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Posted: October 18, 2014

A Cautionary Tale Regarding Procedural Pitfalls: Part 1

On October 1, 2014, Justice Oing of the New York County Commercial Division issued two decisions in Loreley Financial (Jersey) No. 3, Ltd. v. Morgan Stanley & Co. Inc., 2014 NY Slip Op. 32622(U) and 2014 NY Slip Op 32624(U), illustrating the importance of keeping an eye on the rules of practice.

This post focuses on the decision in 2014 NY Slip Op 32624(U), in which the court held that despite having been given leave to file an amended complaint, the court had no jurisdiction to hear the amended complaint the plaintiffs filed after judgment dismissing the action had been entered.

In Loreley Financial, the plaintiffs asserted claims of rescission, fraud, fraudulent conveyance, and unjust enrichment. On June 20, 2013, the trial court issued a decision dismissing their complaint but granting leave to replead under the same index number. The plaintiffs filed a notice of appeal and

the parties entered into a stipulation staying plaintiffs’ time to move to renew and reargue, and defendants’ time to respond to any amended complaint until a party or the Court lifted the stay. The stipulation also provided that the parties reserved all rights, and defendants did not consent to an amended complaint by signing the stipulation.

The stipulation did not prevent the defendants from seeking entry of a judgment of dismissal, and they did so. Plaintiffs did not move to vacate the judgment when it was entered.

Over seven months after the judgment dismissing the action was entered, the plaintiffs filed an amended complaint and, later, withdrew their appeal, which they had not perfected. Plaintiffs also filed “a new, identical action under” a new index number. The defendants moved to dismiss the amended complaint in the original action, arguing that the court lacked subject-matter jurisdiction to hear the amended complaint because the Clerk had entered judgment dismissing the action. The court agreed, explaining:

Nothing in this Court’s prior ruling as set forth on the record precluded defendants from exercising their rights, including having a judgment entered dismissing the action. Thus, defendants correctly point out that post dismissal filings, such as plaintiffs’ April 3, 2014 amended complaint, are nullities because there is no longer an active case. Indeed, nothing in this Court’s decision to grant plaintiffs leave to file an amended complaint can be deemed to countermand the provisions of the CPLR regarding terminated actions and subsequent filings, or defendants’ right to seek entry of a judgment of dismissal.

(Internal quotations and citations omitted) (emphasis added).

The court went on to discuss why the plaintiffs could not “take refuge in the safe harbor provisions of CPLR 5019 and 5015.” As to CPLR 5019(a), which relates to errors in judgments that are “mistake[s], defect[s] or irregularit[ies] not affecting a substantial right of a party,” the court held that it did not apply because the relief the plaintiffs sought was substantive. As to the court’s prior order granting leave to replead, the court explained that while it “noted that plaintiffs have a right to file an amended complaint, this Court did not state that such right would be absolute, and that it would not have to yield to other provisions of the CPLR.”

According to the court, once the judgment was entered, the plaintiffs’ “options were to appeal, or move to vacate the judgment pursuant to CPLR 5015. Here, plaintiffs took an appeal, but withdrew it prior to perfecting it. Given that plaintiffs filed an amended complaint, rather than pursue their appeal, the issue then is whether CPLR 5015 provides a basis to vacate the judgment so as to permit the amended complaint to go forward.” As the court explained, CPLR 5015 also provided no basis for the relief the plaintiffs sought:

CPLR 5015(a) provides that a court may relieve a party from a judgment on the grounds of excusable default, newly-discovered evidence after trial, fraud, misrepresentation, or other misconduct, lack of jurisdiction to render the initial judgment, or reversal, modification, or vacatur of the initial judgment. This list is not exhaustive, an a court retains the inherent power to vacate its own judgment for sufficient reason and in the interests of substantial justice. This authority, however, is not plenary, and should only be used in cases of fraud, mistake, inadvertence, surprise or excusable neglect. Indeed, a motion to vacate an order pursuant to CPLR 5015 cannot serve as a substitute for an appeal, or remedy an error of law that could have been addressed on a prior appeal.

Here, the record clearly does not reflect the existence of any of the enumerated bases to warrant vacatur of the instant judgment pursuant to CPLR 5015[a]. Indeed, there was no fraud, and the Clerk did not enter judgment of dismissal inadvertently or by mistake. Nor can plaintiffs claim surprise or neglect, as they filed an opposition to entry of judgment before the Clerk entered the judgment. Indeed, although permitted to do so, plaintiffs did not submit a proposed counter-judgment that could have included language preserving their right to file an amended complaint. As such, any purported error in not including such language is not chargeable to the Clerk. There has been no default, no reversal of this Court’s prior decision and order, no challenge to this Court’s jurisdiction to render its prior decision and order, and no misconduct by defendants. Lastly, plaintiffs do not assert that the judgment should be vacated due to newly-discovered evidence. Under these circumstances, vacatur of the judgment is not warranted.

(Internal quotations and citations omitted).

But what of the new action the plaintiffs had filed? Weren’t their claims saved by filing a new action? That is the subject of tomorrow’s post.

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