supreme Court’s Judgment and dismissing all claims and counterclaims is a “final order.” Summary of Facts and Procedural Background Prior to August 14, 2002, Mahesh Gandhi, Darshan Shah and Arlington Filler were equal one-third shareholders in three corporations – Kimso Apartments, Inc., Poonam Apartments, Inc. and 185-225 Parkhill Corp. – the predecessors, respectively, to Plaintiffs Kimso Apartments, LLC, Poonam Apartments, LLC and 185-225 Parkhill, LLC (“Plaintiffs” or the “Companies”). The Companies each owned HUD-financed housing projects in Staten Island. (A417-422) Beginning in 2001, a number of disputes arose concerning the rights and the interests of the three shareholders in and to the assets of the Companies. Following 9 litigation in state and federal court, the shareholders and the Companies entered into a comprehensive “Settlement Agreement and Mutual Release” dated August 14, 2002 (the “Settlement Agreement”) in order to end their business relationship and to release and resolve, on a “global” basis, the various claims and lawsuits between the parties. The essence of the Settlement Agreement (at least from Gandhi’s perspective) was that the Companies agreed to purchase Gandhi’s one-third equity interest in each of the Companies for an aggregate purchase price of $1,648,000 (the “Purchase Price”), payable $20,000 per month for 120 months (inclusive of interest at the rate of 8% per annum). (A91) Following the execution of the Settlement Agreement, the Companies began to make the required monthly installment payments to Gandhi. Then, in November 2003, after having made fourteen separate monthly payments, the Companies commenced this action against Gandhi, seeking a declaratory judgment that the Companies are entitled to “set off” against the remainder of the Purchase Price, the amounts allegedly due from Gandhi under certain purported shareholder loans. (A25- 29) Gandhi asserted various counterclaims against the Companies, Shah and Filler, and a number of other entities owned or controlled by Shah and Filler, including claims to recover the amounts of various loans and other obligations due and owing to him. 10 The action was tried, without a jury, before the Honorable John A. Fusco in November 2010. A Trial Decision and Order was issued on August 22, 2011. The trial court concluded, among other things, that the Settlement Agreement – as confirmed by various events prior and subsequent to the buy-out of Gandhi’s shares in the Companies – was intended by the parties to be global in nature and that the mutual releases exchanged by the parties were intended to be general in scope. In specifically denying the Plaintiffs’ “set off” claim, the trial court recognized that Plaintiffs’ asserted position “strains the credibility of the Court”, since it assumed that in the Settlement Agreement Gandhi would have surrendered all of his interest in the Companies for $2.4 million while at the same time keeping open an obligation to pay the Companies back approximately $3 million. In the court’s words: “Simple arithmetic would explain that defendant would then have to add seven hundred thousand dollars of his own money to extradite himself from a highly profitable business arrangement pursuant to the Settlement Agreement!” (A16) Having concluded that Plaintiffs had no basis to offset any amounts against their acknowledged payment obligations under the Settlement Agreement and that the payment of the Purchase Price was part of the litigation from “the onset”, the trial court granted Gandhi’s at-trial motion to formally amend his pleadings to include a counterclaim for the amounts then due and owing under the Settlement Agreement and, 11 upon such amendment, granted summary judgment in favor of Gandhi on this counterclaim. Thus, the trial court held that none of the claims asserted against Gandhi, or by Gandhi, survived the Settlement Agreement – except, of course, Gandhi’s claims arising under the Settlement Agreement itself for the Purchase Price. 2 In accordance with the Trial Decision and Order, a Judgment was entered on September 7, 2011, granting Gandhi a money judgment against the Plaintiffs in the amount of $2,186,787 (the amount, at the time of the entry of Judgment, of eighty- five defaulted-upon installment payments, plus accrued interest); dismissing the causes of action asserted by Plaintiffs; and dismissing the remaining counterclaims asserted by Gandhi. By Decision and Order dated March 13, 2013, the Appellate Division agreed that all of Plaintiffs’ claims (including its cause of action for a declaratory judgment as to its right to “set off” Gandhi’s alleged obligations to pay his non-recourse promissory notes against the Companies’ obligations to make payments under the Settlement Agreement) were without merit, in light of the broad releases contained in the Settlement Agreement. However, the Court modified the Judgment to deny 2 While Justice Fusco denominated the Judgment as a “summary judgment”, it was rendered after trial. Perhaps Justice Fusco recognized that once the “set off” issue was resolved adverse to Plaintiffs, there was no remaining issue of fact or law with respect to Gandhi’s right to recover the purchase price under the Settlement