NY Booby-Traps: Mooting a Motion to Dismiss Via An Amended Pleading

Accomplished lawyers have stumbled on numerous occasions in the face of the quirky procedure surrounding the New York CPLR and an amended pleading filed while a motion to dismiss the original pleading is pending.

The issue is thorny enough for Professor Siegal to treat it with caution in his work on New York Practice.

In short, amending a complaint “moots” a pending motion to dismiss, BUT the moving party may choose to inform the Court (and adversary) that the pending motion may be applied to the new amended pleading (which may not be wise if the amended pleading raises new issues not treated in the pending motion).

The below case, decided February 25, 2011, demonstrates how the non-moving party may still suffer sanctions should that party not file an opposition to the pending motion to dismiss - notwithstanding the filing of an amended pleading:

TOIKACH v. BASMANOV

Michael TOIKACH, Plaintiff, v. Yakov BASMANOV, Defendant.

-- February 25, 2011

Marc A. Lavaia, Esq., Robinson Brog Leinwand, Greene Genovese & Gluck, PC, New York, Attorney for Plaintiff.  Stanley K. Schlein, Esq., Bronx, Attorney for Defendant.
Plaintiff moves to strike defendant's amended answer with counterclaims claiming it was not timely filed pursuant to CPLR 3025(b) and for the award of costs and attorney's fees associated with this motion and sanctions pursuant to 22 NYCRR 130-1.1.

BACKGROUND

Plaintiff commenced this action by filing a verified complaint on January 6, 2010 and it was served upon the defendant on March 12, 2010. On April 8, 2010, plaintiff and defendant entered a stipulation to extend defendant's time to answer the complaint until June 1, 2010. On June 10, 2010, defendant served a verified answer with counterclaims (“Answer”), which was accepted. On June 30, plaintiff served a notice of motion to dismiss the defendant's counterclaims pursuant to CPLR 3211(a)(7) for failure to state a cause of action, made returnable on July 23, 2010.¹ Prior to the return date on the motion, on July 20, 2010, defendant's counsel e-mailed and mailed an amended verified answer with counterclaims (“Amended Answer”) to plaintiff's counsel. In e-mail correspondence between the attorneys on July 20, 2010, defendant's counsel indicated that pursuant to CPLR 3025(a), defendant had the right to amend its answer as the “motion to dismiss is a pleading responding to [the defendant's] Answer with Counterclaims, giving us 20 days for the service of your motion to dismiss to make an amendment.” Plaintiff's counsel responded that he disagreed and was “considering [the motion to dismiss] unopposed at th [e] time.” Two days before the adjourned date of the motion, on July 26, 2010, plaintiff mailed a letter rejecting the Amended Answer noting that “[t]he time for defendant to serve an amended answer as of right ha[d] expired.”

On July 28, 2010, counsel appeared for oral argument on the motion to dismiss the defendant's counterclaims. Defendant did not serve written opposition to the motion. At oral argument, defendant's counsel claimed that the Amended Answer had the effect of “moot[ing] out the motion to dismiss․” This court afforded the defendant the opportunity to adjourn the motion to submit opposition so the issue could properly be addressed and, in response, defendant indicated that he “[took] no opposition to the motion to dismiss a pleading that has been amended” and expressly consented to the dismissal of the counterclaims as originally pleaded. This court noted that “[defendant's] failure to serve any papers responsive [to the motion] is causing a lot of inconvenience not only to plaintiff but to the Court and in having to deal with an argument that was not presented to the Court in advance of your standing up here in this courtroom.” Defendant orally cited STS Management Development Inc. v. New York State Department of Taxation and Finance, 254 A.D.2d 409 [2d Dept 1998], for the proposition that plaintiff's motion to dismiss extended the time in which the defendant could amend his answer as of right. This court noted that, based on the defendant's lack of written response including a copy of the Amended Answer, a second motion would be necessary to address the sufficiency of the Amended Answer and counterclaims and “[w]hether or not there should have been leave to amend will remain an open question.” Plaintiff's motion to strike the counterclaims in the Answer was granted based on defendant's express consent.
Plaintiff brought the present motion seeking to strike the Amended Answer arguing that the Amended Answer was untimely filed, without leave of the court, approximately 40 days after the Answer was filed. Plaintiff contends that when the plaintiff moved to dismiss the counterclaims in the Answer, defendant should have cross moved, pursuant to CPLR 3025(b), for leave to serve an amended answer which requires a presentation of “evidence to support the merits of the proposed counterclaims and the Court must examine their sufficiency.” Plaintiff seeks attorney's fees, costs and sanctions for having to make a second motion to address the viability of defendant's pleadings.

