Kimso Apartments, LLC,, et al., Respondents,v.Mahesh Gandhi, Appellant, Arlington Filler, et al., Respondents.

Brief

N.Y.October 21, 2014

To be Argued by: ROBERT A. SPOLZINO (Time Requested: 30 Minutes) Court of Appeals of the State of New York O KIMSO APARTMENTS, LLC, successor by merger to KIMSO APARTMENTS, INC. and POONAM APARTMENTS, LLC, successor by merger to POONAM APARTMENTS, INC. and 185-225 PARKHILL LLC, successor by merger to 185-225 PARKHILL CORP., Plaintiffs-Respondents, - against - MAHESH GANDHI, Defendant-Appellant, ARLINGTON FILLER and DARSHAN SHAH, Counterclaim Defendants-Respondents, AMITY PARK ASSOCIATES, DREW INVESTMENT, INC., UNITHREE MANAGEMENT, INC., UNITHREE INVESTMENT CORP., UNITHREE SERVICES CORP. and EVEREADY SECURITY, INC., Additional-Counterclaim Defendants. BRIEF FOR PLAINTIFFS-RESPONDENTS AND COUNTERCLAIM DEFENDANTS-RESPONDENTS ARLINGTON FILLER AND DARSHAN SHAH WILSON ELSER MOSKOWITZ EDELMAN & DICKER, LLP Attorneys for Plaintiffs-Respondents and Counterclaim Defendants-Respondents Arlington Filler and Darshan Shah 1133 Westchester Avenue White Plains, New York 10604 (914) 323-7000 Dated: March 7, 2014 Appellate Division, Second Department, Docket No.: 2011-09195 Richmond County Clerk’s Index Nos.: 013489/2003 APPELLATE INNOVATIONS (914) 948-2240 Court of Appeals No. 2013-00297 8258 Printed on Recycled Paper i 4958527v.1 TABLE OF CONTENTS Page TABLE OF AUTHORITIES .......................................................................... v QUESTIONS PRESENTED........................................................................... 1 SUMMARY OF ARGUMENT ...................................................................... 1 STATEMENT OF FACTS ............................................................................. 4 A. The Parties’ Business Relationship and the Subject Promissory Notes ................................................................................................. 4 B. Defendant’s Embezzlement of HUD Funds and Subsequent Removal from the Corporations ....................................................... 5 C. This Action ........................................................................................ 7 D. The Trial on Plaintiffs’ Claims for Amounts Owed under the Promissory Notes ............................................................................ 12 E. The Decision and Order of the Trial Court ..................................... 15 F. The Order of the Appellate Division .............................................. 16 ARGUMENT ................................................................................................ 19 I. CPLR 3025(c) Does Not Permit a Party, under the Guise of Amending the Pleadings to Conform to the Proof, to Interpose after Trial an Entirely New Claim that Directly Contradicts the Claim Asserted in the Pleading ............................................................... 19 II. The Appellate Division Acted Properly within its Discretion in Reversing and Denying Leave to Amend ................................................ 23 A. Where, as Here, the Appellate Division Applies the Correct Legal Standard and Substitutes its Discretion for that of the ii 4958527v.1 Supreme Court, there is no Question of Law for this Court to Review. ........................................................................................... 24 B. The Appellate Division Applied the Correct Legal Standard Governing Motions to Amend Pursuant to CPLR 3025(c). ........... 26 C. Plaintiffs were Prejudiced because They Had No Opportunity to Develop and Present Defenses to the Amended Counterclaim. ................................................................. 30 1. Defendant’s Right to Recover under the Settlement Agreement was never an Issue in the Action and Defendant should have been Equitably Estopped from Interposing It after Trial. .......................................................... 31 2. Defendant’s Strategic Delay in Seeking to Amend the Complaint Did Not Put the Plaintiffs on “Notice” of the Claims. ................................................................................ 37 3. The Defenses that Plaintiffs Were Precluded from Presenting are neither “Conceptual” nor “Abstract.” ................................ 40 a. Defendant’s counterclaim was barred by the statute of limitations. .................................................................... 42 b. Defendant cannot collect under the settlement agreement because he failed to provide notice of default as required by the contract. .................................. 47 c. Defendants’ claim for contract damages is barred by the doctrine of judicial estoppel. ................................. 48 d. By electing rescission as a remedy, Defendant waived the right to seek contract damages. ...................... 50 e. By repudiating the contract, Defendant discharged Plaintiffs’ obligation to perform. ...................................... 52 4. The Simultaneous Grant of Summary Judgment Prejudiced Defendants and Denied Them Due Process. .......... 54 iii 4958527v.1 a. The Supreme Court was powerless to grant summary judgment because there had been no joinder of issue ...... 55 b. The Supreme Court’s grant of summary judgment constituted a denial of due process. .................................. 57 III. Plaintiffs Made No Judicial Admissions Establishing Liability on Defendant’s Counterclaim for Money Damages under the Settlement Agreement ............................................................................. 58 A. Defendant Failed to Preserve His Argument that Plaintiffs Made Judicial Admissions. ............................................................. 58 B. Plaintiffs Made No Formal Judicial Admissions either that They Were Liable for the Settlement Payments or that They Had No Defenses to Defendant’s Counterclaim. ........................... 60 1. Statements in the Original Complaint ...................................... 61 2. Statements in the Amended Complaint .................................... 63 3. Statements in the Amended Reply ........................................... 65 C. The Alleged Informal Judicial Admissions Do Not, and Can Not, Conclusively Establish Plaintiffs’ Liability, Particularly Where Plaintiffs Were Denied an Opportunity to Rebut Them. .... 66 IV. Defendant Should Have Been Estopped by the Inconsistent Position He Took before the IRS from Arguing that the Settlement Agreement Released His Obligation under the Promissory Notes ......... 70 V. Defendant is Not Entitled to Recover on His Counterclaims .................. 72 A. Defendant’s Counterclaims against Kimso, Poonam, Dr. Shah, and Mr. Filler are Barred not only by the Settlement Agreement, but also by two Additional General Releases by Defendant. ..................................................... 74 iv 4958527v.1 B. Defendant’s Second Counterclaim for Loans Allegedly made to Plaintiffs is Barred by the Statute of Limitations. ............ 76 C. Defendant’s Second Counterclaim for Loans Allegedly Made to Plaintiffs Was Refuted by Evidence that Defendant Was Repaid ..................................................................................... 78 D. Defendant’s Third and Eighteenth Counterclaims against Unithree were not only Barred by the Settlement Agreement, but were Conclusively Rebutted at Trial ........................................ 78 CONCLUSION ............................................................................................. 80 v 4958527v.1 TABLE OF AUTHORITIES CASES 715 Ocean Parkway Owners Corp. v. Klagsbrun, 74 A.D.3d 1314, 1316 905 N.Y.S.2d 630 (2d Dep’t 2010) ..................... 29 A to Z Associates v. Cooper, 215 A.D.2d 161, 626 N.Y.S.2d 143 (1st Dep’t 1995) ............................. 46 Adams Drug Co., Inc. v. Knobel, 129 A.D.2d 401, 513 N.Y.S.2d 674 (1st Dep’t 1987) ............................. 35 AG Properties of Kingston, LLC v. Besicorp-Empire Development Co., LLC, 14 A.D.3d 971, 788 N.Y.S.2d 694 (3d Dep’t 2005) ................ 53 American List Corp. v. U.S. News and World Report, Inc., 75 N.Y.2d 38, 550 N.Y.S.2d 590 (1989) ................................................. 52 Assured Guaranty (UK) Ltd. v. J.P. Morgan Inv. Management Inc., 80 A.D.3d 293, 915 N.Y.S.2d 7 (1st Dep’t 2010)..................................... 18 Austin v. Interfaith Med. Ctr., 264 A.D.2d 702, 694 N.Y.S.2d 730 (2d Dep’t 1999) .............................. 47 Balport Construction Co. v. New York Tel. Co., 134 A.D.2d 309, 521 N.Y.S.2d 18 (2d Dep’t 1987) .................... 37, 38, 39 Bevilacqua v. City of Niagara Falls, 66 A.D.2d 988, 411 N.Y.S.2d 779 (4th Dep’t 1978) ............................... 29 BGW Development Corp. v. Mount Kisco Lodge,No. 1552 of the Benevolent and Protective Order of the Elks of the United States of America, 247 A.D.2d 565, 669 N.Y.S.2d 56 (2d Dep’t 1998) .................. 50 Bingham v. New York City Transit Auth., 99 N.Y.2d 355, 756 N.Y.S.2d 129 (2003) ......................................... 59, 60 Bryant v Broadcast Music, Inc., 60 A.D.3d 799, 800, 875 N.Y.S.2d 226, 227 (2d Dep’t 2009) ................. 30 Buran v. Coupal, 87 N.Y.2d 173, 638 N.Y.S.2d 405 (1995) ............................................... 46 Clark v. Kirby, 243 N.Y. 295 (1926) ........................................................................... 50, 51 Clifton Country Road Associates v. Vinciguerra, 252 A.D.2d 792, 675 N.Y.S.2d 680 (3d Dep’t 1998) ........................ 49, 50 Cognetta v. Valencia Developers, Inc., 8 A.D.3d 318, 778 N.Y.S.2d 80 (2d Dep’t 2004) .................................... 77 Cole v. Mandell Food Stores, Inc., 93 N.Y.2d 34, 687 N.Y.S.2d 598 (1999) ................................................. 34 vi 4958527v.1 Collins v. Caldor of Kingston, Inc., 73 A.D.2d 708, 422 N.Y.S.2d 524 (3d Dep’t 1979) ................................ 66 DiMichel v. South Buffalo Railway Co., 80 N.Y.2d 184, 590 N.Y.S.2d 1 (1992) ................................................... 20 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 Dep’t 2006) ......................... 29 Dittmar Explosives, Inc. v. A. E. Ottaviano, Inc., 20 N.Y.2d 498, 285 N.Y.S.2d 55 (1967) ........................................... 21, 22 Emfore Corp. v. Blimpie Associates, Ltd., 51 A.D.3d 434, 860 N.Y.S.2d 12 (1st Dep’t 2008).................................. 48 F. Garofalo Electric Co. v. New York University, 270 A.D.2d 76, 705 N.Y.S.2d 327 (1st Dep’t 2000)................................ 47 Feigelson v. Allstate Ins. Co., 31 N.Y.2d 913, 340 N.Y.S.2d 646 (1972) ............................................... 59 Franconia Associates v. U.S., 536 U.S. 129 (2002) ................................................................................. 43 Fulford v. Baker Perkins, Inc., 100 A.D.2d 861, 474 N.Y.S.2d 114 (2d Dep’t 1984) .............................. 35 Gonfiantini v. Zino, 184 A.D.2d 368, 584 N.Y.S.2d 847 (1st Dep’t 1992) ............................. 29 Grand Island Cent. School Dist. v. Transcom Equipment Corp., 128 Misc.2d 858, 491 N.Y.S.2d 262 (Erie Cnty. 1985) ............................ 43 Hecht v. City of New York, 60 N.Y.2d 57, 467 N.Y.S.2d 187 (1983) ................................................. 73 Hirsch v. Stewart, 63 A.D.3d 74, 877 N.Y.S.2d 285 (1st Dep’t 2009).................................. 20 Hoenig v. Westphal, 52 N.Y.2d 605, 439 N.Y.S.2d 831 (1981) ............................................... 19 Imprimis Investors LLC v. Insight Venture Mgmt, Inc., 300 A.D.2d 109, 752 N.Y.S.2d 26 (1st Dep’t 2002)................................ 62 In re Lavigne, 114 F.3d 379 (2d Cir. 1997) ..................................................................... 53 In re Von Bulow, 63 N.Y.2d 221, 481 N.Y.S.2d 67 (1984) ........................................... 24, 25 In the Matter of Georgian Court Apartment Masis Parseghian, 182 A.D.2d 978, 582 N.Y.S.2d 533 (3d Dep’t 1992) .............................. 20 Inland Credit Corp. v. Bluds, 27 A.D.2d 928, 279 N.Y.S.2d 426 (1st Dep’t 1967)................................ 57 Ives v. South B. R. Co., 201 N.Y. 271 (1911) ................................................................................. 57 vii 4958527v.1 Jack C. Hirsch, Inc. v. Town of North Hempstead, 177 A.D.2d 683, 577 N.Y.S.2d 75 (2nd Dept.1991)................................ 67 Krichmar v. Krichmar, 42 N.Y.2d 858, 397 N.Y.S.2d 775 (1977) ................................................ 24 Kriete v. Port Authority of New York and New Jersey, 208 A.D.2d 1075, 617 N.Y.S.2d 560 (3d Dep’t 1994) ............................ 64 Langford v. Bogart, 14 Misc.2d 398, 179 N.Y.S.2d 810 (Ontario Cnty. Nov. 26, 1958) ........ 51 Levo v. Greenwald, 66 N.Y.2d 962, 498 N.Y.S.2d 784 (1985) ............................................... 24 Loomis v. Civetta Corinno Construction Corp., 54 N.Y.2d 18, 444 N.Y.S.2d 571 (1981) ...................................... 21, 27, 29 Lorin v. Elmakiss, 302 AD2d 638, 754 N.Y.S.2d 741 (3rd Dept., 2003) .............................. 45 Maas v. Cornell University, 253 A.D.2d 1, 683 N.Y.S.2d 634 (3d Dep’t 1999), aff’d , 94 N.Y.2d 87, 699 N.Y.S.2d 716 ............................................................. 48, 49 Mahoney-Buntzman v. Buntzman, 12 N.Y.3d 415, 881 N.Y.S.2d 369 (2009) ......................................... 71, 72 Matter of Justin EE, 153 A.D.2d 772, 544 N.Y.S.2d 892 (3d Dep’t 1989) ............................... 18 Matter of Shondel J. v. Mark D., 7 N.Y.3d 320, 820 N.Y.S.2d 199 (2006) ................................................. 36 Mawardi v. New York Property Ins. Underwriting Ass’n, 183 A.D.2d 758, 585 N.Y.S.2d 320 (2d Dep’t 1992) .............................. 36 Mayers v. D’Agostino, 58 N.Y.2d 696, 458 N.Y.S.2d 904 (1982) ............................................... 25 McLeod v. Cowles, 215 A.D.2d 460, 626 N.Y.S.2d 831 (2d Dep’t 1995) ............................... 43 Mendrzycki v. Cricchio, 58 A.D.3d 171, 868 N.Y.S.2d 107 (2d Dep’t 2008) ................................ 61 Mikkelson v. Kessler, 50 A.D.3d 1443, 857 N.Y.S.2d 311 (3d Dep’t 2008) .............................. 71 Milk v. Gottschalk, 29 A.D.2d 698, 286 N.Y.S.2d 39 (3d Dep’t 1968) .................................. 55 Miller v. Nationwide Mutual Fire Ins. Co., 92 A.D.2d 723, 461 N.Y.S.2d 128 (4th Dep’t 1983) ......................... 55, 56 Morgenstern v. Cohon, 2 N.Y.2d 302, 160 N.Y.S.2d 633 (1957) ................................................. 34 viii 4958527v.1 Murray v. City of New York, 43 N.Y.2d 400, 401 N.Y.S.2d 773 (1977) ....................... 22, 24, 27, 28, 30 Myung Chun v. North American Mortgage Co., 285 A.D.2d 42, 729 N.Y.S.2d 716 (1st Dep’t 2001)................................ 58 O’Connor v. Sleasman, 14 A.D.3d 986, 788 N.Y.S.2d 518 (3d Dep’t 2005) ................................ 52 On the Level Enters., Inc v. 49 East Houston LLC, 104 A.D.3d 500, 964 N.Y.S.2d 85 (1st Dep’t 2013)................................. 52 Organek v. Harris, 90 A.D.3d 1512, 935 N.Y.S.2d 240 (4th Dep’t 2011) ............................. 56 Palmetto Partners, L.P. v. AJW Qualified Partners, LLC, 83 A.D.3d 804, 921 N.Y.S.2d 260 (2d Dep’t 2011) ................................ 41 Parochial Bus Systems, Inc. v. Board of Educ. of City of New York, 60 N.Y.2d 539, 470 N.Y.S.2d 564 (1983) ............................................... 73 People v. Brown, 98 N.Y.2d 226, 746 N.Y.S.2d 226 (2002) ......................................... 62, 66 People v. Jacobs, 149 A.D.2d 112, 544 N.Y.S.2d 1011 (3d Dep’t 1989) ............................ 67 People v. Jones, 73 N.Y.2d 427, 541 N.Y.S.2d 340 (1989) ................................................ 18 Peralta v. Heights Medical Center, Inc., 485 U.S. 80 (1988) ................................................................................... 42 Perkins v. Volpe, 146 A.D.2d 617, 536 N.Y.S.2d 845 (2d Dep’t 1989) ........................ 64, 66 Phoenix Acquisition Corp. v. Campcore, Inc., 81 N.Y.2d 138, 596 N.Y.S.2d 752 (1993) ............................................... 77 Rachmani Corp. v. 9 East 96th Street Apartment Corp., 211 A.D.2d 262, 629 N.Y.S.2d 382 (1st Dep’t 1995)............................... 43 River House Realty Co., Inc. v. Lico Contracting, Inc., 172 A.D.2d 426, 569 N.Y.S.2d 7 (1st Dep’t 1991).................................. 67 Sce v. Ach, 56 A.D.3d 457, 867 N.Y.S.2d 140 (2d Dep’t 2008) ................................ 44 Schoenborn v. Kinderhill Corp., 98 A.D.2d 831, 470 N.Y.S.2d 495 (3d Dep’t 1983) ................................ 62 Sherman v. Klein, 2008 N.Y. Misc. LEXIS 10183 (Nassau Cnty. Sept. 19, 2008) .............. 45 Socolow v. J. & A. Stone Realty Co., 128 Misc. 152, 218 N.Y.S. 408 (Kings Cnty. 1926) ................................ 