Agreement. See CPLR3212(b) (summary judgment to be granted when “the cause of action . . . shall be established sufficiently to warrant the court as a matter of law in 12 Gandhi’s application to conform the pleadings to the proof and for judgment on that counterclaim, holding that “[t]he belated amendment of the defendant’s answer prejudiced the plaintiff corporations, since they had no opportunity to present defenses to the counterclaim.” Additional Background Facts Between 1997 and 1999, the Companies received $20 million in Title VI financing from HUD for the Properties. Of this $20 million, $11 million was used for capital improvements and closing costs. The balance of $9 million went to the three partners, $3 million each, as a return of their equity. (A107-108; 262) Each partner executed a series of Non-Negotiable, Non-Recourse Promissory Notes (the “Notes”) in identical amounts. (A685-703) Of the $3 million equity distribution to each partner’s special account, approximately $2 million was loaned back to the Companies and other corporations owned by the partners. (A108-109) Thus, Gandhi loaned $620,342 back to the Companies, in the following amounts: Parkhill - $272,342; Kimso - $236,000; and Poonam - $112,000. These loans are established by a series of checks, aggregating these amounts, written to Parkhill (A797-798), Kimso (A799-805) and Poonam. (A806-809) Gandhi also loaned $1,547,200 back to Unithree and Amity Park Associates, in the following amounts: Unithree - $689,000; and Amity Park - directing judgment in favor of any party”). 13 $858,200. These loans are established by a series of promissory notes executed by, and checks in corresponding amounts written to, Unithree (A810-820) and two additional checks aggregating $60,000 written to Unithree (A819-820) In 2001, Shah and Filler accused Gandhi of participating in a fraudulent billing scheme to misappropriate monies from the Companies (A430) and, in August 2001, removed Gandhi as an officer and director of the Companies (A431). Gandhi has at all times denied any wrongdoing. There has never been any evidence or any finding of wrongdoing on the part of Gandhi. (A430) In response, on May 16, 2002 Gandhi commenced a special proceeding against Shah, Filler and the Companies in Supreme Court, Richmond County, seeking a preliminary injunction in aid of arbitration. (A433) On July 1, 2002, Gandhi commenced an action against Shah, Filler and the Companies in Supreme Court, Richmond County, seeking an accounting, compensatory damages, declaratory relief and injunctive relief, stemming from the alleged breaches of contractual and fiduciary duties by Shah and Filler. (A435-436) Gandhi’s claim in these two litigations, among others, was that Shah and Filler froze him out of the Companies and were attempting to deprive him of the value of his shares and the Companies’ assets. Based on these allegations of a fraudulent billing scheme, Plaintiffs also commenced a RICO Action in federal court against Gandhi and his family members. (A713) 14 In August 2002, the parties reached a settlement of their disputes and on August 14, 2002, to effectuate their settlement, executed a “Settlement Agreement and Mutual Release.” (A89-99) The sixth “Whereas” clause of the Settlement Agreement recites: “WHEREAS, the Seller, Filler, Shah and the Companies, with the benefit and advise of counsel, seek to resolve all matters relating to the foregoing lawsuits and mutually desire to avoid future litigation and seek a satisfactory resolution of their disputes.” (A90; emphasis supplied.) The Settlement Agreement, at paragraph 9, provides that the parties “hereby release, acquit, and forever discharge each other … of and from any and all claims, known and unknown … from the beginning of time until the present that they now have or that may accrue that are the subject of the Partys’ [sic] lawsuits herein.” (A92-93; emphasis supplied.) The Settlement Agreement also provided for dismissals with prejudice of all of the pending litigations. The Settlement Agreement provided and was mutually intended to put a global end to the business relationship and the lawsuits between the parties. According to Gandhi, the intent of the Settlement Agreement was that he would “be paid this money and we go home.” (A446) The settlement was a “global termination of our dispute. We terminated everything. I didn’t owe them nothing. They didn’t owe me nothing.” (A488) 15 Likewise, Filler testified at his deposition as follows: “Q: After you signed this agreement, did you believe you had any claims against Mr. Gandhi? “A: I thought we had settled. “Q: You thought you were finished? “A: I thought we were finished. “Q: Did you believe Mr. Gandhi had any open claims against the corporation or you personally? “A: I didn’t really think about it. I thought that was settled.” (A142-144) Shah similarly testified at his deposition as follows: “Q: Just the market value less the debt of the companies? “A: Well, those were the general formula. Basically the numbers were what both parties agreed to. Ultimately, Mr. Gandhi on one side and Mr. Filler and I on the other came to agreement that this would be the number that would fairly represent the current value, market value then, Mr. Gandhi’s interest and shares of the companies that appear in the settlement agreement. “Q: Did you leave anything open? “A: No, we did not leave anything open.” (A670; emphasis supplied.) 