Third-Party Complaint Improper When Third-Party Defendants Not Liable for all or Part of Plaintiff's Claims Against Defendant

On December 12, 2018, Justice Grays of the Queens County Commercial Division issued a decision in Rubinoff v Yunatanov, 2018 NY Slip Op. 33482(U),dismissing a third-party complaint because the third-party defendants were not allged to be liable for all or pat of the plaintiff's claims against the defendant, explaining:

The plaintiffs began the instant action by the filing of a Summons with Notice on June 15, 2017, and they subsequently filed a complaint on June 22, 2017. The plaintiffs' first cause of action, which is for conversion, alleges that Yunatov converted the Mr. Flawless trademark and other things for his own personal use and for use in his new business venture. The second cause of action, which is for, inter alia, breach of fiduciary duty, alleges that Yunatov, in violation of his fiduciary duty as a shareholder and officer of Mr. Flawless, diverted corporate opportunities for his own personal gain and committed other acts of unfair competition and, moreover, in violation of his duty of good faith and loyalty as an employee of Flawless, committed acts of unfair competition. The Third cause of action, which is for unjust enrichment, alleges that defendant Yunatov was unjustly enriched by the capital investment made by Edward and Flawless in Mr. Flawless.

. . . The third-party complaint alleges the following: Gregory Yunatov is a "world renowned lifestyle influencer, creative director, jewelry designer, manufacturer and salesperson with an avid customer base." He founded Mr. Flawless and registered a trademark for the company, He did not enter into an employment agreement or non-competition agreement with Flawless, and he did not assign his name, likeness, trademark or any of his intellectual property rights to the plaintiffs. Third-party defendant Michael Rubinoff is the father Edward and the uncle of defendant Yunatov. Third-party defendant Ilanit Rafaelov is the wife of Edward and an attorney associated with third-party defendant David J. Broderick, PC, a law firm. The First cause of action in the third-party complaint is brought under the Fair Labor Standards Act (FSLA)(29 USC 201 et seq) for an alleged failure to pay Yunatov minimum wages and commissions. The Second cause of action is brought pursuant to the New York State Labor Law for an alleged failure to pay minimum wages and commissions. The Third cause of action is brought pursuant to the FSLA for an alleged failure to pay overtime wages. The Fourth cause of action is brought under the common law ofNew York State for an alleged failure to pay overtime wages. The Fifth cause of action alleges breach of contract for an alleged failure to pay commissions. The Sixth cause of action is brought in quantum meruit for the value of the services Yunatov rendered. The Seventh cause of action is for unjust enrichment, the Eighth cause of action is for fraud, the Ninth cause of action is for attorney misconduct and deception, the Tenth cause of action is for an equitable accounting, the Eleventh cause of action is for conversion, the Twelfth cause of action is for trademark infringement and dilution, and the Thirteenth cause of action is for violations of the General Business Law.

The moving third-party defendant and plaintiffs submitted the instant motion for an Order dismissing the third-party complaint on the ground that it is procedurally improper. CPLR §1007, "When third-party practice allowed," provides in relevant part: "After the service of his answer, a defendant may proceed against a person not a party who is or may be liable to that defendant for all or part of the plaintiffs claim against that defendant, by filing pursuant to section three hundred four of this chapter a third-party summons and complaint with the Clerk of the Court in the county in which the main action is pending***" In the case at bar, the third-party complaint does not adequately allege that Michael Rubinoff or the plaintiffs are liable to Yunatov in whole or in part for the claims against Yunatov. The interposition of the third-party complaint is procedurally improper for that reason. The third-party claim must be sufficiently related to the main action to at least raise the question of whether the third-party defendant may be liable to defendant-third-party plaintiff, for whatever reason, for the damages for which the latter may be liable to plaintiff. The precept is that the liability sought to be imposed upon a third-party defendant must arise from or be conditioned upon the liability asserted against the third-party plaintiff in the main action. In other words, the third party defendant must be under some type of claim over liability that is dependent upon the defendant's liability to the plaintiff. The liability must be one rooted in indemnity or contribution. Finally, CPLR §1007 states that a third-party action may be maintained against a person not a party. The third-party complaint brought against the plaintiffs', who are already parties and the subject of counterclaims, is not proper for this additional reason. Yunatov's arguments that there is a danger of a waste of judicial resources or inconsistent results if his third party complaint is dismissed have no merit. CPLR §3019, "Counterclaims and cross-claims," provides in relevant part: "(a) Subject of counterclaims. A counterclaim may be any cause of action in favor of one or more defendants ***against one or more plaintiffs ***or a plaintiff and other persons alleged to be liable.". Indeed, Yunatov has already served an answer containing counterclaims against the plaintiffs and at least some other parties alleged to be liable. Moreover, multiple cases involving common questions of law and fact may be consolidated, and set-offs may be raised in the defendant's answer.

(Internal quotations and citations omitted).

New York procedural law (including the special rules applying to litigation in the Commercial Division of the New York courts) is not particularly complex. Still, there are procedural rules and as this decision illustrates, if a litigant ignores them, it can pay a price. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding New York practice, and particularly regarding the rules governing practice in the Commercial Division.