Commercial Division Blog

Posted: August 9, 2014 / Categories Commercial, Statute of Limitations/Laches

CPLR 205 Tolls Statute of Limitations for Special Proceeding Improperly Brought as a Plenary Action

On July 30, 2014, Justice Friedman of the New York County Commercial Division issued a decision in Weksler v. Weksler, 2014 NY Slip Op. 32024(U), explaining the application of CPLR 205.

In Weksler, the parties entered into an agreement that tolled the statute of limitations effective December 19, 2006. In 2007, the plaintiff brought a plenary action seeking damages and dissolution of a New York corporation based in conduct occurring in 2000. In 2009, the plaintiff moved "to amend for the purpose of complying with the pleading, service, and publication requirements of Business Corporation Law § 1106, and to sever the cause of action for statutory dissolution." That motion was denied, a decision which was affirmed by the First Department in 2011. Within six month's of the First Department's decision, the plaintiff initiated a special proceeding for dissolution. The defendants then "move[d] to dismiss certain allegations on which the dissolution proceeding is based, on," among other grounds, that they were "time-barred." The court's statute of limitations decision turned on the application of CPLR 205(a), which "provides, in relevant part:

If an action is timely commenced and is terminated in any other manner than by a voluntary discontinuance, a failure to obtain personal jurisdiction over the defendant, a dismissal of the complaint for neglect to prosecute the action, or a final judgment upon the merits, the plaintiff, or, if the plaintiff dies, and the cause of action survives, his or her executor or administrator, may commence a new action upon the same transaction or occurrence or series of transactions or occurrences within six months after the termination provided that the new action would have been timely commenced at the time of commencement of the prior action and that service upon defendant is effected within such six-month period.

The court began its analysis by noting that "[a]ppeals as of right serve to delay the running of the six-month period under CPLR 205(a) until the appeals are exhausted" and that the plaintiff's appeal of the 2009 decision had been as of right. The court went on to hold that allegations of conduct occurring in 2000 were not time-barred in the later-filed special proceeding because of CPLR 205(a), explaining:

The statute does not extend the statute of limitations to conduct that occurred prior to the statute of limitations for commencement of an action based on such conduct. It permits a new action to based on conduct that would otherwise be barred by the statute of limitations if, but only if, a prior action was timely commenced based on such conduct and was not terminated on any of the grounds specified in the statute. As the Court of Appeals has explained: The effect of the statute is quite simple: if a timely brought action has been terminated for any reason other than one of the three reasons specified in the statute, the plaintiff may commence another action based on the same transactions or occurrences within six months of the dismissal of the first action, even if the second action would otherwise be subject to a Statute of Limitations defense, so long as the second action would have been timely had it been commenced when the first action was brought.

Contrary to the brothers' further contention, a claimant's failure to comply with statutory pleading and other requirements does not in and of itself bar the application of CPLR 205(a). The brothers' reliance on Hertz v Schiller (239 AD2d 240 [1st Dept 1997]) is unavailing. In Hertz, the Appellate Division rejected the application of CPLR 205(a) because the first action was never commenced as required by the plain language of the statute, and the second action therefore could not relate back to it. The holding was based on the fact that the Clerk of the Court did not accept the summons and complaint in the first action for filing because the plaintiff had already served it on the defendant in violation of CPLR 306-a(a).

In the instant matter, there is no contention that the first action was not properly commenced. Rather, the brothers contend that Lisa's failure to comply with certain pleading and notice requirements of the Business Corporation Law - in particular, section 1105, requiring verification of the petition, and section 1106, requiring publication of the petition and service on the tax commission - rendered her cause of action for dissolution void ab initio. Significantly, however, the failure of a petitioner to comply with these Business Corporation Law provisions is not a jurisdictional defect, and the statute provides that such non-compliance may be cured through amendment by leave of the court.

(Internal quotations and citations omitted).