51 TMB Communications v. Preefer, 61 A.D.3d 450, 883 N.Y.S.2d 904 (1st Dep’t 2009)................................ 67 ix 4958527v.1 Union Turnpike Associates, LLC v. Getty Realty Corp., 27 A.D.3d 725, 812 N.Y.S.2d 628 (2d Dep't 2006) ................................. 55 United East LLC v. Churi, 24 Misc.3d 80, 885 N.Y.S.2d 140 (1st Dep’t 2009) ................................ 67 Weisberg v. My Mill Holding Corp., 205 A.D.2d 756, 613 N.Y.S.2d 680 (2d Dep’t 1994) .............................. 30 Wheeler v. Citizens Telecomm’s Co., 18 A.D.3d 1002, 795 N.Y.S.2d 370 (3d Dep’t 2005) .............................. 67 STATUTES N.Y. U.C.C. § 2-725(1) ................................................................................ 42 N.Y. Civ. Prac. L. & R. 203(f) ..................................................................... 46 N.Y. Civ. Prac. L. & R. 213.................................................................... 42, 77 N.Y. Civ. Prac. L. & R. 3013 ....................................................................... 34 N.Y. Civ. Prac. L. & R. 3014 ....................................................................... 64 N.Y. Civ. Prac. L. & R. 3025(c) ............................................................ passim N.Y. Civ. Prac. L. & R. 3212(a) ................................................................... 54 OTHER AUTHORITIES McKinney’s Cons Laws of NY, Book 7B .................................................... 55 Prince, Richardson on Evidence § 8–215 (2008 Farrell,11th ed) ........... 62, 66 1 4958527v.1 QUESTIONS PRESENTED 1. May a party, under the guise of amending a pleading to conform to the evidence at trial, be permitted to interpose a new affirmative claim after trial? No. 2. Where the Appellate Division has reversed a post-trial grant of leave to amend “on the facts and in the exercise of discretion,” may this Court reverse? No. 3. Where the only issue with respect to which leave was granted was the propriety of denying leave to amend, should this Court review that portion of the Appellate Division order which affirmed on an unrelated issue? No. SUMMARY OF ARGUMENT The issue presented by this appeal is whether a party, under the guise of amending the pleadings to conform to the proof, may knowingly wait until after trial, and after the trial court ruled that the trial would be limited to the issues raised by the pleadings, to interpose a new claim that directly contradicts the claim asserted in his pleading. The answer must be no. A different answer would expand CPLR 3025(c) beyond any recognizable boundaries and endorse trial by ambush. 2 4958527v.1 Here, the Appellate Division correctly addressed the issue in two ways. First, it held that Defendant had waived his right to seek leave to amend by waiting until after trial to do so. Second, it held that even if there were no waiver, the Supreme Court had exercised its discretion improvidently in granting leave to amend because of the resulting prejudice to Plaintiffs. There is no basis on which this Court can alter the result. This Court has never held that the ease with which leave to amend is traditionally granted allows a party to add a new, contradictory claim after trial. It has certainly never held that a court may grant leave to amend after it had ruled that the trial would be limited to the issues raised by the pleadings. In these circumstances, the issue should not have been prejudice at all. CPLR 3025(c) permits a litigant to amend to conform the pleadings to the proof “upon such terms as may be just.” There can be no “just” amendment where a litigant asserts an entirely inconsistent claim after the trial is concluded. That’s why there is no authority for an amendment in these circumstances and there should not be such authority. Whether that is due to waiver, as the Appellate Division understood it, or because it is an abuse of discretion to grant leave to amend in such circumstances, the result is the same. The amendment is not permissible and 3 4958527v.1 the order of the Appellate Division must be affirmed. If there is discretion to grant leave to amend in these circumstances, moreover, the appeal must be dismissed, because it is not within the jurisdiction of this Court to review the Appellate Division’s exercise of discretion. Either way, the order of the Appellate Division stands. The Appellate Division certainly did not abuse its discretion here. If anything, the Appellate Division was overly generous to Defendant in even considering the issue of prejudice. The counterclaim Defendant asserted in the pleadings was for rescission of the contract. That claim was dismissed on summary judgment in 2008. When Plaintiffs moved in limine to ensure that Defendant’s claim for payment under the settlement agreement would not be raised, the Supreme Court ruled that the trial would be limited to the issues raised by the pleadings. Those pleadings did not include the contract claim. Defendant never moved for leave to amend until his closing argument, in November 2010, when he took the completely contradictory position that he is entitled to be paid under the contract that his answer alleged should have been rescinded. The order of the Appellate Division should, therefore, be affirmed. 4 4958527v.1 STATEMENT OF FACTS A. The Parties’ Business Relationship and the Subject Promissory Notes The issues presented by this appeal arise from the relationship among Dr. Darshan Shah, Arlington Filler and Defendant, who were equal shareholders in Kimso Apartments, Inc. (“Kimso”), Poonam Apartments, Inc. (“Poonam”), and 185-225 Parkhill Corp. (“Parkhill”) (collectively, the “corporations”). The corporations owned certain real estate in Staten Island, New York (“the properties”). A.114-115.1 They are the predecessors to the plaintiff limited liability companies (the “companies”). The properties are improved by residential apartment buildings which are regulated and financed by the United States Department of Housing and Urban Development (“HUD”). A.433. HUD subsidizes the rent paid by the residents of the properties under the “Section 8” housing program. A.433. Until 2001, Defendant was primarily responsible for the finances of the corporations and management of the properties. A.10, A.115-116, A.272. During the late 1990s, the corporations received a loan of approximately $20 million from HUD. A.391. Approximately $11 million of the $20 million was used for rehabilitation and capital improvements on the 1 References to A.# are to the Appellant’s Appendix. References to SA.# are to Respondents’ Supplemental Appendix. 5 4958527v.1 properties, while the remaining funds were lent to the shareholders, as permitted by HUD. A.392. Accordingly, Defendant received a loan of $2.97 million from the corporations, evidenced by promissory notes. A.120, A.392; A.409-410. Pursuant to the terms of the notes, the principal was to be repaid in 30 years, with interest to be paid annually. A.697-715. Thereafter, Defendant began making interest payments on the loans. A.488. B. Defendant’s Embezzlement of HUD Funds and Subsequent Removal from the Corporations In 2001, Dr. Shah and Mr. Filler discovered that Defendant was embezzling money from the corporations through a kickback scheme involving supplies and repairs at the properties. A.125, A.128, A.278-A.284. Dr. Shah and Mr. Filler contacted counsel and arranged for a forensic audit of the corporations. A.285-286. Through the internal investigation, they learned that Defendant had stolen at least $1.5 million from the corporations. A.378-388; SA.2. No longer able to trust the man they had relied on to manage the corporations, Dr. Shah and Mr. Filler attempted to remove Defendant as an officer and director of the corporations and filed an action in federal court against Defendant and the related entities and family members that he utilized in his embezzlement scheme. In the federal action, Dr. Shah and Mr. Filler asserted claims for RICO violations, fraud, breach of fiduciary duty, negligence, and conversion, and sought over $10 million in 6 4958527v.1 compensatory, treble, and punitive damages. SA.1-23. Defendant filed two actions in the Richmond County Supreme Court; the first sought arbitration of the business disputes between the shareholders of the corporations, and the second asserted claims for breach of contract and breach of fiduciary duty. A.10-11. On August 14, 2002, the parties signed a settlement agreement (the “settlement agreement”) resolving the three actions. A.101-111. Pursuant to the settlement agreement, Plaintiffs agreed to discontinue their RICO action in exchange for the termination of Defendant’s ownership interests in the corporations and other entities involved in the management of the properties. Plaintiffs agreed to purchase those interests from Defendant for approximately $1.6 million, to be paid at the rate of $20,000 per month. A.103; A.313. The settlement agreement contained a provision requiring notice of default and an opportunity to cure in the event of nonpayment: 7. The Companies agree that in the event that any of the above-referenced payments are not made, then the Companies shall be deemed to be in default. The Companies shall have a 10-day grace period for each payment, such that a failure to pay the full amount of any Installment when due will not be deemed a default until 11 days past the due date. Notwithstanding the foregoing, if the Companies fail to receive timely payment of any federal rental subsidy in the ordinary course of business, then the due date for any monthly payment due in the month for which such payments are not received shall be automatically 7 4958527v.1 extended until 10 days after such payments are received by the Companies, but not to exceed one hundred eighty (180) days from the original due date of the payment to the Seller. If the Companies are in default, the Seller must send written notice to the Companies informing them of the default. The notice is to be by facsimile, regular mail and certified mail (return receipt requested) with a copy to the Companies' counsel. . . . A.104 (emphasis added). After the settlement agreement was signed and Dr. Shah and Mr. Filler took control of the corporations following Defendant’s removal, they discovered that Defendant had failed to make several years’ worth of interest payments on the $2.97 million that had been lent to him by the corporations. A.313-314. Defendant thereafter refused to make the interest payments on those loans. A.326-327. C. This Action Based on Defendant’s failure to make the required interest payments under the promissory notes, the companies filed this action on November 24, 2003. Because the amount owed by Defendant under the promissory notes (approximately $6.9 million, A.30-34) was so much greater than any amounts that could have been due to Defendant under the settlement agreement (at that time, approximately $1.2 million), Plaintiffs original complaint asserted only a declaratory claim for the right to set off the amount of the promissory notes against the payments under the settlement 8 4958527v.1 agreement. A.26-29. The complaint also sought a declaration that if Plaintiffs exercised the right to setoff and withheld payments under the settlement agreement, that Defendant could not declare Plaintiffs to be in default. A.29. On January 15, 2004, Defendant filed an answer asserting 11 counterclaims, including a counterclaim seeking rescission of the settlement agreement and reinstatement as a co-owner of the Corporations. SA.24-44. Defendant’s counterclaims sought $11.5 million in damages (including $7.8 million in rescission-based damages). SA.24-44. Defendant did not seek to enforce the settlement agreement, even in the alternative. Thereafter, Plaintiffs filed a motion for summary judgment and Defendant filed a cross-motion for summary judgment seeking judgment on his first counterclaim for rescission and reinstatement as a one-third shareholder. SA.63. In his first counterclaim, Defendant also alleged that “[m]oreover, by commencing this action, plaintiffs have breached and repudiated the Settlement Agreement.” SA.30. On August 12, 2004, the trial court denied the cross-motions for summary judgment on the grounds that there were disputed issues of fact precluding judgment. SA.62-67. After Defendant sought rescission of the settlement agreement, Plaintiffs stopped making monthly payments to Defendant in August 2004. 9 4958527v.1 A.261. On November 18, 2004, Plaintiffs filed an amended complaint. The amended complaint asserted a claim for judgment against Defendant for the full amount due under the promissory notes without setoff, approximately $6.9 million. A.30-34, A.38 ¶¶A-C. In the alternative, Plaintiffs asserted a claim for setoff of the amount due by Defendant under the notes against amounts due under the settlement agreement, in which case, Defendant would owe Plaintiffs $5.4 million. A.34-35, A.38 ¶¶D-G. On July 30, 2005, eleven months after Plaintiffs had stopped making payments under the settlement agreement, Defendant filed a second amended answer. A.41-74. Defendant again asserted a counterclaim for rescission and reinstatement as a shareholder, as well as 17 other counterclaims. A41-74. In the second amended answer, Defendant sought increased damages of $19.7 million, including $13.5 million in rescission- based damages. A.41-A73. None of Defendant’s amended counterclaims sought contract damages based on enforcement of the settlement agreement. The parties proceeded to discovery regarding Plaintiffs’ claims on the promissory notes and Defendant’s counterclaims for rescission and various claims of diversion of money by Plaintiffs which he would be owed if rescission were ordered. To support his counterclaims, Defendant sought, and obtained over Plaintiffs’ objections, extensive discovery regarding the 10 4958527v.1 finances of the Plaintiffs and related entities named as counterclaim defendants. SA.68-76. In June of 2007, Plaintiffs and Counterclaim Defendants moved for partial summary judgment dismissing Defendant’s rescission counterclaims (counterclaims 1, 4, 5, 6, 7, 8, 9, 10, 15, and 16) on numerous grounds. Defendant opposed the motion, but on March 20, 2008, the Supreme Court granted the motion, dismissing Defendant’s rescission counterclaims from the case. SA.77-84. Defendant, however, continued to pursue rescission, filing a motion to reargue and asking that the rescission counterclaims be marked for trial, which was denied by the trial court in July 2008. SA.85-90. After his rescission counterclaims were dismissed, Defendant did not seek to amend his answer to assert new counterclaims for contract damages. In September 2008, the case was certified as ready for trial. SA.108. In May 2009, almost six years after the start of litigation, Defendant asserted in his affidavit in support of a motion for summary judgment, that he was entitled to judgment against Plaintiffs for amounts due under the settlement agreement. A.937. In opposition, Plaintiffs noted that a claim for monies due under the settlement agreement was not properly before the court as Defendant had never included such a claim nor sought such relief in his second amended answer. A.950. Plaintiffs also noted that Defendant’s 11 4958527v.1 claim was precluded by the fact that he had never sent Plaintiffs a notice of default, as required by the settlement agreement. A.962, A.976. Defendant responded that his failure to amend the pleadings to assert a claim for contract damages was “of absolutely no moment,” because he could move to amend at any time. SA.92. In October 2009, the Supreme Court denied the summary judgment motions as premature; the court did not comment on Defendant’s attempt to raise a new claim. A.978-A.985. Following the denial of summary judgment, Defendant again sat on his hands and did not move to amend his answer to assert a counterclaim for contract damages. Plaintiffs and Counterclaim Defendants proceeded to prepare for trial on their claim for judgment on the notes and in opposition to Defendant’s remaining counterclaims concerning alleged outstanding loans made by Defendant. In October 2010, shortly before trial, Plaintiffs filed a motion in limine to preclude Defendant from presenting any evidence at trial as to monies owed to him under the settlement agreement or to amend his answer to assert a new counterclaim for such monies. A.91-100.2 Plaintiffs noted that Defendant had knowledge of the facts underlying a counterclaim for enforcement of the settlement agreement for over six years, that the claim 2 Plaintiffs fear that Defendant would attempt to “sandbag” Plaintiffs with a new claim at trial proved prescient. 