author: Ciparick, J. Smith, J. (concurring).

text:
    [918 NE2d 99, 889 NYS2d 509]
    In the Matter of Valerie Gomez, Respondent-Appellant, v Joseph A. Stout, as Commissioner of the Westchester County Department of Parks, Recreation and Conservation, et al., Appellants-Respondents.
    Argued September 16, 2009;
    decided October 15, 2009

      POINTS OF COUNSEL

      Charlene M. Indelicato, County Attorney, White Plains (Thomas G. Gardiner and Stacey Dolgin-Kmetz of counsel), for appellants-respondents.
    I. Due to his personal involvement, respondent, Joseph A. Stout, the Commissioner of the Westchester County Department of Parks, Recreation and Conservation, acted properly in disqualifying himself from reviewing the recommendation of the Hearing Officer and acting on any of the charges in this employee disciplinary matter and appropriately designated respondent Ralph Butler, the commissioner of another county department, to act in his place. (Matter of McComb v Reasoner, 29 AD3d 795; Brothers v Florence, 95 NY2d 290;
      Matter of Ellington Constr. Corp. v Zoning Bd. of Appeals of Inc. Vil. of New Hempstead, 77 NY2d 114; Zappone v Home Ins. Co., 55 NY2d 131; Matter of John P. v Whalen, 54 NY2d 89; Matter of Trahan v Jefferson County Dept, of Social Servs., 281 AD2d 984; Matter of Norton v Village of Phoenix Bd. of Trustees, 245 AD2d 1143; Matter of Sander v Owens, 82 AD2d 968; Matter of Reed v Town of Huntington, 186 AD2d 745; Matter of Chisolm v Copeland, 29 AD3d 575.)

      Lovett & Gould, LLP, White Plains (<Jonathan Lovett and Kim Berg of counsel), for respondent-appellant.
    I. The Second Department correctly granted the petition and annulled respondents’ determination but erred in not restoring petitioner to the status quo ante by directing her reinstatement with back pay and benefits. (Matter of Wiggins v Board of Educ. of City of N.Y., 60 NY2d 385; Sinicropi v Milone, 80 AD2d 609; Matter of Klein v Department of Mental Hygiene of State of N.Y., 15 AD2d 562; Matter of Blount v Forbes, 250 App Div 15; Locust Club of Rochester v City of Rochester, 48 Misc 2d 763; People ex rel. Hayes v Waldo, 212 NY 156; Matter of Perez v New York State Dept. of Labor, 244 AD2d 844; Matter of Tanner v County of Nassau, 88 AD2d 661; Wind v Green, 78 AD2d 695; Matter of Farrell v Dowling, 90 AD2d 849.) II. The Second Department correctly concluded that respondent Joseph A. Stout was required to delegate his decision-making authority to a deputy and that Stout’s delegation of authority to Commissioner Ralph Butler was unlawful. (Matter of McComb v Reasoner, 29 AD3d 795; Matter of Martin v Platt, 191 AD2d 758; Matter of Sassone v New York State Thruway Auth., 171 AD2d 308; Matter of Simpson v Wolansky, 38 NY2d 391; Matter of Correia v Incorporated Vil. of Northport, 12 AD3d 599; Matter of Pryor v O’Donnell, 262 AD2d 648; Matter of DiMattina v LaBua, 262 AD2d 409; Matter of Brundage v Yonkers Parking Auth., 220 AD2d 411; Matter of Lowy v Carter, 210 AD2d 408; Matter of Wayering v County of St. Lawrence, 140 AD2d 838.)
   OPINION OF THE COURT

Ciparick, J.

Petitioner Valerie Gomez has worked for Westchester County since 1979. On January 17, 2001, she began working as an assistant games manager at Rye Playland—an amusement park owned by the County of Westchester and operated by its Department of Parks, Recreation and Conservation. However, on or about May 2, 2002, petitioner was served with disciplinary charges pursuant to Civil Service Law § 75 alleging she had committed 43 specifications of misconduct and/or incompetence.

At petitioner’s disciplinary proceeding, her employer, respondent Joseph A. Stout, Commissioner of the Westchester County Department of Parks, Recreation and Conservation, and members of his family testified about an alleged incident that occurred at Rye Playland’s skating rink in April 2002. The Hearing Officer sustained all 43 charges against petitioner and recommended that petitioner should be terminated from her employment.