Plaintiff did not move in the alternative to dismiss the Amended Answer for failure to state a cause of action or upon any other grounds pursuant to CPLR 3211.

Defendant argues that plaintiff's original motion to dismiss defendant's counterclaims pursuant to CPLR 3211(a)(7) extended plaintiff's time to serve a responsive pleading to the counterclaims in the Answer pursuant to CPLR 3211(f) and, therefore, also extended the defendant's time to amend his pleading without leave pursuant to CPLR 3025(a). Defendant argues that, because the Amended Answer was properly served within this extended period pursuant to CPLR 3025(a), the original Answer “had no further force and effect due to the filing of the Amended Answer on July 20, 2010.”

DISCUSSION

Pursuant to CPLR 3025(a), “[a] party may amend his pleading once without leave of court within twenty days after its service, or at any time before the period for responding to it expires, or within twenty days after service of a pleading responding to it.” However, under CPLR 3211(f), “[s]ervice of a notice of motion under subdivision [3211](a) or (b) before service of a pleading responsive to the cause of action or defense sought to be dismissed extends the time to serve the pleading until ten days after service of notice of entry of the order.”

A motion to dismiss extends the movant's time to answer and thus extends the time in which the opposing party may amend his pleading as of right (CPLR 3025[a]; see Johnson v. Spence, 286 A.D.2d 481, 483 [2d Dept 2001]; STS Mgmt. Dev. v. New York State Dept of Taxation & Fin., 254 A.D.2d 409, 410 [2d Dept 1998] ). Therefore, plaintiff's contention that defendant was required to move pursuant to CPLR 3025(b) for leave to amend the Answer is unavailing. However, courts have diverged on the effect of the service of an amended pleading upon a pending motion to dismiss. While some courts have held that the amended pleading resulted in the motion being abated, “[o]ther courts have held that the amended pleading should be included in [the] record on the pending motion, and that it should be granted or denied based on the sufficiency of the amended pleading” (5 Weinstein-Korn-Miller, N.Y. Civ. Prac P 3025.07; see Taylor v. Eli Haddad Corp, 118 Misc.2d 253, 256 [Sup Ct Special Term, New York County 1983]; D'Addario v. McNab, 73 Misc.2d 59, 62 [Sup Ct Suffolk County 1973] ).

In the Second Department, an amended complaint does not render a motion to dismiss academic and the moving party has the discretion as to whether the motion should be applied to the new pleading (see Livadiotakis v. Tzitzikalakis, 302 A.D.2d 369, 370 [2d Dept 2003], citing Matter of Sage Realty Corp. v. Proskauer Rose Goetz & Mendelsohn, 251 A.D.2d 35, 38 [1st Dept 1998] (holding that an amended pleading does not automatically abate a motion to dismiss “that was addressed to the original pleading” and “that the moving party has the option to decide whether its motion should be applied to the new pleadings”) and Matter of D'Addario, 73 Misc.2d at 62 (holding that an amended complaint did not abate a pending motion to dismiss and the court could treat the motion to dismiss as directed to the amended complaint); see also Sholom & Zuckerbrot Realty Corp. v. Coldwell Banker Commercial Group, Inc., 138 Misc.2d 799, 801 [Sup Ct, Queens County 1988](holding, “the better rule is one which allows the moving party the option of withdrawing its motion or pressing it with regard to the amended pleading”)). This court concurs that the “better rule” is one that most expeditiously advances the litigation.