12 4958527v.1 was barred by the statute of limitations, and that, given the fact that discovery had closed and trial was imminent, Plaintiffs would be prejudiced by such an amendment. A98-99, SA.93-97. The Supreme Court did not decide the motion in limine before trial, instead reserving judgment until after trial. A.248-249; A.466-470. D. The Trial on Plaintiffs’ Claims for Amounts Owed under the Promissory Notes The trial began on November 8, 2010 and continued for nine days of testimony. A.14. During trial, Defendant conceded that the $2.97 million in promissory notes constituted a loan which he was required to pay back to the corporations. A.392-393. He contended, however, that he believed the loans were released under the 2002 Settlement Agreement. A.617-618. This testimony was undercut by Defendant’s admission that he never reported the $2.97 million in released promissory notes as income to the IRS, A.618, though he understood that if the notes had been cancelled, he was required to pay taxes on the income. A.503. Dr. Shah and Mr. Filler testified that the release under the settlement agreement did not encompass the $3 million in promissory notes A.135-136, A.300-304. After Plaintiffs had rested their case, Defendant attempted to introduce evidence to support a counterclaim for amounts due under the settlement agreement. A.425, A466. Plaintiffs objected to the introduction of 13 4958527v.1 such evidence, citing their motion in limine, and the prejudice that would occur given that such a claim had never been made in the seven years leading up to trial. A.466-470; see also A.248-249. The Supreme Court overruled Plaintiffs’ objections, stating that it would allow the testimony and reserve decision on the motion in limine and continuing objection until the end of trial. Id. Thus, the court permitted Defendant to testify to the amount he claimed was owed to him under the settlement agreement and to submit an exhibit containing a calculation of the total amount Defendant claimed was owed and that he was seeking as damages. A.470-472. When asked what relief he was seeking, Defendant testified that he was seeking $2.3 million, the amount owed under the settlement agreement, including interest and future payments. A.550. Plaintiffs again objected to this line of questioning as going to unpled claims. In overruling Plaintiffs’ objection, the Supreme Court stated that it was allowing the testimony as relevant to determining the parties’ intent at the time of the settlement agreement. A.551. The court explained: I am letting this in to get what they went through, what may or may not have been their intention in doing things, what may or may not have been taken into account. Statements testified to as being made by Mr. Filler, Dr. Shah, and Gandhi. I am taking that all together to give the Court an understanding of the relationship and then apply the rules of law that are applicable to what claims are valid or not valid. Looking at the pleadings, what pleadings have been stricken, dismissed, etc. . . .The relief 14 4958527v.1 he is entitled to is the relief left in accordance with his pleadings. A.551-552 (emphasis added). Thus, during trial, the Supreme Court ruled that Defendant would not be permitted to obtain relief that had not been pled in his answer. The court indicated that it was admitting the objected-to testimony only to inform the existing claims in the case and not in support of some new, as of yet unpled, counterclaim. Indeed, when defense counsel attempted to elicit further testimony from Defendant regarding relief he was seeking under the settlement agreement, Plaintiffs objected. A.552-553. The court sustained the objection and struck the testimony. A.553. This was consistent with other statements by the court that Defendant could not assert claims during trial that did not appear in the pleadings. See SA.542-543 (“But no claim that’s barred by statute, no claim that’s not been alleged in the pleadings by Mr. Gandhi is going to be handled by this court. . . . It is not going to reactivate or give life to any claim that has no life, or to entertain a claim that has never been made until we are here today.”). It was not until the close of evidence that Defendant’s counsel ultimately made a motion to amend the answer to include a counterclaim for money allegedly due under the settlement agreement. A.683. In opposing the motion, Plaintiffs argued that they would be prejudiced by the belated 15 4958527v.1 assertion of a claim about which Defendant had known for years but had intentionally omitted from the pleadings and discovery and that was barred by the statute of limitations. SA.116-122. The Supreme Court indicated that it agreed that Plaintiffs would be prejudiced by the assertion of a claim on the settlement agreement, stating “And it is prejudicial because I don’t know what your adversaries may or may not have done if you had moved to do something with these notes. I don’t know.”3 SA.122. E. The Decision and Order of the Trial Court Nine months later, on August 22, 2011, the Supreme Court issued a trial decision and order in which it denied Plaintiffs’ claim for judgment on the promissory notes and Defendant’s counterclaims for unpaid loans allegedly made to the Plaintiffs and Counterclaim Defendants. A.7-21. The court found that the settlement agreement constituted a global release of all claims that existed between the parties at the time of settlement, encompassing the promissory notes sued on by Plaintiffs and the loans underlying Defendant’s counterclaims. A.15-20. Inexplicably, and despite the court’s statements during trial that it would not permit Defendant to seek relief not sought in the pleadings and 3 The Supreme Court referred to the monthly payments under the Settlement Agreement as “notes” but no there were no “notes” related to the Settlement Agreement in evidence. SA.120. 16 4958527v.1 that amendment to add a new counterclaim would be prejudicial to Plaintiffs, the Supreme Court allowed Defendant’s motion to amend. A.17. Even more shocking, the Supreme Court simultaneously granted summary judgment on the amended counterclaim, based solely on its finding that “it is undisputed that payments ceased under the settlement agreement in September 2004.” A.17. The Supreme Court’s decision thus allowed Defendant, after stealing $1.5 million from the corporations, to retain, tax-free, $3 million lent by the United States Department of Housing and Urban Development to the corporations for the purpose of maintaining safe living conditions in low- income housing projects, while at the same time entering judgment against the Plaintiffs for $2 million on an unpled counterclaim in contravention of CPLR 3025(c) and Plaintiffs’ due process rights. F. The Order of the Appellate Division Plaintiffs appealed the judgment to the Appellate Division, Second Department. In a unanimous decision and order dated March 13, 2013, the Appellate Division held that permitting Defendant to amend his answer to assert a new counterclaim was an “improvident” exercise of discretion and reversed and modified that portion of the trial court’s order. A.6. In modifying the order to deny the motion to amend, the Appellate Division 17 4958527v.1 cited Defendant’s unexplained delay in moving to amend as well as the prejudice to Plaintiffs: [T]he trial court improvidently exercised its discretion in granting the defendant’s application at the conclusion of the trial to conform the pleadings to the proof to include a counterclaim alleging that the plaintiff corporations breached the settlement agreement by failing to make payments allegedly owed to him pursuant to that agreement and for judgment in the defendant’s favor on that counterclaim. Although leave to amend a pleading “shall be freely given” in the absence of surprise or prejudice (CPLR 3025[b]), in view of the defendant’s extensive delay in moving to assert his counterclaim, his lack of a reasonable excuse for the delay in seeking that relief, and the fact that he was fully aware of the facts underlying the amendment sought during the entire time this action was pending, the trial court should have denied his application as barred by the doctrine of laches. The belated amendment of the defendant’s answer prejudiced the plaintiff corporations, since they had no opportunity to present defenses to the counterclaim. A.6 (internal citations omitted). The Appellate Division also affirmed the Supreme Court’s determination that the settlement agreement released Defendant’s obligation under the promissory notes, as well as any obligations owed by Plaintiffs to Defendant under the loans cited in Defendant’s counterclaims. A.5. Thereafter, on March 26, 2013, Defendant filed a new action in the Supreme Court, Nassau County, against the companies, bearing Nassau County Index No. 600769/2013, for breach of the settlement agreement and 18 4958527v.1 damages for nonpayment of $1.94 million plus accrued interest, essentially the same relief he seeks on this appeal.4 That action is currently pending. On August 6, 2013, Defendant sought leave to appeal to this Court, arguing that the case raised a novel legal issue as to the preclusive effect of judicial admissions and the nature of prejudice when considering a motion to amend. 4 Submitted as Addendum A is a copy of the Defendant’s complaint in the Nassau County matter, which this court may consider pursuant to the doctrine of judicial notice. Assured Guar. (UK) Ltd. v. J.P. Morgan Inv. Management Inc., 80 A.D.3d 293, 303, 915 N.Y.S.2d 7, 14 (1st Dep’t 2010) (appellate court may take judicial notice of documents filed in a related case) aff’d 18 N.Y.3d 341, 939 N.Y.S.2d 274 (2011); Matter of Justin EE, 153 A.D.2d 772, 774, 544 N.Y.S.2d 892, 894 (3d Dep’t 1989) (“A court may take judicial notice of prior judicial proceedings though in a different court and involving different parties.”) lv. denied 75 N.Y.2d 704, 552 N.Y.S.2d 109 (1990); see also People v. Jones, 73 N.Y.2d 427, 431, 541 N.Y.S.2d 340, 342 (1989) (“To be sure, a court may take judicial notice of facts which are capable of immediate and accurate determination by resort to easily accessible sources of indisputable accuracy”) (internal quotation and citation omitted). 19 4958527v.1 ARGUMENT I CPLR 3025(c) Does Not Permit a Party, under the Guise of Amending the Pleadings to Conform to the Proof, to Interpose after Trial an Entirely New Claim that Directly Contradicts the Claim Asserted in the Pleading This Court has never held that a party may amend its pleading after trial to assert a new claim that directly contradicts the claim made in its pleading. It certainly has never held that a party may amend after trial when the trial court has ruled during trial that the trial would be limited to the issues that were raised in the pleadings. The reason is readily apparent on the face of the statute. CPLR 3025(c) permits a party to amend the pleadings to conform to the proof “upon such terms as may be just.” It is inherently unjust to permit a litigant to assert a claim after trial that contradicts the claim he made in his pleading. It is more unjust to allow a party, after trial, to assert an unpled claim where the other party has tried the case based upon the trial court’s explicit ruling that the only issues to be tried would be those that were raised in the pleadings. To permit such an amendment would be tantamount to endorsing trial by ambush. Trial by ambush is not favored in this state. See Hoenig v. Westphal, 52 N.Y.2d 605, 610, 439 N.Y.S.2d 831, 833 (1981) (“With the 20 4958527v.1 advent of liberal disclosure rules, there was an abandonment of the notion that the results of trial would be based on tactics or surprise[.]”); DiMichel v. South Buffalo Ry. Co., 80 N.Y.2d 184, 197, 590 N.Y.S.2d 1, 6 (1992) (disapproving of defendants’ withholding of evidence until trial because it “would be to return to an earlier time, when subterfuge and surprise were common trial strategies.”); Hirsch v. Stewart, 63 A.D.3d 74, 79, 877 N.Y.S.2d 285, 288 (1st Dep’t 2009) (“Indeed, the landlord’s interpretation of the Code and the case law would permit a legal sleight of hand whereby an owner could conceal the basis for a desire to occupy an apartment until a trial is already in full pitch. Such ‘trial by ambush’ would cut against every notion of fairness found in this State’s jurisprudence.”); In the Matter of Georgian Court Apartment Masis Parseghian, 182 A.D.2d 978, 980, 582 N.Y.S.2d 533, 534 (3d Dep’t 1992) (trial court properly denied motion to dismiss raised for first time at close of Plaintiff’s case as statutory defense “may not ‘be used to ambush petitioner’s case at the conclusion of a full trial.’”) (internal citation omitted). CPLR 3025(c), therefore, cannot permit such a result. This Court has, of course, recognized that there are circumstances in which an amendment to conform the pleadings to the proof is appropriate even after the conclusion of the trial. None of those circumstances, however, 21 4958527v.1 are present here. The issue here is not whether a plaintiff should be permitted to recover damages in excess of the ad damnum clause, or should be allowed to argue the same facts under a different statutory subsection than that which he pleaded, nor is the issue whether a defendant may assert a legal defense that was available but not pleaded. Rather, the issue here is whether a party should be allowed to amend after trial to assert a claim on a contract that his pleading alleges should have been rescinded. There is no authority for such an amendment and there should be none. Loomis v. Civetta Corinno Construction Corp., 54 N.Y.2d 18, 444 N.Y.S.2d 571 (1981) is the case in which this Court abandoned the rule against recovering more in damages than the complaint requested and held that a plaintiff may amend the ad damnum clause to conform to the proof at trial. The ad damnum clause, however, has no effect on the proof at trial. No plaintiff would withhold proof of damages because he was limited by the ad damnum, and no defendant would limit his defenses at trial in reliance on the ad damnum. Allowing such an amendment, therefore, cannot be prejudicial. Dittmar Explosives, Inc. v. A. E. Ottaviano, Inc., 20 N.Y.2d 498, 285 N.Y.S.2d 55 (1967), is a case in which this Court held that a post-trial amendment may be permissible where the facts that have been tried give rise to a different, but related, legal theory. In Dittmar, the defendants moved for 22 4958527v.1 the first time near the end of the trial to dismiss the plaintiffs’ claim for foreclosure of a mechanics’ lien under the Lien Law, arguing that the plaintiff was not entitled to foreclose because it had never filed a notice of pendency. The plaintiff responded by requesting that it be permitted to amend the complaint to enforce a trust, on the same facts, under a different provision of the Lien Law. The Supreme Court denied the plaintiff’s request on the ground that it lacked the power to grant the request. This Court ultimately held that the Supreme Court had the necessary authority and remitted the matter to the Supreme Court to exercise its discretion. Dittmar thus holds that the Supreme Court has the authority to grant leave to amend after trial to seek a different remedy, under the same statute, for the same breach that was the subject of the trial. It did not hold that the plaintiff could assert a claim that directly contradicted its pleading and did not hold that the plaintiff was entitled to leave to amend as a matter of law. Murray v. City of New York, 43 N.Y.2d 400, 401 N.Y.S.2d 773 (1977), recognized essentially the same authority with regard to the defendant. In Murray, this Court held that a defendant should be permitted to raise a legal defense, the exclusivity of the workers’ compensation remedy, at the conclusion of the trial, even though the defendant had not pleaded it. Because it was the plaintiff’s substantive burden to prove the 23 4958527v.1 absence of workers’ compensation coverage, the defendant had not waived the defense by failing to plead it and the plaintiff had affirmatively introduced the evidence of his employment, this Court held that the Appellate Division had abused its discretion by reversing and denying leave to amend. Permitting a defendant to argue, at the conclusion of the trial, a statutory defense that was not pleaded, but not waived, is fundamentally different than allowing a defendant to interpose a new counterclaim at the conclusion of a trial that contradicts his pleading. II The Appellate Division Acted Properly within its Discretion in Reversing and Denying Leave to Amend Even if it were within the discretion of the Supreme Court to grant leave to amend in the circumstances presented here, the Appellate Division properly exercised that discretion in reversing and denying leave to amend. The Appellate Division applied the correct legal standard and the result it reached was not an abuse of its discretion. There is, therefore, no basis on which this Court can alter the result. 