16 In accordance with paragraph 8 of the Settlement Agreement (A92) the parties duly “cause[d] [the] dismissal with prejudice” of the prior litigations. The Stipulation of Discontinuance in the Gandhi Special Proceeding provides that “this action and all claims and counterclaims that could have been asserted in the above entitled action are hereby discontinued, with prejudice.” (A707-710; emphasis supplied.) The Stipulation of Discontinuance in the Gandhi Action likewise provides that “this action and all claims and counterclaims that could have been asserted in the above entitled action are hereby discontinued, with prejudice.” (A711-712; emphasis supplied.) And the Notice of Dismissal filed by the Plaintiffs in the RICO Action dismissed the action, with prejudice, against Gandhi and all Gandhi-related parties. (A713) During the trial, Plaintiffs argued that notwithstanding the Settlement Agreement, the Stipulations of Discontinuance with Prejudice and the Releases, Gandhi nevertheless remained obligated for the repayment of the sums due to the Companies under the non-recourse promissory notes. After consideration of all of the documentary evidence and trial testimony (including, of course, an evaluation of the credibility of the witnesses), Justice Fusco rejected that contention. (A7-21) Indeed, during the trial Justice Fusco seemed understandably incredulous that an experienced businessman such as Shah would agree to pay Gandhi $2.4 million 17 pursuant to the Settlement Agreement and that Gandhi, at the same time, would be obligated to pay back $3 million with interest. Justice Fusco questioned Shah on this subject, as follows: “COURT: I am going to ask you one more question. In other words, at the conclusion if you were to lay this out sort of doing mathematics, just from a dollar and cents standpoint, you basically – when I say “you” the payment to Gandhi was going to be 2.4 million in accordance with your agreement, but at some point in time he would pay you back $3 million? “WITNESS: Yes. “COURT: With interest? “WITNESS: Yes.” (A363-364; emphasis supplied.) 3 3 At the trial, Gandhi also argued that he could have no liability under the promissory notes because, by their very terms, they were expressly made “non-recourse.” (A463-464) Because both Justice Fusco and the Second Department found that the notes were subject to the releases in the Settlement Agreement, neither Court reached that issue. 18 ARGUMENT THE APPELLATE DIVISION DECISION SHOULD BE MODIFIED TO REINSTATE THE JUDGMENT Point I There Can Be No Prejudice Suffered by a Party, as a Matter of Law, from the Grant of a Motion to Conform the Pleadings to the Proof to Assert a Claim Against the Party as to Which Claim a Formal Judicial and Informal Judicial Admission of Liability Has Already Been Made by the Party A. The Legal Standards Governing a Motion Under CPLR 3025 The propriety of the trial court’s grant of Gandhi’s motion to amend his pleadings is absolutely clear. Pursuant to CPLR §3025(c), pleadings may be conformed to the proof at any time, even during or after trial, absent prejudice or surprise. 715 Ocean Parkway Owners Corp. v. Klagsbrun, 74 A.D.3d 1314, 905 N.Y.S.2d 630 (2d Dept. 2010); Dinizio and Cook, Inc. v. Duck Creek Marina at Three Mile Harbor, Ltd., 32 A.D.3d 989, 821 N.Y.S.2d 649 (2d Dept. 2006); Cave v. Kollar, 2 A.D.3d 386, 767 N.Y.S.2d 856 (2d Dept. 2003); Gonfiantini v. Zino, 184 A.D.2d 368, 584 N.Y.S.2d 847 (1st Dept. 1992); Thailer v. LaRocca, 174 A.D.2d 731, 571 N.Y.S.2d 569 (2d Dept. 1991). It is also well settled that the showing of prejudice or surprise necessary to defeat a motion to conform the pleadings to the proof relates to the disadvantage 19 suffered by the non-movant in respect of the conduct of trial – i.e., that the non- movant has been thwarted in its ability to interpose or assert a claim or defense that has some potential legal merit. See Loomis v. Civetta Corinno Constr. Corp., 54 N.Y.2d 18, 23, 444 N.Y.S.2d 571, 573 (1981) (“Prejudice, of course, is not found in the mere exposure of the defendant to greater liability. Instead, there must be some indication that the defendant has been hindered in the preparation of his case or was prevented from taking some measure in support of his position.”); 715 Ocean Parkway, 74 A.D.3d at 1315-16, 905 N.Y.S.2d at 632 (“Here, the defendant failed to demonstrate that he was hindered in the preparation of his case or was prevented from taking some measure in support of his position.”); Dinizio and Cook, 32 A.D.3d at 990-91, 821 N.Y.S.2d at 650 (“The Supreme Court found, and the plaintiff did not contest, that the note existed, that it matured in 1998, and that when the plaintiff made its last payment in April of 1994 there remained an unpaid principal balance in the sum of $1,152,750 on the $1,750,000 note. Thus, the plaintiff cannot claim to be surprised by the claim that it breached the agreement in either 1994 or 1998.”); Gonfiantini, 184 A.D.2d at 370, 584 N.Y.S.2d at 849 (“ample opportunity existed for the defendant and third party defendant to respond to the evidence and, the prejudice to these defendants in allowing plaintiff to conform the pleadings was comparatively minimal”). 