Stout, being conflicted as he and family members had testified at the hearing, designated respondent Ralph Butler, the Commissioner of the Westchester County Department of Public Works, to review the hearing record and to render the final determination as to whether petitioner would be disciplined. Butler agreed with the recommendation of the Hearing Officer and determined that petitioner should be terminated from her employment. In a letter dated November 2, 2005, Stout notified petitioner of Butler’s determination and informed her that she was terminated.

Petitioner commenced this CPLR article 78 proceeding in Supreme Court challenging the termination of her employment. She sought annulment of the determination and retroactive reinstatement to the county payroll as an assistant games manager, grade VII, effective November 2, 2005, the date of termination. Pursuant to CPLR 7804 (g), Supreme Court transferred the matter to the Appellate Division.

The Appellate Division granted the petition and annulled the determination terminating her employment on jurisdictional grounds. The court concluded that Stout erred, after properly disqualifying himself, when he designated Butler to act as his agent for the purpose of reviewing the report and recommendation of the Hearing Officer and issuing the final determination. The Appellate Division held that, pursuant to Westchester County Charter § 134.41 and Civil Service Law § 75, the only individual authorized to act in his absence was his Deputy Commissioner.

The court remitted the matter back to Commissioner Stout “for the appointment of a duly-qualified individual authorized to review the recommendation of the hearing officer” (51 AD3d 1021, 1021-1022 [2d Dept 2008]). The court did not address the issues of whether petitioner was entitled to reinstatement or back pay and benefits. Neither did the court conduct a substantial evidence review as it annulled the determination on jurisdictional grounds. We granted both sides leave to appeal and now modify the order of the Appellate Division.

Civil Service Law § 75 (2) states, in pertinent part, that an employee disciplinary proceeding

“shall be held by the officer or body having the power to remove the person against whom such charges are preferred, or by a deputy or other person designated by such officer or body in writing for that purpose. In case a deputy or other person is so designated, he shall, for the purpose of such hearing, be vested with all the powers of such officer or body and shall make a record of such hearing which shall, with his recommendations, be referred to such officer or body for review and decision.”

Relying on the statute, the County asserts that Commissioner Stout’s recusal and the designation of Butler was necessary in order to avoid the appearance of impropriety and that Stout’s designation of Butler was lawful.

The language of Civil Service Law § 75 (2) clearly provides that, where the officer or body having power to remove an employee designates someone else to conduct a hearing, the record shall “be referred to such officer or body for review and decision.” It makes sense that the decision whether sanctions against an employee are warranted should be made by an official that has knowledge of the employee’s duties and responsibilities, as well as an understanding of what disciplinary measures have been previously imposed on other employees for similar types of infractions. Although it is true that Civil Service Law § 75 (2) does not explicitly state what the officer or body should do where a disqualifying conflict exists, it clearly requires that the power to discipline be delegated, if necessary, within the governmental department’s chain of command.

Indeed, we have held it essential that any determination as to whether misconduct occurred and the appropriate penalty to be imposed be made by “the official upon whom has been imposed the power to remove or mete out the discipline” (Matter of Simpson v Wolansky, 38 NY2d 391, 394 [1975]). However, in order to ensure a civil servant a fair hearing, courts have crafted an exception requiring the conflicted officer or body bearing the responsibility of discipline to designate an impartial agent authorized to act in his or her stead (see e.g. Matter of McComb v Reasoner, 29 AD 3d 795, 799-800 [2d Dept 2006]; Matter of Martin v Platt, 191 AD2d 758 [3d Dept 1993], Iv denied 82 NY2d 652 [1993]). That delegation can only be made to a qualified individual.

The County urges us to hold that the judicially created exception encompasses the ability to appoint an agent with duties comparable to those of the recusing officer even where the designee has no supervisory authority over that particular employee. We reject the County’s arguments and decline to expand this judicially created exception to allow a personally involved officer or body unfettered discretion to designate a municipal department head with no supervisory authority over the affected employee. In this case, Westchester County Charter § 134.41 requires Commissioner Stout to designate a Deputy Commissioner within his own department to act for him in situations where he is either absent or unable to perform his duties. Thus, we conclude that the Appellate Division was correct in annulling Commissioner Butler’s determination and in remitting the matter to Commissioner Stout to appoint a duly-qualified individual—here the Deputy Commissioner—to render a determination on the same hearing record.

Petitioner also seeks reinstatement with back pay and benefits. The County argues that any award of back pay and benefits should await the determination of Commissioner Stout’s new designee, and should not be awarded at all unless the new penalty imposed, if any, is less severe than termination. We disagree and hold that petitioner is entitled to be reinstated with back pay and benefits.