24 4958527v.1 A. Where, as Here, the Appellate Division Applies the Correct Legal Standard and Substitutes its Discretion for that of the Supreme Court, there is no Question of Law for this Court to Review. Defendant’s attempt to cast the Appellate Division’s decision as a matter of law, and a novel one at that, is unavailing. “Whether to permit a party to amend a pleading is generally a matter of discretion for the trial court and, on review, the Appellate Division.” Krichmar v. Krichmar, 42 N.Y.2d 858, 860, 397 N.Y.S.2d 775, 776 (1977); see also Murray v. City of New York, 43 N.Y.2d 400, 404-405, 401 N.Y.S.2d 773, 774 (1977) (motions to amend are “committed almost entirely to the court’s discretion to be determined on a sui generis basis . . . the widest possible latitude being extended to the courts” (internal citations omitted)). On appeal, the Appellate Division exercises the same discretion as the trial court, and may “substitute its own discretion even in the absence of an abuse” by the trial court. In re Von Bulow, 63 N.Y.2d 221, 224, 481 N.Y.S.2d 67, 69 (1984). This Court typically does not review matters committed to the Supreme Court’s discretion. Id. at 225. As this Court has stated, where the Appellate Division “substituted its discretion for that of the trial court . . . there is no question of law for our review.” Levo v. Greenwald, 66 N.Y.2d 962, 963, 498 N.Y.S.2d 784, 785 (1985). 25 4958527v.1 When “the Appellate Division concludes that there was an improvident exercise of discretion, . . . and the order recites that the modification is made as a matter of discretion, then the issues will be appealable only where this court determines that a substantial question of abuse has been presented or the result reached is so outrageous as to shock the conscience.” In re Von Bulow, 63 N.Y.2d at 225 n.*. Here, the Appellate Division explicitly noted in its decision that it was modifying the judgment of the Supreme Court “on the facts and in the exercise of discretion.” A.5.5 Consequently, the Appellate Division’s order is subject only to the limited appellate review prescribed by In re Von Bulow. As discussed more fully below, the Appellate Division applied the proper legal standard for amendment of a pleading pursuant to CPLR 3025(c) and there was ample support in the record for its conclusion that Defendant had unreasonably delayed seeking to amend his answer and, more importantly, that Plaintiffs were prejudiced by the belated amendment. Thus, the Appellate Division’s order modifying the judgment cannot be an abuse of discretion as a matter of law or be so outrageous as to shock the conscience. In re Von Bulow, 63 N.Y.2d at 225 n.*; see also Mayers v. D’Agostino, 58 N.Y.2d 696, 458 N.Y.S.2d 904 (1982) (denial of motion to 5 Defendant does not claim in his brief that the Appellate Division abused its discretion. 26 4958527v.1 amend pleadings to add new defense after plaintiff presented nearly all his evidence was not an abuse of discretion). The judgment should be affirmed or the appeal should be dismissed. B. The Appellate Division Applied the Correct Legal Standard Governing Motions to Amend Pursuant to CPLR 3025(c). In an attempt to paint the Appellate Division’s exercise of discretion as an error of law and expand the scope of this Court’s review of that decision, Defendant argues that the court relied on a “conceptual or abstract view of prejudice . . . completely divorced from the question of actual detriment.” Appellant’s Br. at 32. Defendant contends that the Appellate Division “engrafted a new standard in respect of a CPLR 3025 motion to amend a party’s pleadings” going so far as to “allow[] a claim of prejudice to override a judicial admission.” Appellant’s Br. at 33, 35. Defendant’s characterization of the Appellate Division’s order is pure hyperbole. The Appellate Division did not apply an “abstract view of prejudice,” or ignore formal judicial admissions. Rather, the Appellate Division applied settled legal standards for a belated motion to amend the pleadings under CPLR 3025(c), and found that the trial court had improvidently granted the motion because the amendment resulted in actual prejudice to Plaintiffs by precluding them from presenting viable defenses. 27 4958527v.1 The Appellate Division did not overlook formal judicial admissions in its application of the prejudice standard. The fact is that Defendant did not raise the issue of judicial admissions in either his motion for leave to amend in the Supreme Court or in his brief to the Appellate Division, so the argument was not before the Appellate Division. Moreover, as explained below, there are no formal judicial admissions establishing Plaintiffs’ liability on the contract claim. The Appellate Division’s decision was consistent with this Court’s precedent. In Murray v. City of New York, this Court held that, a motion to amend the pleadings to conform to the evidence pursuant to CPLR 3025(c) is committed to the discretion of the Supreme Court. 43 N.Y.2d 400, 401 N.Y.S.2d 773 (1977). It further held that while an amendment to the pleadings under CPLR 3025(c) may be allowed “during or even after trial,” leave to amend should be denied where the amendment results in prejudice to the non-moving party. Id. at 405. Finally, Murray provides that the non- movant cannot claim prejudice where the non-movant acquiesced in or elicited the evidence giving rise to the variance with the pleadings. Id. In Loomis v. Civetta Corinno Constr. Corp., 54 N.Y.2d 18, 23, 444 N.Y.S.2d 571, 573 (1981), the Court applied Murray, explaining that a party is prejudiced by an amendment under CPLR 3025(c) where there is “some 28 4958527v.1 indication that the defendant has been hindered in the preparation of his case or has been prevented from taking some measure in support of his position.” The decision of the Appellate Division here, finding the Supreme Court’s grant of leave to amend to be an abuse of discretion, fully comported with these precedents. Unlike the plaintiff in Murray, Plaintiffs here had never acquiesced in the admission of the evidence supporting Defendant’s unpled counterclaim. It was the opposite. Plaintiffs filed a motion in limine before trial to exclude evidence of the unpled claim and diligently objected each time Defendant tried to admit such evidence at trial. A.248-249 (objection to claim not pled in answer); A.466-470 (continuing objection and claim of prejudice to Defendant’s direct testimony as to money owed under the settlement agreement); A.471 (objection to admission of Defendant’s spreadsheet calculating money he claimed under the settlement agreement); A.550-552 (objection to Defendant’s testimony that he was owed $2.3 million); A.552-553 (objection to Defendant’s claim for relief not pled in the amended answer); SA.116-122. Moreover, unlike the plaintiff in Murray, Plaintiffs here were not given an opportunity to reopen their case and present evidence in opposition to the proposed counterclaim. See Murray, 43 N.Y.2d at 406 (trial court gave plaintiffs opportunity to reopen trial). The Supreme Court did not grant 29 4958527v.1 the motion to amend until nine months after trial ended, and, upon permitting the amendment, simultaneously granted Defendant judgment on the amended counterclaim. Plaintiffs were thereby prevented from taking any measure in support of their position, the very definition of prejudice under Loomis, 54 N.Y.2d at 23. The Appellate Division cases cited in Defendant’s brief, which rely on Murray, are similarly distinct from the case here, as the non-moving party in those cases either did not object to the admission of the evidence creating the variance or was granted an opportunity to put on a defense to the new claim. See 715 Ocean Parkway Owners Corp. v. Klagsbrun, 74 A.D.3d 1314, 1316 905 N.Y.S.2d 630, 632 (2d Dep’t 2010) (no prejudice to tenant by addition of claim for termination of lease at trial, where landlord sent two pre-trial notices to cure and a notice of termination and tenant did not object when landlord admitted the documents at trial); Bevilacqua v. City of Niagara Falls, 66 A.D.2d 988, 989, 411 N.Y.S.2d 779, 780 (4th Dep’t 1978) (“evidence on the question of justification [unpled defense] was admitted throughout trial without objection.”); Dinizio and Cook, Inc. v. Duck Creek Marina at Three Mile Harbor, Ltd., 32 A.D.3d 989, 991, 821 N.Y.S.2d 649, 650 (2d Dep’t 2006) (no prejudice from amendment where “plaintiff will be afforded an opportunity to defend this allegation in the Supreme Court”); 30 4958527v.1 Gonfiantini v. Zino, 184 A.D.2d 368, 584 N.Y.S.2d 847 (1st Dep’t 1992) (no prejudice to defendant where defendant elicited the evidence creating the variance); Bryant v Broadcast Music, Inc., 60 A.D.3d 799, 800, 875 N.Y.S.2d 226, 227 (2d Dep’t 2009) (defendant “suffered no prejudice or surprise because that branch of the motion [to conform] was based upon a written agreement admitted at its own instance” (emphasis added)); Weisberg v. My Mill Holding Corp., 205 A.D.2d 756, 757, 613 N.Y.S.2d 680, 681 (2d Dep’t 1994) (testimony serving as basis for 3025(c) motion “was admitted with the acquiescence of the respondent, it cannot later claim surprise or prejudice”). This is simply not a case where a variance developed at trial due to the admission of proof “at the instance or with the acquiescence” of the non- movant. Murray, 43 N.Y.2d at 405. Thus, the legal standard applied by the Appellate Division was not inconsistent with this Court’s or its own precedent, and its decision modifying the Supreme Court’s order was within the permissible scope of its discretion. C. Plaintiffs were Prejudiced because They Had No Opportunity to Develop and Present Defenses to the Amended Counterclaim. Plaintiffs tried the case as Defendant had pleaded it and in accordance with the Supreme Court’s direction during trial that the only issues on which relief could be granted were those that had been raised in the pleadings. The 31 4958527v.1 pleaded issues did not include Defendant’s claim for the amounts allegedly due under the settlement agreement. In addition to being consistent with establishing legal standards, therefore, there was ample support for the Appellate Division’s finding that Plaintiffs were prejudiced by Defendant’s post-trial motion for leave to amend the answer where the Defendant’s new counterclaim was wholly inconsistent with the counterclaims Defendant had asserted and pursued through the prior seven years of litigation, Plaintiffs had relied on Defendant’s omission of any claim for contract damages and the Supreme Court’s ruling excluding any such claim from trial, and Plaintiffs were never given the opportunity to respond to the new counterclaim. 1. Defendant’s Right to Recover under the Settlement Agreement was never an Issue in the Action and Defendant should have been Equitably Estopped from Interposing It after Trial. Defendant cherry-picks from the procedural history of the case in an attempt to support the Supreme Court’s statement that his claim for contract damages was an “intrinsic counterclaim since the onset of this litigation.” Appellant’s Br. at 20. Defendant’s statement of facts conveniently skips the period from the filing of Plaintiffs’ original complaint in November 2003 to the trial in November 2010. Appellant’s Br. at 9-10. Conspicuously absent from Defendant’s brief is any mention of what occurred in the litigation in 32 4958527v.1 the seven years in between, including the fact that Defendant asserted counterclaims for rescission of the settlement agreement, sought over $13 million in rescission-based damages, took extensive discovery from Plaintiffs’ concerning the rescission counterclaims, and ultimately lost those counterclaims on cross-motions for summary judgment in 2008. Also absent from Defendant’s recitation of the facts is that Plaintiffs amended their complaint in November 2004, to assert a claim for judgment on the promissory notes outright, seeking $6.9 million in damages, pleading the set- off claim, with damages of $5.4 million, only in the alternative. When the full history of the case is considered, it is apparent that Defendant’s belated claim for enforcement of the settlement agreement was never part of the litigation, that Defendant intentionally omitted the counterclaim from the litigation, that Plaintiffs were not on notice that such a claim would be asserted at trial, and that Plaintiffs had relied on Defendant’s intentional omission, and the court’s ruling, to their detriment. First, as a matter of fact, Defendant’s counterclaim for nonpayment under the settlement agreement could not have been in the litigation from the onset since Plaintiffs were still making payments to Defendant when they commenced this litigation in November 2003. It was not until after Defendant asserted counterclaims for rescission of the settlement agreement 33 4958527v.1 and reinstatement as a shareholder (and after the trial court ruled, in August 2004, that the claims would survive summary judgment), that Plaintiffs stopped making payments and filed their amended complaint, thereby changing their position in reliance on Defendant’s election to seek a rescission remedy. In his second amended answer, filed in July 2005, eleven months after Plaintiffs’ payments had ceased, Defendant again asserted his rescission counterclaims and added seven new counterclaims, none of which sought to enforce the settlement agreement or recover the alleged $1.648 million obligation thereunder. Instead, Defendant increased the requested rescission- based damages from $7.8 million in the original answer to $13.5 million in the second amended answer. A46-73; SA.24-44.6 Thus, Defendant intentionally and with full awareness of the availability of a claim for contract damages, tactically decided to forgo a claim for $1.5 million under the settlement agreement; instead choosing to pursue a much larger award of over $13 million under a rescission theory. There could be no claim to enforce the settlement agreement in a case in which Defendant sought to 6 Defendant sought total damages of 19.7 million in the Verified Second Amended Answer, $13.5 million of which was explicitly contingent upon a finding of rescission and reinstatement as a shareholder. A.41-73. 34 4958527v.1 rescind the agreement, abrogate its fundamental purpose, and reinstate himself as an owner of the companies. “[I]t is elementary that the primary function of a pleading is to apprise an adverse party of the pleader’s claim and to prevent surprise. Absent such notice, a defendant is prejudiced by its inability to prepare a defense to the plaintiff’s allegations.” Cole v. Mandell Food Stores, Inc., 93 N.Y.2d 34, 40, 687 N.Y.S.2d 598, 600 (1999) (internal citations omitted); see also Morgenstern v. Cohon, 2 N.Y.2d 302, 308, 160 N.Y.S.2d 633, 638 (1957) (citing “the sound principle that the adversary should not be taken by surprise at trial, but should be able to meet the proof adduced by the pleader”); CPLR 3013 advisory comm. note (“The basic requirement of [CPLR 3013] is that the pleadings identify the transaction and indicate the theory of recovery with sufficient precision to enable the court to control the case and the opponent to prepare.”). Having received Defendant’s answer and counterclaims, Plaintiffs tailored their subsequent pleadings and litigation strategy to defending against the rescission counterclaims. Plaintiffs did not draft their pleadings to address a claim for enforcement of the settlement agreement since that claim was not only absent from the answer, but inconsistent with the relief Defendant sought. Had Defendant asserted a counterclaim for contract 35 4958527v.1 damages, then Plaintiffs could have addressed it by asserting their own counterclaims7 and affirmative defenses arising from Defendant’s conduct. The affirmative defenses that may have been available to Plaintiffs are discussed in more detail infra at section II.C.3. Plaintiffs also would have changed their discovery requests and trial strategy had they known they would be rebutting a claim for enforcement of the settlement agreement and failure to pay. Defendant’s strategy of waiting to move to amend under the end of trial, thus severely hindered Plaintiffs trial preparation and presentation; this constitutes prejudice. See Fulford v. Baker Perkins, Inc., 100 A.D.2d 861, 861, 474 N.Y.S.2d 114, 115 (2d Dep’t 1984) (plaintiff would have been prejudiced by defendant’s amendment to add three new defenses after case was certified as trial-ready where plaintiff “had prepared his case based upon an answer interposed nearly five years previously”); Adams Drug Co., Inc. v. Knobel, 129 A.D.2d 401, 513 N.Y.S.2d 674 (1st Dep’t 1987) (plaintiff’s motion, after remand from court of appeals for new trial, to amend complaint to add two new causes of action seeking new relief which could have been alleged before first trial would be unfairly prejudicial 7 In their brief before the Appellate Division, Plaintiffs argued that, had they been on notice of Defendant’s counterclaim, they could have raised several failures by Defendant to perform under the Settlement Agreement, including Defendant’s failure to submit certain HUD documents required to transfer his interest in the Companies to Plaintiffs, and Defendant’s failure to disclose that two of the corporations for which he was purportedly selling his shares had actually been dissolved for non-payment of taxes. SA.139-141. 