Commercial Division Blog

Current Developments in the Commercial Divisions of the
New York State Courts
Posted: May 3, 2016

Assignee of Claims Allowed to Substitute in As Party in Lieu of Dismissed Assignor

On April 13, 2016, Justice Singh of the New York County Commercial Division issued a decision in Inverventure 77 Hudson LLC v. Falcon Real Estate Investment Co., 2016 NY Slip Op. 30712(U), allowed the assignee of the named plaintiff’s claims to substitute in an action for the assignor.

In Inverventure 77 Hudson LLC, the plaintiffs sued the defendants, “alleging gross fraud in the management of real estate properties.” The defendants moved to dismiss alleging, among other things, that the plaintiffs lacked standing because they had been dissolved prior to bringing the action. The court granted the motion to dismiss. The assignee of the named plaintiffs moved to substitute in as plaintiff. The court granted the motion, explaining:

Choses in action, such as claims for breach of contract and breach of fiduciary duty, are freely assignable. While, generally speaking, an assignee stands in the shoes of the assignor, the plain language of an assignment determines its breadth and scope.

Pursuant to CPLR 1018, a court in its discretion may direct that an assignee be substituted as a party when a cause of action has been assigned. The purported assignee must prove the fact of the assignment. Substitution of a party is properly granted where the substitution would not result in surprise or prejudice to
defendants. In the event of the assignment of a cause of action or interest in litigation, the court may, in its discretion, direct that the assignee be substituted as a party.

. . .

New York courts take a practical approach to determine the real party in interest. As Professor Siegel noted in New York Practice:

Under section 210 of the old Civil Practice Act every action was required to be prosecuted in the name of the real party in interest, except in enumerated circumstances. The successor provision, CPLR 1004, omits that statement as obvious on the one hand (who else would bring the action?), misleading on the other (does it require in a trust case, for example, that the beneficiaries rather than the trustee bring suit?), and an inept statement of substantive law in any event.

. . . We thus have an acknowledgment that the questions of who may bring suit and against whom it may be brought are really questions of substantive rather than procedural law and must be answered as such. Who owns the cause of action? Whose right has been interfered with? Who interfered with it?

Here, it is crucial to note that the relief Pinnacle seeks is identical to the relief sought by Briarpark.

. . .

Defendants’ final contention is that substitution would be futile because any claims by Pinnacle are time-barred; the relation-back doctrine does not apply; and CPLR 204(b) does not toll the statute of limitations. The Court of Appeals summarized the raison d’etre of the statute of limitations in Flanagan v. Mount Eden Gen. Hosp., 24 N.Y.2d 427 (1969). The Court wrote:

At common law there was no fixed time for the bringing of an action. Personal actions were merely confined to the joint lifetimes of the parties. The Statute of Limitations was enacted to afford protection to defendants against defending stale claims after a reasonable period of time had elapsed during which a person of ordinary diligence would bring an action. The statutes embody an important policy of giving repose to human affairs.

Here, it is hard to discern how the purpose of the statue of limitations would be served if the court were to find that Pinnacle’s claims were time-barred based on the hypertechnical legal arguments of the defendants. It is important to note that defendants will suffer no legal prejudice or surprise if Pinnacle is substituted as a plaintiff, for no new cause of action is being asserted. Under such circumstances, defendants’ arguments miss the mark.

(Internal quotations and citations omitted).

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