Accordingly, defendant's contention, that service of the Amended Answer obviated the need to oppose plaintiff's motion, is unavailing. Had defendant submitted a timely response to plaintiff's motion and included the Amended Answer in the papers, plaintiff would have had the option to withdraw the motion or pursue the motion as applied to the Amended Answer. Defendant's refusal to submit opposition to the motion prevented this court from addressing whether the Amended Answer had been properly served without leave and whether it corrected the alleged deficiencies in the Answer and thus delayed the resolution of this matter. Defendant's counsel's contention, in e-mail correspondence to plaintiff's counsel prior to the original motion, that the “motion to dismiss is a pleading” was an ineffectual and incorrect statement as a motion to dismiss is clearly not a “pleading” pursuant to CPLR 3011 and did not relieve defendant of his duty to respond to the motion.

Plaintiff notified defendant's counsel on July 20, 2010, eight days before oral argument on the original motion, that plaintiff was choosing to pursue the motion. Prior to appearing for oral argument, defendant clearly investigated whether a motion to dismiss extended the defendant's time to amend the answer as defendant cited STS Management at oral argument. While the STS Management decision discusses the extension of the time to amend a pleading, it does not address the effect of service of an amended pleading while a motion to dismiss is pending. However, the Sholom decision, cited and relied upon in STS Management, does address this issue, holding that while courts have varied in handling this situation, “the better rule is one which allows the moving party the option of withdrawing its motion or pressing it with regard to the amended pleading” (Sholom, 138 Misc.2d at 801). The defendant's failure to submit the Amended Answer in response to plaintiff's original motion to dismiss prevented the plaintiff from exercising this option. Despite numerous indications from plaintiff's counsel that he was treating the motion as unopposed and would pursue the relief requested, more than a week before oral argument, and an additional opportunity offered by this court at oral argument to submit written opposition in support of its position, defendant refused to submit a written response to the motion, thereby deliberately preventing the plaintiff from choosing whether to pursue the motion as applied to the Amended Answer and necessitating additional motion practice. Such gamesmanship in litigation is found to be frivolous conduct as defined in the Rules of the Chief Administrator § 130-1.1(c)(2) as it was clearly undertaken merely to delay or prolong the resolution of the litigation. Not sure which answer would be found to be controlling of the litigation as a result of defendant's refusal to properly present the issues to the court for determination, plaintiff has been put to the additional expense of this second motion by defendant's conduct. Accordingly, pursuant to 22 NYCRR § 130-1.1(a), the court grants plaintiff's motion for the costs and reasonable attorney's fees incurred in having to bring this motion.

Plaintiff's current motion to strike does not seek dismissal of the Amended Answer pursuant to CPLR 3211 and does not claim any inadequacies in the Amended Answer. Presumably, therefore, plaintiff has determined that the Amended Answer cured the defects in the original pleading. Despite defendant's failure to properly respond to the original motion before this court, defendant was entitled to amend the answer with counterclaims without leave of the court pursuant to CPLR 3025 and 3211(f) and his Amended Answer should not be stricken.

CONCLUSION

Accordingly, plaintiff's motion to strike defendant's Amended Answer is denied.
Plaintiff is to serve a responsive pleading to the Amended Answer and counterclaims within 10 days of the service of this order.
Plaintiff's motion for the costs and reasonable attorneys fees incurred in bringing this motion is granted pursuant to 22 NYCRR § 130-1.1(a). Plaintiff is directed to submit an order on notice including an attorney's affirmation containing proof of costs and reasonable attorney's fees within 30 days of service of this order.
The foregoing constitutes the decision and order of the court.

FOOTNOTES
1. It is noted that although the motion was served on the defendant on June 30, 2010, the motion was filed on July 12, 2010 and the return date was administratively adjourned to this court's motion day, July 28, 2010.
CAROLYN E. DEMAREST, J.