In Matter of Wiggins v Board of Educ. of City of N.Y. (60 NY2d 385 [1983]) we stated that

“[a] disciplinary proceeding will be voided and the status quo ante restored when there has been some error that taints the entire proceeding. This would not be an isolated mistake, but rather would strike at fundamental concerns such as jurisdiction or bias of the presiding officers” {id. at 388-389).

Further, in Matter of Sinicropi v Bennett (60 NY2d 918 [1983]), we applied the principle stated in Wiggins to a case in which a determination of dismissal had been annulled for procedural error, but a later order of dismissal was upheld. We decided that the employee was entitled to back pay for the period between the earlier and later termination decisions. We conclude that Wiggins and Sinicropi control this case, and petitioner here is entitled to back pay, even if the proceedings against her eventually lead to termination of her employment.

Hence, we conclude that this matter should be remitted to Supreme Court for an order restoring petitioner’s employment with the Westchester County Parks Department as an assistant games manager, grade VII, and to determine the amount of back pay and benefits owed to her. As the determination here was annulled, we need not consider the merits of the underlying disciplinary proceeding and whether the determination was supported by substantial evidence.

Accordingly, the order of the Appellate Division should be modified, with costs to petitioner, by remitting to Supreme Court for further proceedings in accordance with the opinion herein and, as so modified, affirmed.

Smith, J. (concurring).

I join the Court’s unanimous opinion, but write separately to express my unhappiness with the result we are forced to reach.

Petitioner was dismissed from her position in November 2005. A Hearing Officer has recommended that her dismissal be upheld. For the reasons the Court’s opinion explains, a Deputy Commissioner must now decide whether to follow that recommendation. But even if the recommendation is followed, petitioner will still get back pay for the four years following her dismissal—four years during which she has not done a day’s work for the County. If the dismissal was justified, this is surely an excessive burden to impose on the County for a procedural error.

But the result is compelled by our decision in Matter of Sinicropi v Bennett (60 NY2d 918 [1983]). Sinicropi seems wrong to me. It also seemed wrong to Justice O’Connor, who wrote the Appellate Division decision that we affirmed in that case (Sinicropi v Bennett, 92 AD2d 309 [2d Dept 1983]). Though believing himself bound by precedent, Justice O’Connor—dissenting persuasively from his own holding—pointed out that the decisions allowing back pay in situations like this unjustifiably expand the relief that would have been available at common law. The remedy for an employee whose dismissal is procedurally flawed should be prompt reinstatement, not pay for no work. Justice O’Connor argued for the principle that, until and unless an employee is reinstated, “no claim for back pay [should] be honored even if the employee’s dismissal [is] declared invalid” (id. at 316).

Justice O’Connor invited a “re-examination” of the analysis on which the precedents he thought himself bound to follow were based (id. at 310). Unfortunately, our Court did not accept the invitation. We affirmed in a one paragraph memorandum, with the conclusory statement that the discharged employee was entitled to “the salary she would have earned for the period between the original termination decision (which was annulled) and the subsequent termination decision” (60 NY2d at 920). I think this was a mistake, but there is nothing we can do about it now. The problem is one that only the Legislature can fix.

Chief Judge Lippman and Judges Graffeo, Read, Smith, Pigott and Jones concur with Judge Ciparick; Judge Smith concurs in a separate opinion.

Order modified, etc.

      . Petitioner’s disciplinary hearing began on November 25, 2002 and was completed on April 13, 2005.

      . It was alleged, among other things, that she had been discourteous in dealing with customers, changed her scheduled shifts without authorization, failed to record her breaks, violated the Parks Department attendance policy by signing out before the end of her scheduled shifts, failed to punch her time sheet, failed to register or record items she had sold on behalf of the Parks Department and committed other violations of Parks Department standard operating procedures.