20 B. Gandhi’s Right to Recover the Purchase Price under the Settlement Agreement Has Always Been Admitted by Plaintiffs And Was Part of the Case By bringing this action for a declaratory judgment, and as Justice Fusco correctly held, Plaintiffs necessarily admitted their obligation to make the payments due to Gandhi under the Settlement Agreement. They never claimed otherwise. For this reason, the trial court also correctly rejected Plaintiffs’ argument that they would somehow be prejudiced if the court were to permit Gandhi’s at-trial amendment of his pleadings to formally assert a counterclaim for these past-due settlement payments. As Justice Fusco wrote: “This issue, although not plead by defendant in his counterclaims has been an intrinsic counterclaim since the onset of this litigation. Plaintiffs claim that they were entitled to withhold payments under the Settlement Agreement because they were entitled to payment under the Notes, while defendant raised the opposite as his defense. The inverse of that argument would then state that if this Court does not find the Corporations are entitled to repayment under the Notes, the Settlement Agreement payments must be due. Based upon this logic, the issue of the past due Settlement Agreement payments was present in the litigation from the very start, even though not specifically pled, and thus amendment of the answer is not prejudicial. [Citations omitted.] “Thus, defendant having moved to amend is hereby permitted to amend his answer to include a counterclaim requesting the arrears with interest under the Settlement Agreement. Furthermore, upon amendment, this Court finds summary judgment in favor of the defendant on this 21 counterclaim, since it is undisputed that all payments ceased under the Settlement Agreement in September 2004.” (A17; emphasis supplied.) Indeed, Black’s Law Dictionary defines set-off as “[a] debtor’s right to reduce the amount of a debt by any sum the creditor owes the debtor.” (9th Ed., [2009]; emphasis supplied.) This is exactly the position taken by Plaintiffs in their pleadings. See Mal Dunn Associates, Inc. v. Kranjac, 145 A.D.2d 472, 474, 535 N.Y.S.2d 430, 431 (2d Dept. 1988) (affirming the grant of summary judgment in favor of defendant dismissing plaintiff’s complaint and on the issue of liability as to defendant’s counterclaims for monies owing in light of plaintiff’s admissions that the monies were in fact due but had been withheld “on the basis of a set-off to our claims and also on the basis of her being a disloyal employee”). When the Appellate Division affirmed the “global” nature of the releases – and that Plaintiffs thus had no right to assert any setoff or defense to their payment obligations to Gandhi under the Settlement Agreement – it necessarily followed (as Plaintiffs themselves conceded) that Gandhi was entitled to recover all sums due under the Settlement Agreement. C. Plaintiffs’ Formal Judicial Admissions of Their Liability to Gandhi No less important, Plaintiffs’ Complaint, Amended Complaint and Reply expressly admit their obligation to make the settlement payments to Gandhi; in their words, that the monies which form the basis of the Judgment were “owed” and “due.” 22 Such admissions in their pleadings constitute formal judicial admissions, absolutely conclusive and binding upon Plaintiffs in this action for all purposes. See People v. Brown, 98 N.Y. 2d 226, 232, n.2, 746 N.Y.S. 2d 422 (2002), citing Prince, Richardson on Evidence, §8-215 at 523 (Farrell, 11th Ed.); Zegarowicz v. Ripatti, 77 A.D.3d 650, 653, 911 N.Y.S.2d 69, 72 (2d Dept. 2010) (“Facts admitted by a party’s pleadings constitute formal judicial admissions [citations omitted]. Formal judicial admissions are conclusive of the facts admitted in the action in which they are made.”) See also Urraro v. Green, 106 A.D.2d 567, 483 N.Y.S.2d 80 (2d Dept. 1984); Falkowski v. 81 and 3 Watertown, Inc., 288 A.D.2d 890, 732 N.Y.S.2d 497 (4th Dept. 2001). These formal and conclusively binding judicial admissions include the following: In their initial Complaint, Plaintiffs stated: “8. Pursuant to a settlement agreement and mutual release dated as of August 14, 2002 (copy annexed hereto as ‘A’) Gandhi transferred his shares of stock in ‘Kimso’, ‘Poonam’, and ‘185-225’ to ‘Kimso’, ‘Poonam’, and ‘185- 225’ respectively in exchange for the agreement of ‘Kimso’, ‘Poonam’, and ‘185-225’ to pay him the sum of $1,648,000.00 in the following manner: “The price shall be paid as amortized at 8% interest per annum for ten years in 120 equal monthly installments each in the amount of $20,000.00 inclusive of principal and interest, beginning on the 10th day of September, 2002.” 