Judge Amon to Speak At NYCLA Event Hosted at Dunnington

Judge Amon, Chief Judge, EDNY, is speaking at the NYCLA Federal Courts Committee Meeting tomorrow at Dunnington’s office – SDNY Local Counsel author, Luke McGrath, is hosting, so email, lmcgrath@dunnington.com, if you are interested in attending.

SDNY Local Counsel Goes "Indiana Jones-Style" To Return Stolen Centuries-Old Amulet to Museum

My firm, my partner Ray Dowd and I are very proud of the recent victory in a case right out of Indiana Jones: the Secret of the Stolen Amulet. The DBM team investigated and compelled the return of a priceless centuries-old amulet to the Museum from which it was stolen by Russian soldiers during World War II.


The New York Law Journal report is here.

http://www.newyorklawjournal.com/PubArticleNY.jsp?id=1202556567318&Judges_Order_Return_of_Ancient_Gold_Tablet_to_Berlin_Museum

Careful What You Wish For: Arbitration Provisions Can Get Lost In The Shuffle If You Amend An Agreement And Do Not Reference Arbitration In The Amendment

Broad arbitration provisions cannot compel parties to arbitrate claims not arising out of the subject matter covered by the arbitration agreement. A party to a contract must be careful when agreeing to subsequent or supplemental agreements because unless expressly referenced, the broad arbitration agreement in one contract may not cover a dispute arising out of the other contracts.

For example, in New Jersey, notwithstanding a very strong state public policy regarding compulsory counterclaims and joinder, the State case-law draws a bright line between claims that must be arbitrated under an agreement between the parties and claims that must be litigated (i.e. not added to the arbitration as a compulsory counterclaim or under a joinder rule). In short, in New Jersey, much like New York, a court will not compel a party to arbitrate a matter that the party has not expressly and knowingly agreed to arbitrate. This makes sense because agreeing to arbitrate is an agreement to waive or give up a right to access the courts and waiver of such an important right should not be treated lightly.

In New York, it’s a similar analysis. New York Courts are confronted daily with applications to compel or avoid arbitration – usually brought by “Orders to Show Cause” seeking emergency relief. The emergency is generally because once a party participates in an arbitration, they cannot later complain of waiving their right to litigate the matter. Because arbitration may be onerous – indeed, some litigants in certain situations may prefer to litigate in Court than pay an arbitrator and undergo an arbitration – parties to a dispute take the arbitration v. litigation issue very seriously.

In short, whichever the preference, a party to a dispute should not shoot first and answer questions later. Arbitration provisions in a contract should be carefully thought-out and, if there are amendments or supplemental agreements, the party’s choice to (or not to) arbitrate should be protected in those later agreements.

The Unspoken D-I-Y Option: Independent Arbitration

Critics of arbitration often assert that arbitration under JAMS, AAA and other well-known arbitration service-providers ("Providers") has the potential to become more expensive then pursuing traditional litigation. The argument goes that deep-pocketed entities use arbitration as a bludgeon to force adversaries with little or no resources to settle or abandon their claims.

SDNY Local Counsel has appeared in a number of arbitrations administered under various Providers and those Providers offer excellent services that may be the right choice in certain circumstances. However, arbitration under certain Providers--especially arbitration in which extensive discovery is allowed--may become extremely expensive.

Stepping over this debate, SDNY Local Counsel wishes to remind our readers of a potential low-cost alternative: "Independent Arbitration." The fact is, many lawyers, retired judges and other trustworthy, fair-minded individuals are willing to act as arbitrators for a flat or low-hourly fee and conduct an arbitration at a convenient, low or no-cost location (such as a law office conference room). In short, D-I-Y arbitration may offer all concerned significant savings. However, if Independent Arbitration is of interest to you, there are a few things to be aware of:

1) in order to pursue independent arbitration the arbitration clause in your agreement should not specify administration under any Provider;

2) if an arbitration clause does not specify a procedure, the parties will have to decide on the proper procedure to select an Arbitrator and, also, a proper procedure under which to conduct the Arbitration. Leaving these details to be decided after the parties to an agreement are in dispute is a recipe for disaster. Accordingly, an Independent Arbitration clause should refer to a general set of rules to follow or state certain basic rules expressly.