      . Westchester County Charter § 134.41 requires that “[t]he commissioner shall appoint a deputy commissioner who shall act for the commissioner in the case of his absence or inability to perform his duties.”


source: Caselaw Access Project

author: Pigott, J.

license: Public Domain

text:
    [918 NE2d 889, 890 NYS2d 377]
    Trust for the Certificate Holders of the Merrill Lynch Mortgage Investors, Inc. Mortgage Pass-Through Certificates, Series 1999-C1, by and through ORIX Capital Markets, LLC, as Master Servicer and Special Servicer, Appellant, v Love Funding Corporation, Respondent.
    Argued September 9, 2009;
    decided October 15, 2009

      POINTS OF COUNSEL

      Hogan & Hartson LLP, New York City (Ira M. Feinberg and Andowah Newton of counsel), and Hogan & Hartson LLP (Lorane F. Hebert, of the District of Columbia bar, admitted pro hac vice, of counsel), for appellant.
    I. The history of the champerty statute and relevant precedent demonstrate that the scope of the statute is extremely narrow. (Bluebird Partners v First Fid. Bank, 94 NY2d 726; Coopers & Lybrand v Levitt, 52 AD2d 493; Ehrlich v Rebco Ins. Exch., 225 AD2d 75; In re Primus, 436 US 412; Elliott Assoc., L.P. v Banco de la Nacion, 194 F3d 363; Fairchild Hiller Corp. v McDonnell Douglas Corp., 28 NY2d 325; Moses v McDivitt, 88 NY 62; Zindle, Inc. v Friedman’s Express, Inc., 258 App Div 636; Hospital Credit Exch., Inc. v Shapiro, 186 Misc 658; Knobel v Estate of Eugene A. Hoffman, Inc., 105 Misc 2d 333.) II. To constitute champerty, an assignment of a claim must be taken for the “sole” purpose of enabling the assignee to bring suit. (Moses v McDivitt, 88 NY 62; Sprung v Jaffe, 3 NY2d 539; Fairchild Hiller Corp. v McDonnell Douglas Corp., 28 NY2d 325; People v Francis, 45 AD2d 431, 38 NY2d 150; Elliott Assoc., L.P v Banco de la Nación, 194 F3d 363; Limpar Realty Corp. v Uswiss Realty Holding, 112 AD2d 834; Cavendish Traders, Ltd. v Nice Skate Shoes, Ltd., 117 F Supp 2d 394.) III. As a matter of law, it is not champertous for an assignee to take an assignment of a claim to protect or vindicate its own legitimate preexisting interests. (Moses v McDivitt, 88 NY 62; Promenade v Schindler El. Corp., 39 AD3d 221; Williams Paving Co. v United States Fid. & Guar. Co., 67 AD2d 827; American Express Co. v Control Data Corp., 50 AD2d 749; American Bag & Metal Co. v Alcan Aluminum Corp., 115 AD2d 958; Coopers & Lybrand v Levitt, 52 AD2d 493; Bellarno Inti, v Irving Trust Co., 165 AD2d 809; Limpar Realty Corp. v Uswiss Realty Holding, 112 AD2d 834; Red Tulip, LLC v Neiva, 44 AD3d 204; Suraleb, Inc. v International Trade Club, Inc., 13 AD3d 612.) IV An assignee who takes an assignment of a claim to seek compensation for an alleged wrong does not commit champerty merely because the assignee potentially stands to recover more than the amount needed to make the assignee “whole.” (Promenade v Schindler El. Corp., 39 AD3d 221; JMD Holding Corp. v Congress Fin. Corp., 4 NY3d 373; Hooper Assoc, v AGS Computers, 74 NY2d 487; Deutsche Bank Trust Co. of Ams. v Tri-Links Inv. Trust, 43 AD3d 56; Coopers & Lybrand v Levitt, 52 AD2d 493; Moses v McDivitt, 88 NY 62; Elliott Assoc., L.P v Banco de la Nacion, 194 F3d 363; Wightman v Catlin, 113 App Div 24; M. W. Zack Metal Co. v International Nav. Corp. of Monrovia, 112 AD2d 865; American Bag & Metal Co. v Alcan Aluminum Corp., 115 AD2d 958.) V Important public policy considerations support a narrow construction of the champerty statute. (Bluebird Partners v First Fid. Bank, 94 NY2d 726; Elliott Assoc., L.P. v Banco de la Nacion, 194 F3d 363; Hooper

      Assoc, v AGS Computers, 74 NY2d 487; Perchinsky v State of New York, 232 AD2d 34; DiPerna v American Broadcasting Cos., 200 AD2d 267; Estate of Nasser v Port Auth. of N.Y. & N.J., 155 AD2d 250; M. W. Zack Metal Co. v International Nav. Corp. of Monrovia, 112 AD2d 865; Promenade v Schindler El. Corp., 39 AD3d 221; Coopers & Lybrand v Levitt, 52 AD2d 493.)