23 (A27) In their “Wherefore Clause” to the initial Complaint, at paragraph D, Plaintiffs again acknowledged the debt owing to Gandhi: “That ‘Kimso’, ‘Poonam’, and ‘185-225’ are entitled to a common law right of offset of the amounts as determined in A, B, and C above against the amounts owed by ‘Kimso’, ‘Poonam’, and ‘185-225’ to Gandhi pursuant to the agreement annexed hereto as exhibit ‘A’.” (A29; emphasis supplied) Plaintiffs’ Amended Complaint (A30-40) specifically alleged: “25. That Plaintiffs have determined that each of Kimso, Poonam, and 185-225 shall be responsible for 1/3 of the amount due to Defendant under the Settlement Agreement, such amount being $478,333.33. “26. That, after applying Kimso’s common law right of offset, the amounts owed to Defendant under the Settlement Agreement is paid in full and Defendant owes Kimso the balance of $1,720,877.13 as outstanding amounts due under the notes evidencing the shareholder loans. “27. That, after applying Poonam’s common law right of offset, the amounts owed to Defendant under the Settlement Agreement is paid in full and Defendant owes Poonam the balance of $1,884,218.01 as outstanding amounts due under the notes evidencing the shareholder loans. “28. That, after applying 185-225’s common law right of offset, the amounts owed to Defendant under the Settlement 24 Agreement is paid in full and Defendant owes 185-225 the balance of $1,827,970.25 as outstanding amounts due under the notes evidencing the shareholder loans.” (A34-35; emphasis supplied.) Plaintiffs’ Amended Complaint requested a determination, in Paragraph D of the “Wherefore” Clause: “That Plaintiffs are entitled to a common law right of offset of the amounts as determined in A, B and C above against the amounts owed by Plaintiffs to Defendant pursuant to the Settlement Agreement.” (A38; emphasis supplied.) In their Amended Reply dated January 23, 2006, Plaintiffs stated the following: “40. In compliance with the terms of the Settlement Agreement, the plaintiffs have made payments to defendant of $20,000 per month. Although defendant sought rescission of the Settlement Agreement on January 15, 2004, he has continued to accept payments from plaintiffs after such date, thereby deriving benefit from an agreement he seeks to rescind.” “55. Pursuant to the Settlement Agreement, plaintiffs agree to pay Gandhi the sum of $1,648,000.00 for his interest in Unithree Investment, Eveready and certain other entities.” Plaintiffs’ Reply contains numerous references to their stated position that Gandhi by reason of his conduct in 25 accepting payments under the Settlement Agreement is unable to seek rescission (A80, 83, 81-82) The bottom line, in other words, is that in no fewer than ten separate places Plaintiffs concede that the sums which underlie the Judgment are “due” or “owed” to Gandhi. Under these circumstances, and because those concessions are conclusive and binding as a matter of law, Plaintiffs could not have suffered any conceivable “prejudice” in not “presenting a defense” (which did not exist) to Gandhi’s claim for recovery of the sums due under the Settlement Agreement. In Russell v. Gaines, 209 A.D.2d 939, 619 N.Y.S.2d 420 (4th Dept. 1994), the Appellate Division reversed the lower court’s denial of plaintiff’s motion for partial summary judgment on his Labor Law §240(1) claim, and granted plaintiff’s motion. Defendant had raised the statutory defense that, because defendant’s decedent was the owner of a one-family dwelling who contracted for but did not direct or control the work, defendant was not liable for plaintiff’s injuries. The Appellate Division rejected the defense because defendant had conceded that decedent had complete control and direction concerning the work performed by plaintiff, which “constitutes a judicial admission that is binding on defendant.” Id., 209 A.D.2d at 940, 619 N.Y.S.2d at 422. Thus, the defendant in Russell v. Gaines was precluded from advancing a 26 statutory defense (clearly, an otherwise viable one) that was inconsistent with a formal judicial admission made in that action. Here, too, Plaintiffs could not present any defenses to Gandhi’s counterclaim to recover the monies due and owing to him under the Settlement Agreement because Plaintiffs had made a formal judicial admission in their pleadings that they are liable for such monies. Having so made a formal judicial admission of liability, no defenses inconsistent with their binding admitted liability were capable of being presented at trial. Accordingly, no conceivable prejudice in respect of the conduct of trial can be claimed by Plaintiffs. D. The Record is Replete with Informal Judicial Admissions That Gandhi is Entitled to Recover the Purchase Price under the Settlement Agreement Informal judicial admissions, while not conclusive and binding as a formal judicial admission, are evidence of the facts admitted. See In the Matter of Liquidation of Union Indemnity Insurance Company of New York v. American Centennial Insurance Company, 89 N.Y. 2d 94 (1996) (citing Prince, Richardson on Evidence, §8-219 at 530). During the pre-trial proceedings and the trial, Plaintiffs unambiguously and repeatedly acknowledged beyond any conceivable dispute that in the event their “set off” was rejected, Gandhi was entitled to recover the monies due under the Settlement Agreement. These informal judicial admissions include the following: In his February 25, 2004 affidavit in support of Plaintiffs’ 27 motion for summary judgment, Arlington Filler stated “that the plaintiff’s have a total liability to Gandhi in the amount of $1,476,626 with interest from February 1, 2004 at the rate