36 4958527v.1 to defendants); Mawardi v. New York Property Ins. Underwriting Ass'n, 183 A.D.2d 758, 758, 585 N.Y.S.2d 320, 320 (2d Dep’t 1992) (“since the plaintiff would be prejudiced by the addition of these new defense theories on the eve of trial, where the plaintiff had prepared his case in response to the original answer, the defendant’s motion [to amend] was properly denied”). Given Plaintiffs’ change of position in reliance on Defendant’s claim for rescission and the prejudice that would result from Defendant’s post-trial amendment, Defendant should have been equitably estopped from amending the answer to assert a counterclaim to enforce the contract. “The purpose of equitable estoppel is to preclude a person from asserting a right after having led another to form the reasonable belief that the right would not be asserted, and loss or prejudice to the other would result if the right were asserted.” Matter of Shondel J. v. Mark D., 7 N.Y.3d 320, 326, 820 N.Y.S.2d 199, 202 (2006). The doctrine “prevent[s] someone from enforcing rights that would work injustice on the person against whom enforcement is sought and who, while justifiably relying on the opposing party’s actions, has been misled into a detrimental change of position.” Id. Permitting Defendant to amend post-trial rewarded him for misleading Plaintiffs for seven years as to the claims that would be tried and the relief Defendant would seek. 37 4958527v.1 2. Defendant’s Strategic Delay in Seeking to Amend the Complaint Did Not Put the Plaintiffs on “Notice” of the Claims. Defendant argues that by seeking damages under the settlement agreement in his May 2009 summary judgment motion, he put the Plaintiffs on notice that he would raise such a claim at trial. Defendant cites no case law for his argument that his attempt to assert an unpled claim in a summary judgment motion constitutes adequate notice of an amendment to the pleadings negating potential prejudice. In fact, the case law is precisely the opposite. Where a party is aware, before trial, that it needs to amend the pleadings but intentionally fails to do so, the party can not then amend the pleadings after trial. Balport Constr. Co. v. New York Tel. Co., 134 A.D.2d 309, 311-312, 521 N.Y.S.2d 18, 20-21 (2d Dep’t 1987). In Balport Construction Co., during an appeal from the denial of summary judgment, the defendant attempted to raise a new defense of contract reformation. Defendant conceded to the appellate court that it needed to amend its answer to assert the defense and represented that it would do so if the denial of summary judgment were upheld. Id. at 311. But, upon remittitur to the trial court, the defendant did not move to amend; instead, it waited until the commencement of trial to seek to amend the answer to assert the contract reformation defense. The amendment was prohibited on the grounds of 38 4958527v.1 prejudice to plaintiff even though defendant mentioned the defense on appeal. Where the defendant “remain[ed] mute as to the possibility of such a claim throughout the discovery process” and despite telling the appellate court it would seek to amend, continued to delay until trial, the defendant’s conduct “validly led [plaintiff] to the conclusion that the claim would not be asserted, and, in turn, foreclosed the possibility of discovery on this matter.” Id. at 312. See also DiMauro v. Metro. Suburban Bus Auth., 105 A.D.2d 236, 241, 483 N.Y.S.2d 383 (2d Dep’t 1984) (“An adversary cannot, in all fairness, be expected to proceed to trial on every conceivable theory of liability arising out of an unpleaded state of facts of which he acquires personal knowledge, even though the aforementioned state of facts is revealed during pretrial proceedings.”). Here, in his May 2009 affidavit in support of his cross-motion for summary judgment, Defendant asserted, in three paragraphs, that he was entitled to money owed under the settlement agreement. A937. In opposition, Plaintiffs responded that Defendant was not entitled to judgment on a claim for money under the settlement agreement because Defendant had never asserted such a claim or sought such relief in his answer and counterclaims. A950. In reply, Defendant acknowledged his failure to plead, but asserted it was irrelevant: “Thus, it is of absolutely no moment that 39 4958527v.1 Gandhi did not affirmatively plead this relief as a counterclaim. Indeed, it is well-settled that ‘pleadings may be conformed to the proof at any time . . .’” SA.92. Defendant acknowledged the failure to plead and need to amend, but even when the Supreme Court summarily denied the cross-motions for summary judgment on the ground that the motions were premature, Defendant did not move to amend his answer. After the denial of summary judgment, Plaintiffs proceeded to prepare for trial, reasonably relying on the absence of any counterclaim to enforce the settlement agreement. See Balport, 134 A.D.2d 309 (reasonable to rely on absence of amendment where adversary has acknowledged the failure to plead defense). In their final pre-trial motions, Plaintiffs prudently moved in limine to preclude Defendant from attempting to ambush them at trial by introducing evidence of unpled counterclaims. Even in the face of the motion in limine, Defendant did not move to amend. Indeed, though the court reserved judgment on the motion in limine, it stated that it would not permit Defendant to conform the pleadings to the evidence nor would it permit him to seek relief not requested in the answer. A.552. The court even stated that such an amendment would prejudice Plaintiffs. SA.122. Thus, the Supreme Court’s reversal of position nine months after trial ended, granting Defendant’s motion to amend and simultaneously granting judgment on the 40 4958527v.1 counterclaim, was nothing less than a denial of Plaintiffs’ due process rights as Plaintiffs were wholly precluded from litigating the counterclaim. That Defendant mentioned recovery of contract damages six years into the litigation, in his 2009 motion for summary judgment and that Plaintiffs sought to preclude Defendant from raising the unpled claim at trial, do not negate the prejudice to Plaintiffs from Defendant’s inexcusable failure to amend his answer to state such a claim until closing arguments. Indeed, the events that purportedly put Plaintiffs on “notice” reveal the unreasonable and intentional nature of Defendant’s delay in asserting his counterclaim. Defendant clearly knew about the claim at least as early as May 2009, but intentionally waited until the end of trial to make a motion to amend. Defendant’s attempt to twist his strategic delay into notice of the claims, and therefore an elimination of prejudice, must fail. 3. The Defenses that Plaintiffs Were Precluded from Presenting are neither “Conceptual” nor “Abstract.” Defendant paints the Appellate Division’s finding of prejudice as “abstract” and “conceptual.” It is not. The denial of notice and an opportunity to put on a defense creates very real prejudice. To succeed on his counterclaim for contract damages under the settlement agreement, Defendant would have had to prove: (1) formation of a contract between the parties: (2) performance by Defendant; (3) Plaintiffs’ 41 4958527v.1 failure to perform; and (4) resulting damage. Palmetto Partners, L.P. v. AJW Qualified Partners, LLC, 83 A.D.3d 804, 806, 921 N.Y.S.2d 260, 264 (2d Dep’t 2011). Were Defendant to establish his prima facie claim, Defendants would then be entitled to present affirmative defenses. Defendant argues that Plaintiffs could not have been prejudiced by the lack of opportunity to present defenses to his counterclaim because Plaintiffs have no defenses to the counterclaim, pointing to the absence of any defenses in the trial record as evidence that defenses must not exist. See Appellant’s Br. at 29 (“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.”). This circular logic ignores the obvious reason for the absence of evidence and argument regarding defenses to the counterclaim: Defendant’s counterclaim was never part of the trial.8 The motion to amend was made at the conclusion of trial and Defendant’s answer was simultaneously amended and summary judgment granted thereon over nine months after trial, with no warning from the trial judge and no opportunity for further discovery, evidence or argument. There was no reason for Plaintiffs to present defenses to a counterclaim that had 8 Defendant’s argument also ignores the fact that Plaintiffs did reference their statute of limitations defense in their motion in limine and in opposition to Defendant’s motion to amend. SA.116-122. 42 4958527v.1 not been asserted. Had Plaintiffs been given an opportunity to develop and present defenses, there were a number of viable arguments that they could have made, including the statute of limitations, failure to comply with the notice requirements of the contract, judicial estoppel, election of remedies, and repudiation. See Peralta v. Heights Medical Center, Inc., 485 U.S. 80, 86-87 (1988) (“Where a person has been deprived of property in a manner contrary to the most basic tenets of due process, ‘it is no answer to say that in his particular case due process of law would have led to the same result because he had no adequate defense upon the merits.’”) (citation omitted). a. Defendant’s counterclaim was barred by the statute of limitations. Defendant’s counterclaim for damages for breach of the settlement agreement is barred by the statute of limitations. Plaintiffs raised this argument in their motion in limine, opposition to Defendant’s motion to conform the pleadings, and on appeal. A.91-100; SA.116-122. The statute of limitations applicable to Defendant’s breach of contract claim is either four years, as provided in N.Y. U.C.C. § 2-725(1),9 or six years as provided under CPLR 213(2). 9 Because the settlement agreement constituted a contract for the sale of Defendant’s shares in the Corporations, the four-year statute of limitations under the UCC applies. See |McLeod v. Cowles, 215 A.D.2d 460, 626 N.Y.S.2d 831 (2d Dep’t 1995) (contract for sale of securities “was subject to the four-year Statute of Limitations set forth under UCC 2– 43 4958527v.1 In his original answer, filed on January 15, 2004, Defendant alleged that Plaintiffs had anticipatorily repudiated the settlement agreement by virtue of filing their November 2003 complaint. SA.30. Thus, the statute of limitations for Defendant’s claim for contract damages began running in January 2004. See Grand Island Cent. School Dist. v. Transcom Equipment Corp., 128 Misc.2d 858, 491 N.Y.S.2d 262 (Erie Cnty. 1985) (anticipatory breach starts statute of limitations where non-breaching party treats it as a breach), aff’d 120 A.D.2d 959, 502 N.Y.S.2d 961 (4th Dep’t 1986); Rachmani Corp. v. 9 East 96th Street Apartment Corp., 211 A.D.2d 262, 267, 629 N.Y.S.2d 382, 385 (1st Dep’t 1995) (same); see also Franconia Associates v. U.S., 536 U.S. 129, 143 (2002) (anticipatory repudiation ripens into breach prior to time for performance if non-breaching party “elects to treat it as such.”). The limitations period within which Defendant was required to assert a claim for enforcement of the contract thus expired in January 2008, or, under the six years statute of limitations, in January 2010. But Defendant did not seek to raise his claim until November 23, 2010, well beyond the limitations period. A.683. Even if the claim did not accrue until Plaintiffs ceased payment in August 2004, it was still barred by the statute of limitations. 725(1) and not the six-year Statute of Limitations contained at CPLR 213(2)”) lv. dismissed 87 N.Y.2d 918, 641 N.Y.S.2d 599, 664 N.E.2d 510). 44 4958527v.1 While Defendant has argued that the entirety of his breach of contract claim is not barred because it was an installment contract, and a separate cause of action accrued when each payment was defaulted on, this principle does not apply where the note is accelerated. Sce v. Ach, 56 A.D.3d 457, 458, 867 N.Y.S.2d 140, 141-142 (2d Dep’t 2008) (“with respect to a note payable in installments, . . . the statute of limitations begins to run on the date each installment becomes due and is defaulted upon, unless the debt is accelerated.”). Here, Defendant’s testimony and exhibits prove that he has accelerated the debt. During his direct examination, Defendant was asked, “Mr. Gandhi, what relief are you seeking from this court?” A.550. Defendant answered, “Well, the settlement agreement we signed on August 14th, as per agreement I am owed about $2.3 million with interest. And, of course, legal fees.”10 A.550. The $2.3 million figure was calculated based on all payments due under the contract with interest, including payments after November 2010. A.747-748. Indeed, Defendant submitted an exhibit in support of his damages calculation, which listed $2.3 million as the “Total Amount Due” and explicitly included amounts due to Defendant from “November 1, 2010 to September 1, 1 [sic] 2012.” A.747-748. 10 Plaintiffs’ counsel objected to this testimony on the ground that no claim for damages under the settlement agreement had been pleaded. A.550. 45 4958527v.1 Like Defendant’s testimony regarding the $2.3 million, the exhibit was admitted over Plaintiffs’ objection. In admitting the exhibit into evidence, the Supreme Court specifically noted that the exhibit represented Defendant’s claim. A.471-472. The exhibit and testimony demonstrate Defendant’s intent to seek the entire amount of the debt, including all future payments, thereby accelerating the payments. A.471-472 (Defendant explained that Exhibit M was “a calculation of the amount owed to me as per settlement agreement dated August 14th, 2002.”); see Sherman v. Klein, 2008 N.Y. Misc. LEXIS 10183, 7-8 (Nassau Cnty. Sept. 19, 2008) (plaintiff’s letter to defendant listing full amount owed under note plus interest evidenced intent to accelerate note: “[t]hat exercise of the plaintiff’s option was the acceleration event and here is the dispositive fulcrum of the six year Statute of Limitations for the entire action, not just those payments due and payable prior to [the letter].”) (citing Lorin v. Elmakiss, 302 A.D.2d 638, 754 N.Y.S.2d 741 (3rd Dept., 2003). Due to Defendant’s intent to accelerate the debt, the entire cause of action accrued in January 2004, and Defendant’s attempt to assert the claim should have been precluded as time- barred.11 11 In opposition to the Plaintiffs’ argument that Defendant sought an acceleration of the settlement payments, Defendant has argued that he could not have accelerated the debt as a matter of law because the settlement agreement did not contain an acceleration 46 4958527v.1 Finally, Defendant’s time-barred counterclaim is not saved by the relation-back doctrine under CPLR 203(f), since Defendant’s decision to omit the contract damages claim (in order to pursue more valuable rescission claims) was strategic and intentional. See Buran v. Coupal, 87 N.Y.2d 173, 181, 638 N.Y.S.2d 405, 410 (1995) (“When a plaintiff intentionally decides not to assert a claim against a party known to be potentially liable, there has been no mistake and the plaintiff should not be given a second opportunity to assert that claim after the limitations period has expired . . . Application of the [relation-back] doctrine in such circumstances would likely result in prejudice to the adversary and, as noted above, bar application of the doctrine under the second prong.”); A to Z Associates v. Cooper, 215 A.D.2d 161, 162, 626 N.Y.S.2d 143, 144 (1st Dep’t 1995) (amendment would not relate back where “appellant's failure to include the corporation as a counterclaim defendant was not neglect at all, excusable or otherwise, but a conscious strategy decision”). Nor should the relation-back doctrine apply to the addition of claims inconsistent with the claims pleaded in the underlying clause. SA.138. While the settlement agreement may not have an acceleration clause, the promissory note which evidenced the $1.648 million debt owed under the settlement agreement does have an acceleration clause. Indeed, Defendant attempted to testify at trial that he had a promissory note for the amount owed under the settlement agreement and that it contained an acceleration clause. A.568-569. Defendant, however, never put the promissory note into evidence, and as Plaintiffs were never given the opportunity to defend against Defendant’s new counterclaim, they were precluded from putting the note and its acceleration clause into evidence. This is another instance of the prejudice to Plaintiffs from Defendant’s belated motion to amend. A.569. 