The Court of Appeals handed down numerous decisions in civil practice during its 2012-2013 term, with over 20 opinions addressing some important aspect of civil procedure. There were, of course, many holdings of importance to litigators, but there were also opinions relevant to transactional lawyers in several appeals involving application of the CPLR in contractual disputes. These decisions emphasize just how important knowledge of the rules of civil procedure can be to a transactional lawyer, who may never set foot in a courtroom.
Given space limitations, only a portion of the more significant holdings are addressed below, with an emphasis on those points that are most relevant to everyday practice. Readers searching for a discussion of the other relevant opinions rendered during the 2012-2013 term will want to review the biannual supplements to Siegel, New York Practice (July 2013 Supplement; January 2014 Supplement [forthcoming]).
Default Judgment Sticks
Woody Allen is often quoted as proclaiming that 80 percent of success in life is based on merely showing up. A review of the case law in New York state indicates that defendants and their lawyers have failed to heed this practical advice. Default judgments, and litigation pertaining to them, continue to proliferate and have become a significant presence on New York's procedural skyline.
CPLR 3215(f) requires that three things accompany an application for a default judgment: 1) proof of service of the initiatory papers, 2) "proof of the facts constituting the claim," which is almost always established through the plaintiff's own affidavit, and 3) proof of the default. A party applying for a default judgment sometimes fails to include an affidavit or verified complaint establishing proof of the facts constituting the claim but, given the nonadversarial nature of the procedure, the court or clerk may ultimately accept the papers. These judgments are then subject to attack for failure to comply with the requirements in the statute and, in some instances, have been declared nullities.
If such a judgment is deemed a nullity, the defendant can move to have it set aside at any time without having to make the standard two-part showing for vacating a default judgment on the ground of excusable default under CPLR 5015(a)(1). That provision requires the defendant to provide a reasonable excuse for the default and to attest to the merits of the defense. See Siegel, New York Practice §§108, 427 (5th ed. 2011). In addition, if a default judgment is deemed a nullity, a motion to vacate it will not be subject to the one-year time frame in CPLR 5015(a)(1), running from service of the judgment with notice of entry.
A decade ago, in Woodson v. Mendon Leasing, 100 N.Y.2d 62 (2003), the Court of Appeals "le[ft] for another day the issue of whether noncompliance with CPLR 3215(f) renders a default judgment a 'nullity'." In Manhattan Telecommunications v. H&A Locksmith, 21 N.Y.3d 200 (2013), the court finally answered the question and resolved the conflict that had developed on the point in the Appellate Division, concluding that the failure to include an affidavit containing the facts constituting the claim in an application for a default judgment is not a jurisdictional defect that renders a default judgment a nullity.
In Manhattan Telecommunications, the Court of Appeals "assume[d]" that the Second Department "was correct in holding that plaintiff's complaint, though verified, failed to supply 'proof of the facts constituting the claim'" as required by CPLR 3215(f). Although the application was defective, the court noted that "not every defect in a default judgment requires or permits a court to set it aside." While "[a] failure to submit the proof required by CPLR 3215(f) should lead a court to deny an application for a default judgment," the court held that the failure to do so is a mere error that is not "jurisdictional" in nature. This type of error can be addressed by a motion under CPLR 5015(a) for relief from the judgment, but "does not justify treating the judgment as a nullity."
While not cited by the Court of Appeals in its opinion, the analysis in Manhattan Telecommunications closely parallels that of John R. Higgitt in his excellent piece, "A Nullity or Not?—The Status of a Default Judgment Entered Absent Compliance With CPLR 3215(f)," 73 Albany L. Rev. 807 (2010). That piece makes several additional observations that are helpful for the lawyer wading through these waters.
Assumption of Risk Does Not Apply
The role assumed by the assumption of risk doctrine within the framework of the comparative negligence rule, which has held sway since 1975, has been somewhat murky and has been the subject of several decisions by the Court of Appeals over the years. Two important decisions in this arena involved Secretariat's jockey, Ron Turcotte, and Yankees outfielder, Elliot Maddox, both seriously injured in the prime of their careers. Their negligence actions based on defective conditions existing on their fields of play were dismissed under the doctrine of primary assumption of the risk, which assumes that participants in athletic events have consented to those risks that are "known, apparent or reasonably foreseeable." Turcotte v. Fell, 68 N.Y.2d 432, 437 (1986); see Maddox v. City of New York, 66 N.Y.2d 270, 277-78 (1985).
The court has weighed in on the subject once again, with good news for rollerbladers and many other tort plaintiffs, in Custodi v. Town of Amherst, 20 N.Y.3d 83 (2012). In Custodi, plaintiff fell and sustained serious injuries when one of her rollerblade skates allegedly struck a two-inch height differential at the edge of defendants' driveway. Defendants moved for summary judgment based, in part, on the argument that plaintiff assumed the risk of such an injury by voluntarily engaging in recreational rollerblading.