of 8% per annum pursuant to a certain agreement dated August 14, 2002.” (A836; emphasis supplied) In further describing what he styled as the legal issue to be determined by the court on the summary judgment motion, Mr. Filler summarized the issue as “Whether plaintiffs have the right to apply the common law remedy of set off to these competing debts, thus eliminating the need to sue Gandhi on the sums owed to plaintiffs and to avoid the need to defend any lawsuit which might be brought by Gandhi to defend such litigation were plaintiffs to set off these debts.” (A836). At paragraph 63 of the same affidavit, Mr. Filler further stated that “plaintiffs admit they owe money to Gandhi, but believe that they should not have to repay him while he is refusing to meet his obligations to plaintiff.” (A852; emphasis supplied.) During his direct examination at trial, Darshan Shah, the other principal of Plaintiffs, testified that “the settlement was in 28 August of 2002, and as soon as the settlement was done we started to give Mr. Gandhi $20,000 a month; our obligation that we had undertaken under the settlement agreement.” (A301; emphasis supplied) In an affirmation submitted by one of the attorneys for Plaintiffs, the debt owing to Mr. Gandhi pursuant to the Settlement Agreement was acknowledged. In his July 3, 2009 affirmation, Mr. Crawford stated on behalf of Plaintiffs that “Gandhi has also moved to dismiss Kimso’s second cause of action which seeks judgment declaring that after setting off the sums due Kimso, Kimso has satisfied its obligations to Gandhi pursuant to the August 14, 2002 Settlement Agreement (‘Settlement Agreement’) between Kimso and Gandhi.” (A935) Plaintiffs continued to admit their obligation to make the payments under the Settlement Agreement to Gandhi during the course of the trial of this action. For example, Mr. Filler testified on cross-examination that he is seeking in this litigation a “set off between what is owed to Mr. Gandhi and what Mr. Gandhi owes to us, and we would like a set off.” 29 (A237; emphasis supplied.) At no time did Plaintiffs contend or offer any evidence to suggest that the monies due to Gandhi under the Settlement Agreement were not due and owing to him. In fact, on further cross-examination, Mr. Filler again confirmed that “he would have been paid the rest of it. He would have been paid, but he didn’t want to do what his obligation was and that’s why I believe that’s why we are in this court today.” (A188) In a December 28, 2004 letter to Gandhi from Plaintiffs’ accountant (admitted into evidence at trial), the accountant stated that, in computing the tax consequences of the non- payment of the non-recourse promissory notes, the “discharge of debt will be the amount of debt owed by you to the Companies less the amount owed by the Companies to you under the Settlement Agreement.” (A796; emphasis supplied) Plaintiffs made twenty-three separate monthly payments under the Settlement Agreement, including nine after the commencement of this Action. (A727-734) When taken together with the stated judicial admissions made by Plaintiffs, 30 these informal judicial admissions as to the admitted obligation to pay Gandhi under the Settlement Agreement establishes beyond any doubt that Plaintiffs could not, as a matter of law, have been prejudiced or surprised by Gandhi’s motion to conform the pleadings to the proof. The trial court, which dealt with this litigation for years, knew that the question of the monies due to Gandhi under the Settlement Agreement was “in the case” from the outset of the litigation. Having admitted owing Gandhi these monies, the trial court acted providently in granting Gandhi’s motion to conform the pleadings to the proof and entering the Judgment. Any other result would be unfair and work a grave injustice upon Gandhi. E. The Record Establishes That Plaintiffs Were on Notice That Gandhi Was Seeking Recovery of the Purchase Price Under the Settlement Agreement. As noted above, the essence of the inquiry under CPLR 3025 is whether there has been unfair surprise or prejudice to the non-movant. Here, Plaintiffs were indisputably on notice that Gandhi was seeking in the action to recover the remainder of the Purchase Price. For example, Plaintiffs made a motion in limine on this very issue, which the trial court held in abeyance until it rendered its decision and order. If Plaintiffs had a defense or were concerned that their numerous judicial admissions were problematic, they were thus clearly on notice that Gandhi was seeking to recover from them the monies due under the Settlement Agreement during the course 31 of the litigation and at trial. Moreover, if Gandhi’s right to recover the past-due settlement payments was not “in the case,” what was the purpose for that motion? In addition, one year earlier, in May 2009 Gandhi moved for summary judgment dismissing Plaintiffs’ set-off claims and, upon dismissal of the set-off claims, for a money judgment against Plaintiffs in the amount of the acknowledged and admitted settlement payments then due and owing to him. (A900-901) In his May 8, 2009 Affidavit in support of his cross-motion for summary judgment, Gandhi explicitly requested the very same affirmative relief