      Bryan Cave LLP (Alec W. Farr, of the District of Columbia bar, admitted pro hac vice, and Nikki A. Ott of counsel) and Bryan Cave LLP, New York City (Michael G. Biggers of counsel), for respondent.
    I. Judiciary Law § 489 (1), as correctly applied by the trial court, turns on a factual finding that the reason a corporation took an assignment of a claim was to bring a suit. (Bluebird Partners v First Fid. Bank, 94 NY2d 726; Fairchild Hiller Corp. v McDonnell Douglas Corp., 28 NY2d 325; Matter of Hernandez v Barrios-Paoli, 93 NY2d 781; People v Tatta, 196 AD2d 328; Prego v City of New York, 147 AD2d 165; Moses v McDivitt, 88 NY 62; Sprung v Jaffe, 3 NY2d 539; Bennett v Supreme Enforcement Corp., 250 App Div 265, 275 NY 502; American Rest. China Mfrs. Assn, v Corning Glass Works, 24 Misc 2d 634.) II. The champerty statute has not been and should not be interpreted to add a requirement that a court must find “sole intent.” (Country-Wide Ins. Co. v National R.R. Passenger Corp., 6 NY3d 172; Matter of Southeast Banking Corp., 93 NY2d 178; People v Lopez, 73 NY2d 214; Foley v State of New York, 294 NY 275; Monahan v Weichert, 82 AD2d 102; Moses v McDivitt, 88 NY 62; Bluebird Partners v First Fid. Bank, 94 NY2d 726; Fairchild Hiller Corp. v McDonnell Douglas Corp., 28 NY2d 325; Ehrlich v Rebco Ins. Exch., 225 AD2d 75; Sprung v Jaffe, 3 NY2d 539.) III. The existence of losses on a debt instrument in which a corporate assignee of a claim holds an interest does not preclude a finding of champerty. (Moses v McDivitt, 88 NY 62; Fairchild Hiller Corp. v McDonnell Douglas Corp., 28 NY2d 325; Promenade v Schindler El. Corp., 39 AD3d 221; Limpar Realty Corp. v Uswiss Realty Holding, 112 AD2d 834; Red Tulip, LLC v Neiva, 44 AD3d 204; American Express Co. v Control Data Corp., 50 AD2d 749; American Bag & Metal Co. v Alcan Aluminum Corp., 115 AD2d 958; Coopers & Lybrand v Levitt, 52 AD2d 493; Bellarno Inti, v Irving Trust Co., 165 AD2d 809; Williams Paving Co. v United States Fid. & Guar. Co., 67 AD2d 827.) IV Facts showing that a party has acquired an assignment to collect more damages through a new litigation than it had demanded to settle with the assignor, or that the assignment includes indemnification rights for attorneys’ fees and costs, support a factual finding of champerty, but do not compel such a finding as a matter of law. V Applying Judiciary Law § 489 (1) to the narrow set of facts presented here does not contravene New York public policy. (Matter of Steinberg v Steinberg, 18 NY2d 492; People v Gray, 84 NY2d 709; Village of Brockport v Calandra, 191 Misc 2d 718; Ruxton Towers v Floratos, 23 Misc 3d 22; Town of Smithtown v Haynes, 278 AD2d 312; Matter of Highland Care Ctr. v DeBuono, 267 AD2d 668; Village of Upper Nyack v Christian & Missionary Alliance, 143 Misc 2d 414; Elliott Assoc., L.P v Banco de la Nacion, 194 F3d 363; Bluebird Partners v First Fid. Bank, 94 NY2d 726; Elliott Assoc., L.P. v Republic of Peru, 12 F Supp 2d 328.)

      Richards Kibbe & Orbe LLP, Washington, D.C. (Lucinda O. McConathy of counsel), and Richards Kibbe & Orbe LLP, New York City (Brian S. Fraser of counsel), for Loan Syndications & Trading Association, Inc., amicus curiae.
    I. An assignment of a claim as part of a bundle of rights constituting a loan is not champerty. (Bluebird Partners v First Fid. Bank, 94 NY2d 726; Ehrlich v Rebco Ins. Exch., 225 AD2d 75; In re Primus, 436 US 412; Moses v McDivitt, 88 NY 62; Elliott Assoc., L.P. v Banco de la Nacion, 194 F3d 363; Fairchild Hiller Corp. v McDonnell Douglas Corp., 28 NY2d 325; Red Tulip, LLC v Neiva, 44 AD3d 204; Hill Inti, v Town of Orangetown, 290 AD2d 416; Richbell Info. Servs. v Jupiter Partners, 280 AD2d 208; Limpar Realty Corp. v Uswiss Realty Holding, 112 AD2d 834.) II. The three certified questions should be answered to permit the assignment of claims. III. Sound policy supports the assignability of claims related to syndicated corporate loans.