The Court of Appeals noted that while the legislature abolished contributory negligence and assumption of the risk as complete defenses when it adopted CPLR 1411 in 1975, a "limited vestige of the assumption of the risk doctrine—referred to as 'primary' assumption of the risk—survived the enactment of CPLR 1411 as a defense to tort recovery in cases involving certain types of athletic or recreational activities." Reviewing its extensive jurisprudence in this area, the court concluded that, "[a]s a general rule" the doctrine of assumption of the risk should only be invoked to bar the assertion of a claim in "cases appropriate for absolution of duty, such as personal injury claims arising from sporting events, sponsored athletic and recreative activities, or athletic and recreational pursuits that take place at designated venues."
In language that is sure to be cited by a legion of plaintiff's lawyers in future cases, Custodi warned that the doctrine of primary assumption of the risk "would swallow the general rule of comparative fault [in CPLR 1411] if sidewalk defects or dangerous premises conditions were deemed 'inherent' risks assumed by non-pedestrians who sustain injuries, whether they be joggers, runners, bicyclists or rollerbladers." Therefore, the court concluded that the assumption of the risk doctrine did not apply to bar plaintiff's action.
Witness Payment Warrants Bias Instruction
In lieu of simply paying the paltry fees required under CPLR 8001(a) when one serves a subpoena, a party calling a witness will often prefer to voluntarily pay all of the witness' actual expenses in attending the trial or hearing, including reimbursement for any earnings the witness forfeits in order to provide the testimony. That approach eases the burden on the witness and helps to avoid the tension that can arise when a person is compelled to testify in someone else's case.
The amount of such payment was the subject of the dispute in Caldwell v. Cablevision Systems, 20 N.Y.3d 365 (2013), where an orthopedic surgeon was subpoenaed to testify as a fact witness at trial. He testified in regard to the notes he recorded when he evaluated plaintiff in an emergency room, which contradicted plaintiff's testimony and indicated that she informed him that she tripped over a dog rather than defendant's trench.
The surgeon's testimony consisted merely of his verification that he made the entry into the emergency room record, and he provided no professional opinion at trial. He testified that he was appearing by virtue of a subpoena served upon him by defense counsel but, during cross examination, the doctor admitted that he was compensated by defendant for his lost time in the sum of $10,000. Nice work if you can get it!
Proclaiming that this amount was far in excess of that required under CPLR 8001(a), plaintiff requested that the court strike the doctor's testimony or, in the alternative, issue a curative instruction or specific jury charge concerning monetary influence on the witness.
The Court of Appeals noted that, like the Second Department, it was "troubled by what appears to be a substantial payment to a fact witness in exchange for minimal testimony." Nonetheless, it affirmed the order of the Appellate Division, which held that the substantial payment made by the defendant to the doctor did not require exclusion of the witness' testimony. The large payment did, however, mandate that the jury specifically be charged regarding the suspect credibility of factual testimony from a witness who is paid so handsomely.
While acknowledging that CPLR 8001(a) prescribes "only the minimum that must be paid to a subpoenaed fact witness," the court cautioned that attorneys may not "pay a witness whatever fee is demanded, however exorbitant it might be." Judicial decisions and Rule 3.4(b)(1) of the New York Rules of Professional Conduct mandate that any compensation made to a fact witness be "reasonable" in relation to "the loss of time in attending, testifying, preparing to testify or otherwise assisting counsel." See New York State Bar Opinion 962 (2013) (discussing payments to a witness for travel expenses and attorney fees).
Furthermore, a lawyer cannot "pay, or offer to pay or acquiesce in the payment of compensation to a witness contingent upon the content of the witness's testimony or the outcome of the matter." Rule 3.4(b). The court held that this latter prohibition in the Rules of Professional Conduct was not at issue in Caldwell because "[t]he doctor's testimony was limited to what he had written on his consultation note less than 12 hours after the accident and well before plaintiff commenced litigation."
Nonetheless, the Court of Appeals agreed with the trial court's conclusion that "the fee payment was fertile ground for cross-examination and comment during summation." In addition, the court held that because defendant did not even attempt to justify such a large payment for one hour of testimony, the jury should have also been charged to assess whether the compensation was disproportionately more than what was reasonable for the loss of the doctor's time from work and, if so, whether it had the effect of influencing the witness' testimony. See NY PJI 1:90.4 (Compensation of Fact Witnesses).