that formed the basis for the subsequent Judgment, by stating: “Accordingly, I am entitled to summary judgment against plaintiffs for the amounts due to me under the Settlement Agreement, through March 2009, in the sum of $1,305,124.80 plus attorneys fees in an amount to be determined by this Court at a hearing.” (A912; emphasis supplied.) The trial court denied Gandhi’s motion for summary judgment, which included the request for affirmative relief in the form of judgment in the amount of $1,305,124.80 (the amount then due and owing under the Settlement Agreement), as well as those of Plaintiffs, on grounds that the motions were premature because discovery had not yet been completed. (A989-991) The trial court did not indicate – either expressly or by implication – that the cross-motion sought relief on an 32 “unpleaded” claim. If one thing is certain, it is this: Based upon the issues litigated in the parties’ summary judgment motions, Plaintiffs and the court knew full well that Gandhi would likewise seek at trial to vindicate his rights to payment under the Settlement Agreement. F. The Appellate Division’s Decision is Inconsistent with Applicable Principles and Caselaw. The Decision and Order of the Appellate Division seems to be based upon a conceptual or abstract view of prejudice – that Plaintiffs had “no opportunity to present defenses to the counterclaim” – completely divorced from the question of actual detriment. Such an approach is, we submit, particularly anomalous in the context of Plaintiffs’ admitted obligation to make the payments due to Gandhi under the Settlement Agreement. In short, the Appellate Division overlooked that no such actual prejudice attached to Gandhi’s motion to amend his pleadings at the close of his case, in terms of the deprivation of a viable defense capable of assertion to defeat Gandhi’s claim to payment. Such a view of the prejudice necessary to avoid the grant of a motion to conform the pleadings to the proof (i) is also inconsistent with the broad discretion given trial courts to assess whether any actual prejudice results from the proposed amendment; and (ii) turns on its head the well-established principle that motions to 33 conform the pleadings to the proof, in the absence of such prejudice, should be freely granted. The Appellate Division in this case not only overlooked the fact that no conceivable prejudice flowing from the grant of Defendant’s motion was capable of being shown, but also engrafted a new standard in respect of a CPLR 3025 motion to amend a party’s pleadings. No longer would a motion to amend or conform be governed by an objective standard requiring a showing of actual prejudice or surprise, but now would be subject to a theoretical, abstract and subjective notion of prejudice – capable of being invoked by the non-movant in the absence of any real and identifiable harm, which would severely restrict the discretion of the trial court in granting such motions consistent with the well-established precedents of this Court. In Murray v. City of New York, 43 N.Y.2d 400, 401 N.Y.S.2d 773 (1977), this Court held that the Appellate Division had abused its discretion, as a matter of law, when it disturbed the trial court’s grant of a motion to conform the pleadings to the proof and set aside a verdict against the defendant. This Court explained that, “[a]n application to amend under [CPLR §3025] subdivision (c) [to conform the pleadings to the proof] is likewise addressed to the sound discretion of the court and should be determined in the same manner and by weighing the same considerations as upon a motion to amend pursuant to subdivision (b),” which explicitly provides that “leave 34 shall be freely given upon such terms as may be just.” (See CPLR 3025(b).) “When a variance develops between a pleading and proof admitted at the instance or with the acquiescence of a party, such party cannot later claim that he was surprised or prejudiced and the motion to conform should be granted.” Id., 43 N.Y.2d at 404-05, 401 N.Y.S.2d at 774-75. See also Caceras v. Zorbas, 74 N.Y.2d 884, 547 N.Y.S.2d 834 (1989) (“he failed to make such a showing here and cannot claim prejudice or surprise because he was aware of his employment status from the outset and had received Workers’ Compensation benefits”); Matter of Jada W., 104 A.D.3d 861, 961 N.Y.S.2d 524 (2d Dept. 2013); Pascavage v. City of Cohoes, 95 A.D. 2d 969, 464 N.Y.S. 2d 306 (3d Dept. 1983) (motion to amend pleading granted where knowledge of defense of justification was insufficient to establish prejudice or surprise); Bevilacqua v. City of Niagara Falls, 66 A.D. 2d 988, 411 N.Y.S. 2d 779 (4th Dept. 1978) (“here, where evidence on the question of justification was admitted throughout trial without objection, the motion was tantamount to a motion to conform the pleadings to the proof and it was an abuse of discretion to deny the motion in the absence of a showing of prejudice to plaintiff”). The result urged by Gandhi on this appeal would seem to follow necessarily and a fortiori from the principles and cases discussed above. Indeed, this Court’s decision in Murray v. City of New York, supra, would seem to dictate that a judicial 35 admission which is conclusively binding