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Posted: February 11, 2017

Dismissal for Lack of Standing Does Not Have Res Judicata Effect on Merits

On January 30, 2017, Justice Singh of the New York County Commercial Division issued a decision in Paf-Par LLC v. Silberberg, 2017 NY Slip Op. 30205(U), holding that dismissal for lack of standing did not have res judicata effect on the merits, explaining:

Plaintiff’s action is not barred by res judicata based on the decision of the First Department and the Court of Appeals in Paf-Par I. A dismissal premised on lack of standing is not a dismissal on the merits for res judicata purposes. This holding on res judicata grounds even applies where the court had already dismissed a party’s prior action on substantive grounds.

Additionally, dismissal for lack of standing is not intended to have any determinative effect on the merits of the action. Under res judicata, or claim preclusion, a valid final judgment bars future actions between the same parties on the same cause of action. As a general rule, once a claim is brought to a final conclusion, all other claims arising out of the same transaction or series of transactions are barred, even if based upon different theories or if seeking a different remedy. Defendant’s reliance on Landau v. LaRossa, Mitchell & Ross, is misplaced. The Court of Appeals in Landau held that when the disposition of a case is based upon a lack of standing only, the lower courts have not yet considered the merits of the claim. Similarly, once a claim is brought to a final conclusion, all other claims arising out of the same transaction or series of transactions are barred.

A dismissal premised on lack of standing is not a dismissal on the merits for res judicata purposes. If applied too rigidly, res judicata has the potential to work considerable injustice. In properly seeking to deny a litigant two days in court, courts must be careful not to deprive him of one.

Here, it is unclear whether the claim was brought to a final conclusion. When a dismissal for lack of standing should have been granted, courts may be precluded from issuing judicial decisions on the merits, as the decisions can have no immediate effect and may never resolve anything. It is clear that Plaintiff lacked standing in Paf-Par I. Thus, without obtaining the proper documentation to establish proper standing, the decision of the First Department would fail to resolve the matter. The First Department held that the language of the guaranty could not operate to make the guarantor liable for more than what the primary obligor was obligated to pay and did pay. However, the Court of Appeals ruled that Paf-Par failed to establish standing but remained silent as to whether its decision operated as an affirmance of the First Department’s ruling on the guaranty. Following the clear policy set forth, supra, this court will not deprive Plaintiff its day in court.

(Internal quotations and citations omitted).

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