47 4958527v.1 answer. Additionally, Defendant would have had the burden of proving that the relation-back doctrine applied. See Austin v. Interfaith Med. Ctr., 264 A.D.2d 702, 703, 694 N.Y.S.2d 730 (2d Dep’t 1999). b. Defendant cannot collect under the settlement agreement because he failed to provide notice of default as required by the contract. Defendant was precluded from asserting a counterclaim against the Plaintiffs for nonpayment under the settlement agreement because Defendant failed to comply with the notice requirements of the agreement. Paragraph 7 of the settlement agreement provides that “[i]f the Companies are in default, the Seller must send written notice to the Companies informing them of the default.” A.104. At trial, Defendant conceded that he did not send plaintiffs any written notice of default after the payments stopped in August 2004. A.639-640. Service of a written notice of default was a condition precedent to filing suit; Defendant’s failure to provide written notice precludes his counterclaim for contract damages. F. Garofalo Elec. Co. v. New York Univ., 270 A.D.2d 76, 80, 705 N.Y.S.2d 327, 331 (1st Dep’t 2000) (“failure to strictly comply” with notice provision “deemed a waiver” of contract claim) lv. dismissed 95 N.Y.2d 825, 712 N.Y.S.2d 450 (2000); Emfore Corp. v. Blimpie Associates, Ltd., 51 A.D.3d 434, 435, 860 N.Y.S.2d 12, 14 (1st Dep’t 2008) (“The court also correctly dismissed 48 4958527v.1 plaintiff’s claims for breach of contract, as it is uncontroverted that plaintiff failed to provide written notice of any breach pursuant to Article 18.2 of the franchise agreement.”). Moreover, there is no question that Defendant was aware of the requirement, as he had previously sent the Plaintiffs a written notice of default for prior nonpayments. SA.123-126; A.638-640. After receiving the earlier notice, Plaintiffs paid Defendant for the missing payments.12 A.638- 639. c. Defendants’ claim for contract damages is barred by the doctrine of judicial estoppel. Defendant was judicially estopped from asserting a claim for enforcement of the contract after having taken the inconsistent position that the contract was rescinded. “Under the doctrine of judicial estoppel, or estoppel against inconsistent positions, a party is precluded from inequitably adopting a position directly contrary to or inconsistent with an earlier assumed position in the same proceeding.” Maas v. Cornell University, 253 A.D.2d 1, 5, 683 N.Y.S.2d 634, 636 (3d Dep’t 1999), aff’d 94 N.Y.2d 87, 699 N.Y.S.2d 716 (1999). “Once clearly asserted by the party against whom the doctrine is invoked, the party is bound by such prior stance.” Clifton 12 That Defendant received payment after serving a written notice for earlier payments negates any claim that notice would have been futile. 49 4958527v.1 Country Road Assocs. v. Vinciguerra, 252 A.D.2d 792, 675 N.Y.S.2d 680 (3d Dep’t 1998). In Maas, the plaintiff was precluded from converting the action into a CPLR Article 78 proceeding where he had previously opposed the defendant’s attempt to convert the proceeding. The court explained that a party may not take a position in litigation inconsistent with a prior tactical decision merely because circumstances have changed to make the prior position unfavorable: Having obviously made a tactical decision to pursue his eight causes of action in a plenary action and having succeeded on his prior objection to conversion, plaintiff may not now, owing to changed interests since all claims in this action have been dismissed, assume a contrary position. Maas, 253 A.D.2d at 5. Like the plaintiff in Maas, Defendant made a tactical decision to pursue rescission counterclaims. Defendant concluded that he could recover more under a rescission theory than through enforcement of the settlement agreement (over $13 million in rescission-based damages versus $2.3 million for acceleration of the payments under the settlement agreement). Having pursued rescission, Defendant could not then take an inconsistent position seeking enforcement of the contract when his interest changed due to dismissal of his rescission counterclaims. See Clifton Country Road 50 4958527v.1 Assocs., 252 A.D.2d 792 (purchaser judicially estopped from seeking specific performance after having asserted it was seeking monetary damages); see also Clark v. Kirby, 243 N.Y. 295, 301 (1926) (plaintiffs can sue for rescission or sue for damages, “they could not do both”); BGW Development Corp. v. Mount Kisco Lodge No. 1552 of the Benevolent and Protective Order of the Elks of the United States of America, 247 A.D.2d 565, 669 N.Y.S.2d 56 (2d Dep’t 1998) (causes of action for rescission and contract damages are inconsistent). d. By electing rescission as a remedy, Defendant waived the right to seek contract damages. As noted above, the remedies of rescission and contract damages are inconsistent with one another. It is black letter law that one cannot both rescind and enforce a contract. See Clark v. Kirby, 243 N.Y. 295, 301 (1926) (plaintiffs can sue for rescission or sue for damages, “they could not do both”); BGW Development Corp. v. Mount Kisco Lodge No. 1552 of the Benevolent and Protective Order of the Elks of the United States of America, 247 A.D.2d 565, 669 N.Y.S.2d 56 (2d Dep’t 1998) (causes of action for rescission and contract damages are inconsistent); Langford v. Bogart, 14 Misc.2d 398, 179 N.Y.S.2d 810 (Ontario Cnty. Nov. 26, 1958) (plaintiff could sue on contract for past-due installments or declare the contract void “[t]hese remedies being inconsistent, plaintiffs . . . cannot rescind a contract 51 4958527v.1 and at the same time enforce the rescinded provisions.”). Consequently, when faced with an alleged breach of contract, the non-breaching party must elect how to proceed: by rescinding the contract or by pursuing contract damages. Clark v. Kirby, 243 N.Y. 295, 303 (1926) (“where a party, knowing all the facts, elects to sue in rescission instead of for damages, he must pursue the course he has taken”). Once the non-breaching party elects a remedy, it cannot thereafter pursue an inconsistent remedy: Where a party rescinds a contract the law does not permit him thereafter to make use of it as subsisting for the purpose of claiming damages. When one takes legal steps to enforce a contract, this is a conclusive election not to rescind. Conrow v. Little, 115 N. Y. 387 [22 N. E. 346, 5 L. R. A. 693]. The converse is also true, so that one who commences an action to rescind has made his election and cannot maintain an action on the contract. American Woolen [Company of New York] v. Samuelsohn, 226 N. Y. 61 [123 N. E. 154]. Socolow v. J. & A. Stone Realty Co. 128 Misc. 152, 154, 218 N.Y.S. 408, 410 (Kings Cnty. 1926). Here, Defendant chose to rescind the contract. He asserted, in both his original answer and his amended answer, a counterclaim for rescission of the contract and reinstatement as an owner of the Companies, as well as additional counterclaims seeking rescission-based damages totaling over $13 million. He pursued those claims for more than four years, taking extensive discovery, and ultimately losing on summary judgment. See On the Level 52 4958527v.1 Enters., Inc v. 49 East Houston LLC, 104 A.D.3d 500, 500, 964 N.Y.S.2d 85 (1 Dep’t 2013) (litigant makes an election of remedies by seeking summary judgment). Plaintiffs relied on Defendant’s election in the way they tailored their pleadings, conducted discovery, responded to dispositive motions, and litigated the trial. Plaintiffs relied on the election by not pleading and seeking discovery with respect to contract damages and defenses. Defendant was thus precluded, after electing a rescission remedy, from turning around and asserting a new claim for the inconsistent remedy of contract damages. e. By repudiating the contract, Defendant discharged Plaintiffs’ obligation to perform. Where a party wrongfully repudiates a contract, it “relieves the nonrepudiating party of its obligation of future performance.” American List Corp. v. U.S. News and World Report, Inc., 75 N.Y.2d 38, 44, 550 N.Y.S.2d 590 (1989); see also N.Y. Prac., Contract Law § 17:7 (“a repudiation discharges the non-repudiating party’s obligation to render performance under the contract in the future”). Whether conduct constitutes a repudiation of the contract is a question of fact. See O'Connor v. Sleasman, 14 A.D.3d 986, 988, 788 N.Y.S.2d 518, 520 (3d Dep’t 2005); AG Properties of Kingston, LLC v. Besicorp-Empire Development Co., LLC, 14 A.D.3d 971, 973-974, 788 N.Y.S.2d 694, 696-697 (3d Dep’t 2005). Here, as a result of Defendant’s wrongful repudiation of the agreement by virtue of his assertion 53 4958527v.1 and pursuit of claims for rescission and reinstatement as a co-owner of the companies, Plaintiffs were excused from performing under the settlement agreement. Plaintiffs’ objective in entering into the settlement agreement was to remove Defendant, who they believed was embezzling, from any further involvement with the companies. Thus, Defendant’s disaffirmation of the contract by asserting a claim for rescission and seeking reinstatement as an owner of the companies defeated the fundamental purpose of the contract. See In re Lavigne, 114 F.3d 379, 387 (2d Cir. 1997) (“Under New York law . . .[t]he non-breaching party will be discharged from further performance of its obligations under the contract when the breach goes to the root of the contract.” (internal citation omitted)). Upon Defendant’s repudiation in January 2004, Plaintiffs were relieved from making further payments under the settlement agreement, thus non-payment after August 2004 did not constitute a breach of contract. Plaintiffs’ repudiation argument is yet another defense that they were precluded from developing through discovery or presenting at trial due to Defendant’s belated amendment and the Supreme Court’s automatic award of summary judgment to Defendant without providing Plaintiffs an opportunity to respond to the new claim. 54 4958527v.1 4. The Simultaneous Grant of Summary Judgment Prejudiced Defendants and Denied Them Due Process. Even if it would have been permissible to grant Defendant’s post-trial motion to amend, it was improper for the Supreme Court to grant judgment on the counterclaim at the same time, without giving Plaintiffs the opportunity to oppose the new claim. First, the Supreme Court was powerless to grant summary judgment on the counterclaim as there had been no joinder of issue. Second, the simultaneous grant of summary judgment denied Plaintiffs their due process rights. Plaintiffs were entitled to an opportunity to conduct discovery and present arguments to rebut Defendant’s counterclaim. Defendant’s proof at trial consisted solely of his assertion that the settlement agreement was a contract and that he had not received payments under the agreement since August of 2004. Defendant failed to offer any proof that he had satisfied his own obligations under the settlement agreement. Plaintiffs were entitled to challenge Defendant’s failure to establish a prima facie case for breach of contract and to present the defenses and counterclaims discussed above. At the least, there were fact issues precluding entry of summary judgment. 55 4958527v.1 a. The Supreme Court was powerless to grant summary judgment because there had been no joinder of issue Joinder of issue is the earliest time that a party may move for summary judgment on a claim. CPLR 3212(a); McKinney’s Cons Laws of NY, Book 7B, CPLR C3212:12. With respect to a counterclaim, the service of the plaintiff’s reply is the moment of joinder. McKinney’s Cons Laws of NY, Book 7B, CPLR C3212:12. “The requirement that issue be joined before a motion for summary judgment is granted ‘is intended to show the court precisely what the plaintiff’s claims and the defendant’s position, . . . and his defenses, are.’” Miller v. Nationwide Mut. Fire Ins. Co., 92 A.D.2d 723, 724, 461 N.Y.S.2d 128, 129 (4th Dep’t 1983) (quoting Siegel, Practice Commentaries, McKinney’s Cons Law of NY, Book 7B, CPLR 3212:11, p.431). The requirement is strictly adhered to. Id. (collecting cases). Even where “the papers present no triable issue, [the court] may not award summary judgment in advance of the joinder of issue.” Milk v. Gottschalk, 29 A.D.2d 698, 286 N.Y.S.2d 39, 41 (3d Dep’t 1968). Indeed, it is powerless to do so. Union Turnpike Assoc., LLC v. Getty Realty Corp., 27 A.D.3d 725, 727-728, 812 N.Y.S.2d 628, 631 (2d Dep't 2006). In Miller v. Nationwide, an insured filed a complaint asserting claims against their insurer based on fire damage to their farm in the amount of $230,000. 92 A.D.2d at 723-724. The insurer did not file an answer, but did 56 4958527v.1 move to strike certain portions of the complaint, and in the motion to strike, admitted that the actual value of the loss as appraised by the insurer was $146,000. Id. at 724. Plaintiffs moved for summary judgment on the grounds that the insurer admitted the plaintiffs were owed at least $146,000. The insurer did not oppose the motion for summary judgment, and it was granted by the trial court. On appeal, the Fourth Department reversed, holding that because the insurer had not filed an answer, there was no joinder of issue and the insurer “would be seriously prejudiced if it were precluded from asserting” its defenses, despite the alleged admission. Id. at 724. Here, there was no joinder of issue. Plaintiffs were not given any opportunity to file a reply to the counterclaim before the trial court considered and granted summary judgment. Like the defendant in Miller, Plaintiffs were precluded from asserting their defenses and were prejudiced thereby. See also Organek v. Harris, 90 A.D.3d 1512, 1513-1514, 935 N.Y.S.2d 240, 241 (4th Dep’t 2011) (“It was premature to grant plaintiff summary judgment at the same time that he was allowed to amend his complaint inasmuch as defendant had not yet had an opportunity to serve an answer to the amended complaint and, thus, issue had not been joined.” (internal punctuation and citation omitted); Inland Credit Corp. v. Bluds, 27 A.D.2d 928, 279 N.Y.S.2d 426 (1st Dep’t 1967) (affirming grant of 57 4958527v.1 plaintiff’s motion for leave to amend the complaint, but reversing grant of summary judgment on amended claim before defendant had opportunity to answer the amended claim). Thus, even if the Defendant is allowed to amend his answer to assert a new, breach of contract counterclaim, the Supreme Court’s grant of summary judgment on that counterclaim would have to be reversed. b. The Supreme Court’s grant of summary judgment constituted a denial of due process. Entry of summary judgment before joinder of issue and without notice of the motion to Plaintiffs was a denial of Plaintiffs’ due process rights under the Federal and State constitutions. See Ives v. South B. R. Co., 201 N.Y. 271, 292-293 (1911). Due process of law implies the right of the person affected thereby to be present before the tribunal which pronounces judgment upon the question of life, liberty or property in its most comprehensive sense; to be heard by testimony or otherwise, and to have the right of controverting by proof every material fact which bears upon the question of right in the matter involved. If any question of fact or liability be conclusively presumed against him this is not due process of law. Id. In Myung Chun v. North American Mortgage Co., the Supreme Court was found to have violated the plaintiff’s due process rights where the court sua sponte dismissed plaintiff’s complaint before joinder of issue and without notice that a motion to dismiss was being considered. 