In the end, the Court of Appeals concluded that the failure to give a more specific jury charge in this case constituted harmless error because there was no colorable claim that the doctor fabricated the contents of his records. The holding in Caldwell will, however, undoubtedly be the subject of dispute in many future cases, particularly those in which doctors are called as witnesses. These witnesses often request substantial payments to testify, and the lawyers calling them do not want to get on their wrong side.
New York Law and Jurisdiction Apply
There is an important interplay between CPLR 327(b), which refers to General Obligations Law (GOL) §5-1402, which in turn refers to §5-1401. GOL §5-1401(1) provides that if the parties to a "contract, agreement or undertaking" of at least $250,000 stipulate that New York law will govern their rights and duties, the choice of law provision will be honored "whether or not such contract, agreement or undertaking bears a reasonable relation to this state." If the parties have chosen New York law under this provision, then GOL §5-1402(1) provides that if the agreement creates an obligation of at least $1 million, and the parties have stipulated to the exclusive jurisdiction of the New York courts, the forum non conveniens doctrine is superseded and the New York courts must entertain a dispute under the contract. See CPLR 327(b).
This important trio of laws has come to the forefront once again in IRB-Brasil Resseguros, S.A. v. Inepar Investments, S.A., 20 N.Y.3d 310 (2012), where the Court of Appeals concluded that when there is an express choice of New York law in a contract pursuant to GOL §5-1401, there is no need for a court to undertake a conflict-of-laws analysis. New York law will govern the contract, even if New York's choice of law rules point to the substantive law of another jurisdiction.
In IRB-Brasil, the guarantee at issue was for an amount in excess of $250,000 ($27 million!) and contained a New York choice of law clause and a New York forum selection clause. The Court of Appeals applied New York law to find that the guarantee was enforceable. The court rejected defendant's argument that New York's "whole" body of law, including its conflict-of-laws principles, should apply and result in the application of Brazilian substantive law, which would have voided the guarantee. The court noted that the GOL provisions were designed to provide certainty to contracting parties and
permit parties to select New York law to govern their contractual relationship and to avail themselves of New York courts despite lacking New York contacts. …To find here that courts must engage in a conflict-of-laws analysis despite the parties' plainly expressed desire to apply New York law would frustrate the Legislature's purpose of encouraging a predictable contractual choice of New York commercial law and, crucially, of eliminating uncertainty regarding the governing law.
The result in IRB-Brasil once again emphasizes just how important thorough knowledge of civil procedure can be to a transactional lawyer, who may never set foot in a courtroom. The lawyers drafting the guarantee for the plaintiff not only locked up jurisdiction in a New York court, but also ensured that New York substantive law, rather than Brazilian law, would govern the dispute. With over $27 million hanging in the balance, that point cannot be stressed enough.
One final observation: Clauses like those in IRB-Brasil can be invaluable to a New York law firm, which can litigate the case in the friendly confines of its own backyard. This may not only avoid the problem of hiring local counsel in a foreign jurisdiction, but also the hurdles that can be encountered in seeking to be admitted in a foreign jurisdiction.
Parties Can Deviate From Right to Interest
Given the significant number of recent decisions on the subject, it is apparent that the statutory interest rate of 9 percent in CPLR 5004 is well worth a fight in our current economic times. See Siegel, New York Practice §§411-12 (July 2013 Supplement). These cases, like the decision in IRB-Brasil above, also demonstrate that the transactional lawyers who draft agreements involving monetary obligations can provide an invaluable service to their clients if they are knowledgeable concerning the workings of the CPLR.
In its 2011 decision in NML Capital v. Republic of Argentina, 17 N.Y.3d 250 (2011), the Court of Appeals held, among other things, that a contract can fix a different rate of interest than the 9 percent allowed by CPLR 5004. In its 2012 decision in J. D'Addario & Co. v. Embassy Industries, 20 N.Y.3d 113 (2012), the court held that a contract can also trump the parties' statutory right to interest under CPLR 5001(a).
In breach of contract actions, CPLR 5001 provides that statutory interest be awarded to the prevailing party from the breach until any verdict. This is commonly referred to as Stage I interest. In J. D'Addario, the parties to a real estate contract agreed that the "sole remedy" for the seller and the "sole obligation" of the purchaser in the event of the purchaser's default would be an award of the down payment, and that the seller had "no further rights" against the defaulting purchaser. The court held that this contractual language trumped the right to statutory interest in CPLR 5001(a). In sum, the seller was permitted to an award of the entire down payment ($650,000), but not Stage I interest ($227,406).
Patrick M. Connors is a professor at Albany Law School, where he teaches New York Practice and Professional Responsibility. Commencing with the January 2013 Supplement, he has assumed the authorship of Siegel, New York Practice (5th ed. 2011), and continues to author McKinney’s Practice Commentaries to several articles in the CPLR.