on the party making it (and which has greater evidentiary value than “proof admitted at the instance or with the acquiescence of a party”) has at least the same preclusive effect on a claim of prejudice or surprise. The Decision and Order of the Appellate Division thus makes new law by allowing a claim of prejudice to override a judicial admission – a result at variance with this Court’s ruling in Murray, and the Second Department’s own decisions. It is also difficult to reconcile the Decision and Order of the Appellate Division with its analysis and holdings in other similar situations. In Bryant v. Broadcast Music, Inc., 60 A.D. 3d 799, 875 N.Y.S. 2d 226 (2d Dept. 2009), the Second Department recognized the general rule that a motion to conform the pleadings to the proof should be “freely granted absent prejudice or surprise” when it found no prejudice or surprise where a motion “was based upon a written agreement admitted at its own instance and the plaintiff did not allege any new facts.” See also Figueiredo v. New Palace Painters Supply Co., Inc., 39 A.D. 3d 363, 833 N.Y.S. 2d 492 (2d Dept. 2007) (recognizing that an admission in an answer takes “the place of evidence and are concessions for the purpose of this litigation of the truth of the fact alleged by an adversary”). In Weisberg v. My Mill Holding Corp., 205 A.D. 2d 756, 613 N.Y.S. 2d 680 (2d Dept. 1994), the Second Department found that the trial court had abused 36 its discretion in refusing to grant a motion to conform the pleadings to the proof. In reversing the trial court, the Second Department noted that there could be no prejudice or surprise to the respondent because plaintiffs’ “contentions relating to the dripping water had emerged during Mrs. Weisberg’s deposition”. Id. at 681. It follows that it is not even remotely possible in the face of the countless judicial admissions established on this record that any claim of prejudice or surprise could be maintained by Plaintiffs, as a matter of law. POINT II If Plaintiffs’ Appeal Is Granted, on the Ground that the Settlement Agreement Somehow Did Not Broadly Release All Claims of the Parties, Then Gandhi Is Entitled to Judgment on His Other Counterclaims, Which Were Dismissed by the Trial Court It is Appellant’s position that the Settlement Agreement and the with-prejudice discontinuance of the prior litigation mutually bar Plaintiffs’ claims and Gandhi’s counterclaims, other than Gandhi’s claims arising under the Settlement Agreement. If, however, Plaintiffs argue on this Appeal that the parties’ claims are somehow not so barred, then Gandhi is entitled to judgment on his counterclaims to recover the monies that he loaned to the Companies and to Unithree.4 These counterclaims are as follows: 4 Gandhi’s counterclaims asserting the right to recover these monies were pled as alternative and conditional claims, as authorized by CPLR §3017(a). As Gandhi 37 On his second counterclaim, Gandhi is entitled to judgment in the amounts that he loaned back to the Companies, as follows: Parkhill - $272,342; Kimso - $236,000; and Poonam - $112,000. These loans are established by a series of checks, aggregating these amounts, written to Parkhill (A797-798), Kimso (A799-805) and Poonam. (A806-809) At trial, Gandhi presented this documentary evidence and testified that these loans were made and were never repaid. (A508-522) On his third and eighteenth counterclaims, Gandhi is entitled to judgment in the amount of the $689,000 that he loaned back to Unithree. These loans are established by a series of promissory notes executed by, and checks in corresponding amounts written to, Unithree (A810-820) and two additional checks aggregating $60,000 written to Unithree. (A819-820) Critically, the evidence presented by Gandhi in support of these counterclaims was not controverted by Plaintiffs. There is no testimony or documentary evidence offered by Plaintiffs which shows that any of these loans were ever repaid to Gandhi. Indeed, Filler admitted at trial that the shareholders each received $3 million from the proceeds of the HUD loan, then loaned monies back to the Companies. (A108-109) If the loans reflected by the Notes are not barred by the Settlement Agreement, then testified at trial, it is – and always has been – his position that Plaintiffs’ claims and his counterclaims are barred by the parties’ settlement, but that whatever the court’s determination as to the scope of the release and the doctrine of res judicata may be, the effect on the parties’ claims can be nothing less than mutual. (A505) 38 these Gandhi loans back to the Companies and to Unithree are not, either. Accordingly, Gandhi is entitled to judgment against the Companies and Unithree in the principal amount of these loans, with accrued interest thereon from the date each loan was made. CONCLUSION For the foregoing reasons, Appellant respectfully requests that this Court modify the Appellate Division’s Decision by directing reinstatement of the Judgment. Dated: New York, New York December 19, 2013 HELLER, HOROWITZ & FEIT, P.C. By:___________________________ Eli Feit By:___________________________ Stuart A. Blander Attorneys for Defendant-Appellant 292 Madison Avenue New York, New York 10017 (212) 685-7600