285 A.D.2d 58 4958527v.1 42, 45, 729 N.Y.S.2d 716, 718 (1st Dep’t 2001) (“A serious aspect of due process [was] overlooked by the IAS court[.]”). Here, Plaintiffs received neither notice, nor an opportunity to controvert Defendant’s claim to judgment under the contract. Entry of a $2.2 million judgment against Plaintiffs prior to joinder of issue, without notice and an opportunity to be heard, was nothing less than a denial of due process rights. Consequently, the prejudice suffered by Plaintiffs was not “conceptual” or “abstract,” but quite palpable and concrete. III Plaintiffs Made No Judicial Admissions Establishing Liability on Defendant’s Counterclaim for Money Damages under the Settlement Agreement Defendant’s argument that Plaintiffs’ judicial admissions entitle him to recover under the settlement agreement without having pled such a claim is factually incorrect, legally incorrect, and unpreserved for this Court’s review. A. Defendant Failed to Preserve His Argument that Plaintiffs Made Judicial Admissions. Defendant did not argue before the Supreme Court or the Appellate Division that Plaintiffs’ judicial admissions defeat any argument that they have been prejudiced by his amended counterclaim. This Court, therefore, 59 4958527v.1 should not consider that argument. See Bingham v. New York City Transit Auth., 99 N.Y.2d 355, 359, 756 N.Y.S.2d 129, 131 (2003) (“this Court with rare exception does not review questions raised for the first time on appeal.”); Feigelson v. Allstate Ins. Co., 31 N.Y.2d 913, 916, 340 N.Y.S.2d 646 (1972) (party may not raise argument for the first time in the court of appeals). The statements Defendant now points to as admissions were made between 2003 and 2009, well before the November 2010 trial. But Defendant did not point to any of these statements during argument before the trial court or Appellate Division. Instead, in the courts below, Defendant argued that he should be permitted to amend because, by seeking a declaration that they were entitled to setoff in their original complaint, Plaintiffs necessarily admitted the underlying debt to Defendant.13 A.1021. He further argued that the Plaintiffs could not have been prejudiced by the post-trial amendment because they should have been on notice of his claim to payments under the settlement agreement by virtue of the fact that (1) he asserted a counterclaim for legal fees under the settlement agreement (though not a counterclaim for monthly payments), and (2) in his 2009 13 Defendant has not cited any cases in this court or in the courts below for the proposition that a declaratory action for a right to setoff necessarily and automatically constitutes an admission of liability as to the underlying debt. 60 4958527v.1 summary judgment motion, Defendant sought judgment for the amount of the payments under the settlement agreement. A.1021. Defendant never argued, however, that Plaintiffs made specific admissions as to the amount or existence of liability due to nonpayment under the settlement agreement. Nor is Defendant excused from his preservation obligation by the exception for a newly raised argument that “could not have been avoided by factual showings or legal countersteps had it been raised below.” Bingham v. New York City Transit Auth., 99 N.Y.2d 355, 359, 756 N.Y.S.2d 129, 131 (2003) (citing Telaro v. Telaro, 25 N.Y.2d 433, 439, 306 N.Y.S.2d 920, 255 N.E.2d 158 [1969]). If they had been given the opportunity, Plaintiffs could have presented their argument that there were no formal judicial admissions, and could have rebutted any informal judicial admissions, as they are entitled to do. Because Defendant did not preserve the judicial admission argument, this court lacks jurisdiction to review it. B. Plaintiffs Made No Formal Judicial Admissions either that They Were Liable for the Settlement Payments or that They Had No Defenses to Defendant’s Counterclaim. Defendant points to three sources of statements as “formal judicial admissions” which allegedly establish Plaintiffs’ liability on the contract counterclaim: statements made in Plaintiffs’ original complaint, statements made in Plaintiffs’ amended complaint, and statements made in Plaintiffs’ 61 4958527v.1 amended reply. Appellant’s Br. at 22-25. Upon review, however, none of these statements constitutes a formal judicial admission of liability under the settlement agreement, conclusively establishing the elements of Defendant’s contract counterclaim. At most, the statements acknowledge the existence of the contract; they do not establish that Defendant performed his obligations under the contract, nor do the statements constitute admissions that Plaintiffs had no defenses to the contract. Formal judicial admissions “take[] the place of evidence” and are concessions, for the purposes of the litigation, of the truth of a fact alleged by an adversary. Prince, Richardson on Evidence § 8–215 (2008 Farrell). Commonly encountered formal judicial admissions are statutory admissions, facts admitted by stipulation, and facts formally admitted in open court. Id. 1. Statements in the Original Complaint The two statements identified by Defendant from Plaintiffs’ original complaint, Paragraph 8 and Paragraph D of the wherefore clause, are easily dispatched as a basis for liability. First, statements in an original pleading which is superseded by an amended pleading are not formal judicial admissions. See Mendrzycki v. Cricchio, 58 A.D.3d 171, 174-175, 868 N.Y.S.2d 107, 109-110 (2d Dep’t 2008) (“an amended complaint is deemed to supersede an original complaint.”) (citing Chalasani v. Neuman, 64 62 4958527v.1 N.Y.2d 879, 487 N.Y.S.2d 556 (1985)); Schoenborn v. Kinderhill Corp., 98 A.D.2d 831, 832, 470 N.Y.S.2d 495, 497 (3d Dep’t 1983) (“An amended complaint having been served, it superseded the original complaint and became the only complaint in the case.”); see also People v. Brown, 98 N.Y.2d 226, 746 N.Y.S.2d 226 (2002) (defendant’s notice of alibi was not a judicial admission where it was withdrawn before trial) At most, statements in a superseded pleading are informal judicial admissions, which are not conclusive on the party and are subject to rebuttal evidence at trial. See Prince, Richardson on Evidence, § 8-219 (original pleading which is superseded by amended pleading may be an informal judicial admission if it was “verified or otherwise shown to have been made under the party’s direction”); Imprimis Investors LLC v. Insight Venture Mgmt, Inc., 300 A.D.2d 109, 752 N.Y.S.2d 26 (1st Dep’t 2002); Prince, Richardson on Evidence § 8–219 [Farrell 11th ed] (informal admissions “are not conclusive, being merely evidence of the fact or facts admitted”). Second, neither paragraph 8, nor paragraph D of the wherefore clause concede liability with respect to a specific debt owed under the settlement agreement. Paragraph 8 recites the payment terms of the agreement. A.27. Paragraph D asserts a general “common law right of offset . . . against the amount owed.” A.29 (emphasis added). There is no judicial admission as to 63 4958527v.1 what the “amount owed,” if any, is. Consequently, neither of the statements from Plaintiffs’ original complaint constitutes formal judicial admissions. The admission of the existence of a contract is not an admission of liability for breach of that contract. Third, the statements in the original complaint were made in November 2003, prior to Defendant’s repudiation of the settlement agreement. Thus, even if the statements admit the existence of liability as of 2003, they do not preclude the presentation of evidence of subsequent events which extinguished or excused that liability. 2. Statements in the Amended Complaint Defendant next points to six paragraphs from Plaintiffs’ amended complaint, specifically paragraphs 25 through 28 and paragraph D of the wherefore clause. Again, the statements do not constitute formal judicial admissions and do not establish facts which would bar Plaintiffs from rebutting Defendant’s counterclaim. The paragraphs cited by Defendant from the amended complaint all concern the second cause of action, which was pleaded in the alternative. A.34-35, A.38. Plaintiffs’ original complaint, filed in November of 2003, included only one cause of action, which sought a declaration that Plaintiffs were entitled to a common law right of offset of any amounts owed by 64 4958527v.1 Defendant under the promissory notes against any amounts owed under the settlement agreement and that the exercise of their setoff right would not constitute a default of the settlement agreement. A.26-29. Plaintiffs’ amended complaint was filed in November 2004, after Defendant had repudiated the settlement agreement, filed a counterclaim for rescission, sought to be reinstated as a co-owner of the companies, and demanded more than $7 million in rescission-based damages. The amended complaint was also filed after Plaintiffs had ceased payments to Defendant. In the first cause of action in the amended complaint, Plaintiffs asserted that Defendant had defaulted on the promissory notes and sought judgment of $6.8 million due under the notes. A.30-34, 38 ¶¶A-C. The second cause of action in the amended complaint sought alternative relief of $5.4 million, the amount owed to them after setoff of amounts allegedly owed to Defendant under the settlement. A.34-35, A.38 ¶¶D-G. Statements in a pleading made in the alternative are not judicial admissions. Perkins v. Volpe, 146 A.D.2d 617, 618, 536 N.Y.S.2d 845, 846 (2d Dep’t 1989) (“[I]t is appropriate for the plaintiff to advance different theories of recovery regardless of their incompatibility (see CPLR 3014) . . . Such inconsistent pleadings are not deemed to be admissions.”) lv denied 74 N.Y.2d 791, 545 N.Y.S.2d 106 (1989); Kriete v. Port Authority of New York 65 4958527v.1 and New Jersey, 208 A.D.2d 1075, 1077, 617 N.Y.S.2d 560, 562 (3d Dep’t 1994) (“Inconsistent pleadings, however, are not deemed to be admissions.”). Thus, the allegations made in the amended complaint at paragraphs 25-28 and D, in support of Plaintiff’s claim for $5.4 million after setoff, do not constitute admissions where they are inconsistent with and an alternative to Plaintiff’s first claim for judgment on the notes for $6.9 million without setoff. Moreover, even if the statements contained in the amended complaint were considered admissions of the facts alleged, they still do not establish Defendant’s counterclaim conclusively. Paragraphs 25 through 28 of the amended complaint establish only the existence of a contract and the amount arguably owed under the contract as of November 2004. The allegations are not conclusive as to Defendant’s performance under the contract or to the availability of affirmative defenses existing at the time, or that arose during the six years between the filing of the amended complaint in 2004, and Defendant’s assertion of his counterclaim in 2010. 3. Statements in the Amended Reply The statements in the amended reply are not formal judicial admissions establishing liability for nonpayment under the settlement agreement. The statements cited by Defendant, paragraphs 40 and 55, 66 4958527v.1 acknowledge pre-August 2004 payments made by Plaintiffs and the terms of the settlement agreement. A.80, ¶40 (Plaintiffs’ made payments of $20,000 per month); A.83 ¶ 55 (Plaintiffs agreed to pay Defendant $1,648,000 under the settlement agreement). They say nothing about Plaintiffs’ continuing obligation to make payments. Moreover, to the extent such statements are inconsistent with Plaintiffs’ claim for judgment of the full amount owed under the promissory notes in their amended complaint, the statements are not admissions. See Perkins v. Volpe, 146 A.D.2d at 617; Collins v. Caldor of Kingston, Inc., 73 A.D.2d 708, 709, 422 N.Y.S.2d 524, 526 (3d Dep’t 1979) (defendant’s inconsistent statements in third-part complaint and answer were “obviously contradictory” inconsistent pleadings which “do not constitute admissions of fact”). There are no unconditional statements of fact conclusively establishing liability on the part of Plaintiffs. C. The Alleged Informal Judicial Admissions Do Not, and Can Not, Conclusively Establish Plaintiffs’ Liability, Particularly Where Plaintiffs Were Denied an Opportunity to Rebut Them. “Informal judicial admissions are facts incidentally admitted during the trial or in some other judicial proceeding.” Richardson on Evidence, § 8– 219. Such an admission is “not conclusive . . . but is merely evidence of the fact or facts admitted.” People v. Brown, 98 N.Y.2d 226, 232 n.2, 746 N.Y.S.2d 422, 425 (2002) (citing Prince, Richardson on Evidence § 8–219); 67 4958527v.1 Wheeler v. Citizens Telecomm’s Co., 18 A.D.3d 1002, 1005, 795 N.Y.S.2d 370, 372 (3d Dep’t 2005). Because they constitute only some evidence of the fact admitted, declarants are entitled to an opportunity to explain and rebut informal judicial admissions. Richardson, supra, at § 8–211, p. 520; Jack C. Hirsch, Inc. v. Town of North Hempstead, 177 A.D.2d 683, 577 N.Y.S.2d 75 (2nd Dept.1991); People v. Jacobs, 149 A.D.2d 112, 114-115, 544 N.Y.S.2d 1011, 1013 (3d Dep’t 1989) (informal judicial admissions are “receivable in evidence . . . subject to being contested or explained”) lv. denied 74 N.Y.2d 949, 550 N.Y.S.2d 284 (1989). Where there has been no opportunity to contest the alleged admissions, they cannot sustain a motion for summary judgment. TMB Communications v. Preefer, 61 A.D.3d 450, 450 883 N.Y.S.2d 904, 904 (1st Dep’t 2009) (informal judicial admissions cannot serve as basis for grant of summary judgment because they “may be explained at trial”); River House Realty Co., Inc. v. Lico Contracting, Inc., 172 A.D.2d 426, 569 N.Y.S.2d 7, 8 (1st Dep’t 1991) (affirming denial of summary judgment because the “allegations are, at most, informal judicial admissions, which are not conclusive”); United East LLC v. Churi, 24 Misc.3d 80, 81, 885 N.Y.S.2d 140, 141 (1st Dep’t 2009) (improper to dismiss claim based on informal judicial admission in pleading because the 68 4958527v.1 informal admission “is merely some evidence . . . and may be explained at trial”). Here, Plaintiffs never had an opportunity to explain or contest the informal judicial admissions; there could be no opportunity because Defendant did not raise the informal judicial admissions before the trial court or Appellate Division. Accordingly, the alleged informal judicial admissions cited by Defendant, which are not conclusive and which were never subjected to explanation or rebuttal by Plaintiffs, cannot support summary judgment on Defendant’s counterclaim or the absence of prejudice from Defendant’s post-trial amendment. Moreover, like the purported “formal judicial admissions” identified by Defendant, the informal judicial admissions do not constitute admissions of liability on Defendant’s post-trial counterclaim nor do they admit the absence of defenses. Most of the statements support only the existence and terms of the settlement agreement and the liability that may have existed in 2003. They admit nothing with respect to whether Defendant completed his performance under the contract, or whether, by the time the counterclaim was raised in November 2010, Plaintiffs had defenses to the contract, such as statute of limitations, Defendant’s election of rescission remedies, 69 4958527v.1 estoppel, and Defendant’s repudiation of the contract thereby excusing Plaintiffs’ performance. Defendant first points to statements made in the 2004 affidavit of plaintiff Arlington Filler. Appellant’s Br. at 26-27. Mr. Filler’s affidavit, however, was made in February 2004 in support of Plaintiffs’ original claim for setoff (which was later superseded by the amended complaint and Plaintiffs’ claim for judgment on the notes). The affidavit was made before Defendant sought summary judgment on his claim to rescind the contract and be reinstated as a co-owner of the companies, thereby conclusively electing a rescission remedy for any claimed breach of contract, and effectively repudiating the contract. Mr. Filler’s affidavit does not establish the existence of liability for contract damages in November 2010. The trial testimony of Dr. Shah, cited by Defendants, is not an informal admission of liability on the counterclaim as it acknowledges only the payment terms of the contract and that Plaintiffs paid Defendant in 2002 and 2003 before Defendant’s decision to rescind and repudiate the contract. The statements of Plaintiffs’ counsel in the July 3, 2009 affirmation in opposition to Defendant’s motion to dismiss Plaintiffs’ second cause of action, and the trial testimony of Mr. Filler concerning Plaintiff’s second cause of action seeking setoff, are