Commercial Division Blog

Posted: July 30, 2014 / Categories Commercial, Court Rules/Procedures, Motion to Dismiss; Motion for Judgment on the Pleadings

When no Present Claim and a Subsequent Dispute Would be New and Distinct, Party not Necessary Under CPLR 1001

On July 15, 2014, Justice Schweitzer of the New York County Commercial Division issued a decision in 37 E. 50th St. Corp. v. Restaurant Group Management Services, L.L.C., 2014 NY Slip Op. 31876(U), granting a defendant’s motion to dismiss on the grounds that it was not a necessary party under CPLR 1001(a).

In 37 E. 50th St. Corp. , the owner (37 East) and manager (RGMS) of a restaurant agreed that RGMS would negotiate a lease extension with the landlord (Eurofinch) on behalf of both entities, but the new lease “cut 37 East out as a tenant” and named an affiliate of RGMS as the new tenant. 37 East sued RGMS for breach of contract and fiduciary duties, seeking injunctive relief requiring RGMS to assign the lease to 37 East. Because Eurofinch would be required to give its consent (not to be unreasonably withheld) to the assignment, 37 East also named Eurofinch as a defendant, although no direct claim was asserted against Eurofinch.

Eurofinch moved to dismiss on that basis, and 37 East opposed on the grounds that the landlord was a necessary party in a litigation concerning the assignment of a lease.

The court rejected all of 37 East’s arguments and dismissed Eurofinch.

First, the court noted that, as a general principle of law, “in order for an entity to be a necessary party, it must be one against whom plaintiff can assert a right to relief.” And in this case, 37 East had no present right to relief against Eurofinch, which would only become implicated in the dispute if it unreasonably withheld its consent to an assignment between 37 East and RGMS. The court held that any assertion that Eurofinch would breach its contractual obligations was highly speculative, and also noted that an entity that is merely “required to provide some cooperative acts if a judgment is adverse to the defendants” is not by law a necessary party.

Second, the court held that the general rule that “third parties with an interest in the property underlying the litigation between plaintiff and defendant [are] necessary parties” was inapplicable:

The cases cited by 37 East are distinguishable from the present case because Eurofinch has no material interests in the merits of the litigation. Unlike the property owners whose interests might be adversely affected by the litigation or whose property might be encumbered with mortgage, Eurofinch’s property rights in the Premises will not be abrogated regardless of the outcome of the litigation between 37 East and RGMS. Eurofinch retains the right to reasonably reject a proposed assignment no matter which party wins the lawsuit.

And third, there was no risk of duplicative litigation because the merits of the present dispute—RGMS’s alleged misconduct in negotiating the new lease—were completely independent of the merits of any subsequent dispute with Eurofinch, which “would focus on the reasonableness of withholding the assignment.” Joining Eurofinch as this time would only “impede and delay” the resolution of the main action between 37 East and RGMS.

As well as presenting an exception to the widely-held rule that the landlord is always a necessary party in a lease assignment case, this decision also shows the limits of the necessary party rule: if there is no present claim for relief against a party and if the legal issues in a subsequent dispute involving would be new and distinct, the party is not necessary under CPLR 1001(a).