      Northern Manhattan Improvement Corporation Legal Services, New York City (Kenneth Rosenfeld, James Baker and Matthew J. Chachére of counsel), Cardozo Bet Tzedek Legal Services (Leslie Salzman of counsel), CAMBA Legal Services, Inc., Brooklyn (Kathleen A. Masters and Matthew Chedler of counsel), Empire Justice Center, Rochester (Bryan D. Hetherington of counsel), and Urban Justice Center, New York City (Harvey Epstein of counsel), for Northern Manhattan Improvement Corporation and others, amici curiae.
    I. Consumer debt litigation abuses are rampant in New York. (Securities & Exch. Commn. v Merchant Capital, LLC, 483 F3d 747; PRA III, LLC v Gonzalez, 54 AD3d 917.) III. Judiciary Law § 489 applies—and only applies—to purchases of claims of under $500,000 by entities with no preexisting interest therein for the primary purpose of collecting through actual or threatened litigation. (Bluebird Partners v First Fid. Bank, 94 NY2d 726; Irwin v Curie, 171 NY 409; Sedgwick v Stanton, 14 NY 289; Fowler v Callan, 102 NY 395; Sprung v Jaffe, 3 NY2d 539; Elliott Assoc., L.P. v Banco de la Nacion, 194 F3d 363; Bennett v Supreme Enforcement Corp., 250 App Div 265, 275 NY 502; Matter of Clark, 184 NY 222; Moses v McDivitt, 88 NY 62; Coughlin v New York Cent. & Hudson Riv. R.R. Co., 71 NY 443.)
   OPINION OF THE COURT

Pigott, J.

The United States Court of Appeals for the Second Circuit has certified to us questions relating to Judiciary Law § 489, New York’s champerty statute. We hold that a corporation or association that takes an assignment of a claim does not violate Judiciary Law § 489 (1) if its purpose is to collect damages, by means of a lawsuit, for losses on a debt instrument in which it holds a preexisting proprietary interest.

I.

Love Funding Corporation (Love Funding), a commercial mortgage-banking corporation, entered into a Mortgage Loan Purchase Agreement (the Love MLPA) with Paine Webber Real Estate Securities Inc. (Paine Webber) on April 23, 1999. Under the Love MLPA, Love Funding originated mortgage loans, evaluating the borrowers and performing due diligence, while Paine Webber provided financing and was ultimately assigned the loans for securitization. Love Funding received a fee of 1% of the principal amount of each loan.

In the Love MLPA, Love Funding represented that the loans were not in default. Love Funding further promised that in the event it breached any representation or warranty, and upon prompt written notice, it would cure the breach or, at Paine Webber’s option, repurchase the affected mortgage loan. Significantly, in section 9.14 (a) of the Love MLPA, Love Funding agreed to indemnify Paine Webber “from and against all demands, claims or asserted claims, liabilities or asserted liabilities, costs and expenses, including reasonable attorneys’ fees, incurred ... in any way arising from or related to any breach.”

In July 1999, Love Funding made a $6.4 million loan to Cyrus II Partnership, secured by a mortgage on an apartment complex, the Arlington Apartments, in Harvey, Louisiana (Arlington Loan). The loan was assigned to Paine Webber under the Love MLPA. As consideration, Love Funding received its 1% fee.

Paine Webber sold the Arlington Loan to Merrill Lynch Mortgage Investors, Inc. on November 1, 1999, as part of a larger securities transaction involving numerous mortgage loans. Under the governing Mortgage Loan Purchase Agreement (the Merrill Lynch MLPA), Paine Webber made representations and warranties concerning the loans, including ones substantively similar to those made by Love Funding in the Love MLPA.

The loans were then securitized, under a pooling and servicing agreement in which certificates secured by the underlying mortgages were issued, and a trust created for the holders of those certificates, who would receive interest payments generated by the loans. The trust was denominated the Trust for the Certificate Holders of the Merrill Lynch Mortgage Investors, Inc. Mortgage Pass-Through Certificates, Series 1999-C1 (the Trust). ORIX Capital Markets, LLC was named Master Servicer and Special Servicer.