not admissions as they go to a remedy that 70 4958527v.1 was being pursued in the alternative, in the event Plaintiffs were not awarded judgment for the full value of the notes at trial. The letter sent by Plaintiffs’ accountant to Defendant providing advice on a potential consequence of the discharge of his debt under the promissory notes does not constitute an admission by Plaintiffs. Nor do the pre-August 2004 payments constitute an admission of liability for post-August 2004 payments sought in 2010. Like the purported “formal judicial admissions,” the statements identified by Defendant as informal admissions simply do not establish the necessary elements of his contract counterclaim nor do they defeat the potential defenses available to Plaintiffs. Even if any of the statements did constitute an informal judicial admission, the statement does not support Defendant’s claim here, that the admission precludes a finding of prejudice, as Plaintiffs are entitled to explain and contest such admissions at a trial but were never given an opportunity to do so. IV Defendant Should Have Been Estopped by the Inconsistent Position He Took before the IRS from Arguing that the Settlement Agreement Released His Obligation under the Promissory Notes Defendant prevailed below on his argument that his obligations under the promissory notes were released by the settlement agreement. He was allowed to make that argument over Plaintiffs’ objection that the argument 71 4958527v.1 was inconsistent with the position Defendant took on his tax returns. Specifically, Defendant testified that he never reported the release of the $2.97 million in loans as income on his tax returns, even though he knew that if the promissory notes had been released by the 2002 settlement, he would have been required to declare the released loans as income. A.499, A.503; A.618; A.663 (“Q. So what you are saying is that you have no obligation to repay this money but it is not income and therefore you don't have to inform the Internal Revenue Service? A. Yes sir.”). The Supreme Court’s rejection of Plaintiff’s estoppel argument violated public policy and this Court’s holding that party may not take a position in litigation inconsistent with the position the party has taken in his or her tax filings: A party to litigation may not take a position contrary to a position taken in an income tax return. . . . We cannot, as a matter of policy, permit parties to assert positions in legal proceedings that are contrary to declarations made under the penalty of perjury on income tax returns. Mahoney-Buntzman v. Buntzman, 12 N.Y.3d 415, 422, 881 N.Y.S.2d 369, 373 (2009); see also Mikkelson v. Kessler, 50 A.D.3d 1443, 1444, 857 N.Y.S.2d 311, 313 (3d Dep’t 2008) (“The underlying rationale of this [estoppel] doctrine extends to prevent a party from asserting, without ample 72 4958527v.1 explanation, a factual position in a legal proceeding that is directly contradicted by his or her tax return.”) (collecting cases). Since Defendant took the position with the IRS that the promissory notes had not been released by the settlement agreement, the Supreme Court was required by Mahoney-Buntzman to estop Defendant, as a matter of law and policy, from taking the inconsistent position here that the promissory notes were encompassed by the release set forth in the settlement agreement. V Defendant is Not Entitled to Recover on His Counterclaims At the conclusion of his brief, Defendant makes a superficial argument, improperly raised here, for reversal of the Supreme Court’s dismissal of his second, third, and eighteenth counterclaims, which sought judgment on loans allegedly made by Defendant to the Companies and Counterclaim Defendant Unithree. Defendant states that this is an “alternative” argument, conditional on Plaintiffs seeking reversal of the Supreme Court’s holding that the release under the settlement agreement was not “global” and therefore did not release the Promissory Notes. Appellant’s Br. at 36 n.4; id. (“it is—and has always been— [Defendant’s] position that Plaintiffs’ claims and his counterclaims are barred by the parties’ settlement”).Plaintiffs have not raised such an argument, and 73 4958527v.1 therefore the “condition” triggering Defendant’s argument on his counterclaims has not been met. The Appellate Division affirmed the Supreme Court’s finding that the release contained in the settlement agreement was a general release, and consequently affirmed judgment for Defendant on the question of liability under the promissory notes. Thus, the question of whether Defendant’s second, third, and eighteenth counterclaims were released by the settlement agreement is not properly before this Court and should not be considered. Parochial Bus Systems, Inc. v. Board of Educ. of City of New York, 60 N.Y.2d 539, 544, 470 N.Y.S.2d 564, 566 (1983) (“Generally, the party who has successfully obtained a judgment or order in his favor is not aggrieved by it, and, consequently, has no need and, in fact, no right to appeal.”); Hecht v. City of New York, 60 N.Y.2d 57, 61, 467 N.Y.S.2d 187, 189 (1983) (“an appellate court’s scope of review with respect to an appellant, once an appeal has been timely taken, is generally limited to those parts of the judgment that have been appealed and that aggrieve the appealing party”). Additionally, even if the settlement agreement itself contained only a limited release, which did not bar Plaintiffs’ claim on the promissory notes, Defendant’s second, third, and eighteenth counterclaims for loans allegedly made to Plaintiffs and Unithree were barred by the additional releases 74 4958527v.1 executed by Defendant, by the statute of limitations, and by the fact that Defendant was repaid for the loans. Thus, Defendant’s claim 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” is incorrect. Appellant’s Br. at 37 n.4. Defendant’s cursory plea for judgment on his counterclaims ignores the Supreme Court’s reasoning in rejecting them. The Supreme Court held that all three of these counterclaims were barred by the releases he executed, and further held, with respect to the third and eighteenth counterclaims, that Defendant “did not account for the payments made to him from Unithree after the loans were made and thus, this counterclaim fails.” A18. Defendant fails to cite to any error in the Supreme Court’s findings that the release contained within the settlement agreement encompassed his purported loans to Plaintiffs and Counterclaim Defendants or that Defendant failed to rebut Plaintiffs’ evidence that Defendant was repaid any amounts claimed under the second, third, and eighteenth counterclaims. A. Defendant’s Counterclaims against Kimso, Poonam, Dr. Shah, and Mr. Filler are Barred not only by the Settlement Agreement, but also by two Additional General Releases by Defendant. Defendant’s release of Kimso, Poonam, Dr. Shah, and Mr. Filler from any and all claims he could assert against them was accomplished not only 75 4958527v.1 by the settlement agreement, but by several additional documents. On the same day that he signed the settlement agreement, Defendant executed a “Release of Shares in Escrow,” SA.132, and an “Affidavit and Release,” SA.129. Pursuant to the Release of Shares in Escrow, Defendant released any claims he had in the stock of Kimso Apartments, Inc. and Poonam Apartments, Inc. Paragraph 4 of the Release provides “I [Defendant] further release the Companies and its shareholders, officers, directors, . . . successors and assigns from any and all actions, causes of actions, suits, debts, losses, liens, interests, sum of money, accounts, reckonings, bonds, bills, specialties, covenants, contracts, controversies, claims, and demands whatsoever, in law, admiralty, and equity.” SA.132 (emphasis added). There is no language qualifying or limiting the breadth of this release language; thus, any claims for loans made to the companies or Dr. Shah and Mr. Filler were barred by the “Release of Shares in Escrow.” Similarly, in Paragraph 6 of the “Affidavit and Release,” Defendant releases “any and all” claims against certain nonparty entities and their “shareholders, officers, directors, Members, principals, partners . . . successors and assigns,” SA.130, including the corporations, Dr. Shah, and Mr. Filler to the extent they served as shareholders and principals in the named companies. 76 4958527v.1 Thus, the releases Defendant gave to the corporations, Dr. Shah and Mr. Filler are unlimited in scope and effected a release which barred the counterclaims asserted in this action. Accordingly, the Supreme Court correctly dismissed Defendant’s counterclaims even if the release under the settlement agreement were not global. B. Defendant’s Second Counterclaim for Loans Allegedly made to Plaintiffs is Barred by the Statute of Limitations. Defendant counterclaims against the corporations for loans allegedly made between 1996 and 1998. A.810-822. Although not addressed by the Supreme Court, these counterclaims are time barred. Defendant claims that he loaned Parkhill $272,342, as evidenced by two checks: a May 20, 1997 check for $222,342 and a May 10, 1996 check for $50,000. A.810-811. Defendant testified that he never received payment or interest on the loans. A.521. He claims that he loaned Kimso $236,000, via an April 7, 1997 check for 30,000, a May 24, 1997 check for $128,000, a May 8, 1997 check for $10,000, a May 15, 1998 check for $10,000, a May 7, 1997 check for $34,000, and a July 30, 1997 check for $14,000. A.812-818. Defendant claims he never received payment of interest or principal on these loans. A.524. 77 4958527v.1 Finally, Defendant claims he loaned Poonam $112,000, via a May 21, 1997 check for $20,000, a May 27, 1997 check for $34,000, a July 31, 1997 check for $48,000, and a May 15, 1998 check for $10,000. A.819-822. Defendant testified that he never received any payment of principal or interest on these alleged loans. A.526. With the exception of the May 15, 1998 check to Kimso for $10,000 and the May 15, 1998 check to Poonam for $10,000, all of the cited checks are dated no later than July 1997. The six-year statute of limitations on a loan with no repayment schedule, such as the alleged loans underlying Defendant’s counterclaims, begins to run “on the date the obligation was created.” Cognetta v. Valencia Developers, Inc., 8 A.D.3d 318,319, 778 N.Y.S.2d 80, 81 (2d Dep’t 2004); see also Phoenix Acquisition Corp. v. Campcore, Inc., 81 N.Y.2d 138, 143, 596 N.Y.S.2d 752, 754 (1993) (“The Statute of Limitations affecting a note payable upon demand, without doubt, begins to run from the date of its execution.”). Applying the six-year statute of limitations established by CPLR 213, any claim on the alleged loans was time-barred in July 2003. This action was not commenced, however, until November 24, 2003, four months after the limitations period had run. Thus, Defendant’s counterclaims for these alleged loans to Plaintiffs were barred by the statute of limitations. 78 4958527v.1 C. Defendant’s Second Counterclaim for Loans Allegedly Made to Plaintiffs Was Refuted by Evidence that Defendant Was Repaid During trial, Plaintiffs introduced evidence demonstrating that Defendant had been repaid for his loans to Kimso and Poonam. For example, Plaintiffs presented a June 10, 1997 check from Kimso to Defendant for $30,000 with the statement “return of loan” in the memo line. SA.134. And while Defendant claims to have lent Kimso $128,000 during May 1997, he admitted that he also received a check from Kimso for $128,000 in May 1997. SA.135; A.612-613. Similarly, Defendant claimed that he lent Poonam $48,000 in July 1997 and was never repaid, but Plaintiffs presented evidence that Defendant received a check from Poonam in July 1997 for $48,000. A.614-615; SA 136. This evidence directly refuted Defendant’s testimony that he was never repaid any of the amounts under the loans, and demonstrated that his counterclaims failed to account for amounts he was repaid by the Corporations. D. Defendant’s Third and Eighteenth Counterclaims against Unithree were not only Barred by the Settlement Agreement, but were Conclusively Rebutted at Trial In his third counterclaim, Defendant alleged that he lent $689,000 to Unithree14 from May 1997 through January 1998. Appellant’s Br. at 37, 14 As further evidence that Defendant’s argument is not properly before this court, it is not clear that Plaintiff even pursued an appeal against Unithree, as he did not name the Counterclaim-Defendants as respondents to this appeal. 79 4958527v.1 A.50, A.823-831. In his eighteenth counterclaim, Defendant alleges that he made an additional loan to Unithree of $40,000 by check on October 10, 2000, and another loan of $20,000 by check dated January 11, 2001. A.832- 833. Defendant claims that he was never repaid for any of these funds. A.528-530, A.548. The Supreme Court dismissed these counterclaims on the grounds that they were released as part of the settlement and that Defendant “did not account for the payments made to him from Unithree after the loans were made.” A.18. At trial, Plaintiffs presented evidence that Defendant had been repaid all of the money he lent to Unithree, plus thousands more.15 In total, between 1997 and 2001, Defendant received over $1.9 million from Unithree. The checks substantiating these payments were admitted into evidence. SA.142- 527. The $1.9 million was over $544,000 more than the amounts reflected on Defendant’s W2s and 1099s as Defendant’s salary from Unithree. A.603. Defendant testified that any amounts received from Unithree in excess of the amounts reported on his W2s constituted a return of the loans. A.603-604. 15 Plaintiffs also raised questions about the propriety of the documentation submitted by Defendant in support of his alleged “loans” to Unithree, noting that after testifying that there were only two notes payable, totaling $211,000 and $293,000, Defendant introduced a “new” note for $125,000 which was never produced prior to trial and which was signed by Defendant alone. A.829-830; A.531. 80 4958527v.1 Moreover, Defendant admitted that he received the excess $544,000 after he made the alleged loans to Unithree. A.604. Defendant further admitted that he received several checks totaling $70,000 as a “return of your loan from Unithree.” A.589-590. Moreover, Plaintiffs introduced evidence that Unithree had paid over $325,000 into a retirement fund on Defendant’s behalf. SA.528-541. Plaintiffs evidence thus conclusively established that Defendant had been repaid for amounts loaned to Unithree; in addition to rebutting his claim, Plaintiffs’ extensive evidence of repayment undercut Defendant’s credibility. In his Appellate Brief, Defendant offers no response to the evidence of payments he had received, which the trial court found persuasive. Since Defendant actually received more money from Unithree than he sought under the third and eighteenth counterclaims, the counterclaims fail and the Supreme Court’s dismissal should be affirmed. CONCLUSION For the foregoing reasons, this Court should dismiss the appeal or affirm the decision of the Appellate Division. 81 4958527v.1 DISCLOSURE PURSUANT TO 22 NYCRR 500.1(f) ROBERT A SPOLZINO, an attorney duly admitted to practice law in the State of New York, hereby affirms the following under the penalties of perjury: 1. I am a member of the law firm of Wilson, Elser, Moskowitz, Edelman & Dicker, LLP (“Wilson Elser”) which represents Plaintiffs/Counterclaim Defendants-Respondents on this motion. As such, I am familiar with the facts and circumstances as set forth herein. The source of my knowledge is the information contained in the file maintained by Wilson Elser and my conversations with the officers of the plaintiff companies. 2. Pursuant to Rule 500.1(f) of this Court, each of the Plaintiffs/Counterclaim Defendants/Respondents KIMSO APARTMENTS, LLC, POONAM APARTMENTS, LLC, AND 185- 225 PARKHILL, LLC is a separate legal entity, with no parents, subsidiaries and affiliates, other than similarity of members and officers. 3. As to Additional Counterclaim Defendants AMITY PARK ASSOCIATES, DREW INVESTMENT, INC., UNITHREE MANAGEMENT, INC., UNITHREE INVESTMENT CORP., UNITHREE SERVICES CORP., and EVEREADY SECURITY, INC., to the extent that these entities are still in existence, each is a separate legal entity, with no parents, subsidiaries and affiliates, other than a similarity of shareholders, members, and officers. Dated: March 7, 20 13 White Plains, New York 4958527v.I Rob A. Sp . I Wilson, Elser, Moskowitz, Edelman & Dicker, LLP 1133 Westchester Avenue White Plains, NY 10566 (914) 323-7000 Attorneys for Plaintiffs and Additional Counterclaim Defendants 82