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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: October 27, 2020

Motion for Relief Under Article 76 Cannot be Made in an Earlier Action That Has Been Concluded

On September 23, 2020, Justice Masley of the New York County Commercial Division issued a decision in CPI Aerostructures, Inc. v. Air Indus. Group, 2020 NY Slip Op. 33249(U), holding that a motion for relief under Article 76 cannot be made in an earlier action that has been concluded, explaining:

In the notice of motion for motion sequence number 003, CPI does not articulate a CPLR provision under which it seeks the current relief. Implicit in CPI’s papers, however, is CPI’s reliance on CPLR 7601. Effectively CPI seeks specific enforcement of the SPA’s provision to submit an issue of valuation to an Independent Accountant, BOO, At common law, such provisions were unenforceable, however, CPLR 7601 now authorizes their enforcement. Air IG is more explicit that CPLR 7601 applies. Nevertheless, the motion and cross motion are procedurally improper and denied.

CPLR 7601 provides that

A special proceeding may be commenced to specifically enforce an agreement that a question of valuation, appraisal or other issue or controversy be determined by a person named or to be selected. The court may enforce such an agreement as if it were an arbitration agreement, in which case the proceeding be conducted as if brought under article seventy-five of this chapter.

Article 75, specifically CPLR 7502(a), provides that a special proceeding shall be used to bring before a court the first application arising out of an arbitrable controversy which is not made by motion in a pending action. In other words, a plaintiff need not bring a special proceeding when a pending action already exists between the parties.

This action, however, was no longer pending at the time that CPI filed motion sequence number 003 and Air IG cross-moved. An action is no longer pending once the parties enter a stipulation of discontinuance with prejudice. Here, the parties entered into a stipulation of discontinuance, and it explicitly provides that all monetary causes of action, claims and counterclaims asserted herein by the parties in this action are discontinued with prejudice. Accordingly, CPI’s initial claims for a declaratory judgment that CPI is entitled to specific performance of Section 5.02 and damages of $5,000,000 along with Air IG’s counterclaims for breach of contract and the implied covenant were no longer pending at the time of this motion and cross motion. In fact, by discontinuing the action with prejudice, the action is as if it never had been. Therefore, filing a motion and cross motion in this disposed action is insufficient under CPLR 7601 and 7502 (a).

CPI must commence a special proceeding to obtain the relief it seeks despite the stipulation of discontinuance’s provision that the Court retains continuing jurisdiction over this case. Of course, CPLR 103 provides that if a court has obtained jurisdiction over the parties, a civil judicial proceeding shall not be dismissed solely because it is not brought in the proper form, but the improper form of this proceeding is not the sole deficiency. The dispute raised in motion sequence number 003 and the cross motion is a new dispute not previously mentioned in the complaint or answer. Whereas the complaint and answer concerned Air IG’s alleged failure to provide information necessary to close the acquisition and CPl’s alleged dilatory tactics, this motion and cross motion concern enforcement of the SPA provision to submit disputes to an Independent Accountant. Article 4 entitled Special Proceedings, specifically CPLR 402, states that

there shall be a petition, which shall comply with the requirements for a complaint in an action, and an answer where there is an adverse party. There shall be a reply to a counterclaim denominated as such and there may be a reply to a new matter in the answer in any case.

Neither CPI nor Air IG complied with these pleading requirements. In fact, there are no pleadings that address these new disputes. just a motion and a cross motion filed in a disposed action.  The net effect of this is that instead of commencing a special proceeding, the parties have brought on what in legal effect is nothing more than a mere practice motion. This court in similar circumstances has stated that all special proceedings must be litigated on pleadings and that pleadings are indispensably required.

Moreover,

in special proceedings under statutes, and in general, the long-established practice has required petition, answer and reply, and codification thereof is the legislative approval that for the proper adjudication of the rights and status of parties, pleadings and a distinct issue are essential and that there can be no orderly administration of justice without them.

The parties have not only sought relief through the improper form of civil judicial proceedings, but they have also failed to include pleadings. They are litigating a different dispute with· no pleadings. Accordingly, the court cannot invoke CPLR 103 (c) to convert this motion into a special proceeding.

(Internal quotations and citations omitted).

Commercial litigation involves more than courts. Disputes often are–by agreement–decided by private arbitrators (or as here, private appraisers). Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding a dispute that is subject to an arbitration agreement.

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