The Trust declared the Arlington Loan to be in default in March 2002, for reasons not directly pertinent to this case, and it commenced a mortgage foreclosure action in Louisiana state court. It was discovered that Cyrus’s principals had committed fraud in obtaining the Arlington Loan. The Trust informed Paine Webber’s successor in interest, UBS. In the fall of 2002, the Trust commenced litigation against UBS in federal court and in state courts in Texas and New York, related to over 30 loans that Paine Webber had sold. With respect to the Arlington Loan, the Trust’s theory was that Cyrus’s fraud had put the loan in default from the outset, so that Paine Webber (and, hence, UBS) had necessarily breached its representation in the Merrill Lynch MLPA. By all accounts, the litigation was intense and expensive, with the Trust and UBS purportedly spending some $7 million and over $30 million respectively.

On September 13, 2004, the Trust and UBS settled, with UBS agreeing to pay the Trust $19,375 million with regard to various loans deposited in the Trust. With respect to the Arlington Loan, however, UBS assigned to the Trust, as consideration for its release, all its rights under the Love MLPA: “each and every of the representations and warranties, and related remedies for breach thereof . . . including but not limited to the remedies set out in section 9.14” of the Love MLPA.

In November 2004, a representative of the Trust approached Love Funding’s principals, by telephone and in writing, demanding that Love Funding either cure its breaches of representations and warranties affecting the Arlington Loan or repurchase the loan. According to Love Funding, the Trust representative demanded $10 million to settle. At the same time, the Trust commenced an action against Love Funding in Supreme Court, New York County, alleging that it had breached its representations and warranties that the Arlington Loan was not in default at the time of closing.

The Trust’s action was removed to federal court. Both the Trust and Love Funding moved for summary judgment. On October 11, 2005, the United States District Court for the Southern District of New York granted the Triist’s motion for summary judgment to the extent of holding that Love Funding breached the Love MLPA. Although denying Love Funding’s cross motion for summary judgment, the District Court allowed Love Funding to amend its answer to assert a champerty defense.

In a February 27, 2007 decision, the District Court held that the Trust had “accepted the assignment of the Love MLPA with the primary purpose of bringing a lawsuit against Love Funding. Because the assignment is void for champerty, the Trust is not entitled to any award of damages” (499 F Supp 2d 314, 325 [2007]). The District Court noted that the assignment was the only consideration the Trust took in exchange for releasing UBS with respect to the Arlington Loan, and observed that the Trust had urged the court to find that Love Funding must indemnify the Trust for some of the legal fees UBS incurred defending itself against the Trust. Dismissing the Trust’s efforts at settlement as a sham, the District Court concluded that the Trust’s primary purpose was to secure a means of suing Love Funding, and dismissed its action.

On appeal, the Trust argued principally that a finding that it had accepted the assignment with the intention of suing Love Funding is insufficient as a matter of law for champerty. The United States Court of Appeals for the Second Circuit decided that resolution of the Trust’s appeal depended on significant and unsettled questions of New York law. The Second Circuit certified to us, and we accepted, the following questions:

“1. Is it sufficient as a matter of law to find that a party accepted a challenged assignment with the ‘primary’ intent proscribed by New York Judiciary Law § 489 (1), or must there be a finding of ‘sole’ intent?
“2. As a matter of law, does a party commit champerty when it ‘buys a lawsuit’ that it could not otherwise have pursued if its purpose is thereby to collect damages for losses on a debt instrument in which it holds a pre-existing proprietary interest?
“3. (a) As a matter of law, does a party commit champerty when, as the holder of a defaulted debt obligation, it acquires the right to pursue a lawsuit against a third party in order to collect more damages through that litigation than it had demanded in settlement from the assignor?
“(b) Is the answer to question 3 (a) affected by the fact that the challenged assignment enabled the assignee to exercise the assignor’s indemnification rights for reasonable costs and attorneys’ fees?” (556 F3d 100, 114 [2d Cir 2009].)

We answer the second certified question, and both parts of the third certified question, in the negative. Because—as the Second Circuit itself hinted—“the critical issue to assessing the sufficiency of the champerty finding is not the denomination of the Trust’s intent as ‘primary’ or ‘sole,’ but the purpose behind its acquisition of rights that allowed it to sue Love Funding” (556 F3d at 111), we find it unnecessary to answer the first certified question.

II.