3) even if you expressly state a low-cost procedure in your arbitration clause as a substitute for a Provider's rules, you may not be fully protected -- your adversary may be able to make an end-run around your procedures by insisting on following the Provider's rules instead. For example, one Provider states in its rules that previously agreed upon procedures different from the Provider's rules may be used, but only if all parties agree to such procedures in writing after the Arbitration commences. Thus, an adversary could easily balk at the previously agreed upon procedures and force you to follow a Provider's procedures after an arbitration is commenced.

By means of example and for purposes of discussion, SDNY Local Counsel provides this Sample Rules for Independent Arbitration as a guide for would-be arbitration do-it-yourself-ers.

SDNY Local Counsel Author Joins Dunnington, Bartholow & Miller LLP

Many of you have inquired about my law firm:

About Dunnington:

Dunnington, Bartholow & Miller LLP provides best-of-class legal advice across a number of practice areas. Below is a sampling of the types of services we offer our clients:

1) Corporate Services

Our corporate partners are experts in providing legal advice supporting every aspect of your business. Our partners’ collective experience as both inside-counsel and outside-counsel for large, multi-national firms enables us to execute effectively as an extension of our corporate clients’ legal departments. Our corporate department handles, among other matters, the following:

• corporate finance, corporate structuring and counseling to both public and private companies and startups;

• mergers and acquisitions;

• Loan workouts, debt restructuring and bankruptcy matters;

• cross-border and international transactions;

• executive compensation issues; and

• regulatory compliance and corporate governance issues.

2) Litigation Services

Our litigation partners handle litigation, arbitration and mediation, including commercial, probate, intellectual property, real estate and construction, tax, and employment matters. In addition, Mr. McGrath will continue his white-collar defense, investigations and corporate due diligence practice at the firm.

3) Real Estate

Our real estate group provides legal representation and counseling on, among other matters, large-scale leasing transactions and complex transactions arising out of today’s volatile real estate climate (which includes, as discussed above, an expertise in work-outs and construction litigation).

4) Tax and Trusts & Estates

Our tax and “T&E” partners have decades of experience representing corporations and individual clients. We assist our private clients with individual tax, estate planning, probate and estate administration matters. We represent both our corporate and private clients in proceedings before the Internal Revenue Service, the U.S. Tax Court and many other government agencies.

* * *

Long-term relationships characterize Dunnington’s client base, whether the client is a banking institution, a multi-national corporation or the fourth generation of an original individual client. Our goal is to provide sound, comprehensive services that achieve practical results and constructive benefits for you in both the near-term and the long-term.

SDNY Federal Bar Association Wine Tasting Follow-Up

All:

Thank you for sharing a terrific evening at the SDNY Chapter Federal Bar Association Spring Wine Tasting. Our next event is a Second Circuit Procedure CLE on June 8 -- (see SDNY Local Counsel Blog dated May 21 for details).

Special thanks to Jim and Johnny at:



(click image to go to website)




Special thanks to Jenny Rogers for event planning.

Also, many thanks for the generosity of our sponsors:

Dunnington, Bartholow & Miller LLP
Locke Lord Bissell & Liddell LLP
Smith Gambrell & Russell LLP

Below please find the Tasting Order from the event
and some tasting notes (click on the image to enlarge):

Please remember to register for the Second Circuit procedures CLE scheduled for June 8 (see flyer below).

The SDNY FBA continues to offer exceptional events, keep checking SDNY Local Counsel for additional listings.

Brave New World: Filing Appeals in the Second Circuit Court of Appeals






















[click on the image for a printable version of the flyer]

Space is limited. Register now at:
http://ww2.ca2.uscourts.gov/cle/login.aspx