The doctrine of champerty developed “to prevent or curtail the commercialization of or trading in litigation” (Bluebird Partners v First Fid. Bank, 94 NY2d 726, 729 [2000]). The doctrine, which has ancient and medieval roots (see Bluebird Partners, 94 NY2d at 733-734; Martin, Syndicated Lawsuits: Illegal Champerty or New Business Opportunity?, 30 Am Bus LJ 485 [1992]; Radin, Maintenance by Champerty, 24 Cal L Rev 48 [1936]), is currently codified in Judiciary Law §§ 488-489, which derive from sections 274 and 275 of the former Penal Law. The latter section applied to all corporations and associations a proscription that had long governed legal practitioners (see Act of June 9, 1939, L 1939, ch 822, § 13, at 2058). Under Judiciary Law § 489 (1), a corporation or association may not “solicit, buy or take an assignment of, or be in any manner interested in buying or taking an assignment of a bond, promissory note, bill of exchange, book debt, or other thing in action, or any claim or demand, with the intent and for the purpose of bringing an action or proceeding thereon.” The champerty statutes are directed at preventing the “strife, discord and harassment” that would be likely to ensue “from permitting attorneys and corporations to purchase claims for the purpose of bringing actions thereon” (Fairchild Hiller Corp. v McDonnell Douglas Corp., 28 NY2d 325, 329 [1971]).

The term “champerty” referred in the Middle Ages to any “situation where someone bought an interest in a claim under litigation, agreeing to bear the expenses but also to share the benefits if the suit succeeded” (Bluebird Partners, 94 NY2d at 734). In New York, however, the prohibition of champerty has always been “limited in scope and largely directed toward preventing attorneys from filing suit merely as a vehicle for obtaining costs” (id.). Our earliest cases and those of the Court of Chancery clearly demonstrate this narrow scope.

In Baldwin v Latson (2 Barb Ch 306 [1847]), the Court of Chancery explained that the purpose of New York’s champerty statute “was to prevent attorneys and solicitors from purchasing debts, or other things in action, for the purpose of obtaining costs by a prosecution thereof, and [it] was never intended to prevent the purchase for the honest purpose of protecting some other important right of the assignee” (2 Barb Ch at 308). In Moses v McDivitt (88 NY 62 [1882]), we endorsed the Chancery Court’s analysis, repeating its distinction between acquiring a thing in action in order to obtain costs and acquiring it in order to protect an independent right of the assignee (see 88 NY at 65). In Moses, plaintiff, an attorney, bought a bond and mortgage from defendant in order to coerce the defendant, as a condition of extending his time of payment, to assign to plaintiff certain stock in a company.

“This purpose, whether honest or reprehensible, was not within the prohibition of the statute. . . . The real question upon which the case turned was, whether the main and primary purpose of the purchase was to bring a suit and make costs, or whether the intention to sue was only secondary and contingent, and the suit was to be resorted to only for the protection of the rights of the plaintiff, in case the primary purpose of the purchase should be frustrated.” (88 NY at 67-68.)

We have also held that the champerty statute is violated by an attorney “only if the primary purpose of the purchase or taking by assignment of the thing in action is to enable the attorney to commence a suit thereon” (Sprung v Jaffe, 3 NY2d 539, 544 [1957]). In describing champerty in terms of an acquisition made with the purpose of bringing a lawsuit (see also Bluebird Partners, 94 NY2d at 736), we intended to convey the difference between one who acquires a right in order to make money from litigating it and one who acquires a right in order to enforce it.

New York cases agree that if a party acquires a debt instrument for the purpose of enforcing it, that is not champerty simply because the party intends to do so by litigation. The inquiry into purpose is a factual one. In Promenade v Schindler El. Corp. (39 AD3d 221 [1st Dept 2007]), for example, The Glick Organization, a general contractor, sued by The Promenade for reasons not relevant here, commenced a third-party action for contractual indemnification against some of its subcontractors, including De-Con Mechanical Corp. Promenade and Glick settled. The settlement agreement provided not only that Glick pay Promenade $1.8 million but also that Glick assign Promenade its claim for contractual indemnification against De-Con. The Appellate Division rejected De-Con’s argument that the assignment was void for champerty. De-Con’s contention was belied by the fact that Promenade had accepted the assigned claim for the purpose of pursuing the full value of its settlement of contractual claims, not for the purpose of “bringing a claim against De-Con either as an investment or to harass or injure it” (39 AD3d at 223).

Similarly, in Williams Paving Co. v United States Fid. & Guar. Co. (67 AD2d 827 [4th Dept 1979]), plaintiff, a corporation that owned a machine damaged by the Joneses, obtained judgment of $27,008.50. Defendant insured the Joneses to a maximum of $5,000. It was alleged that plaintiff had offered to settle the claim within the policy limits and defendant, acting in bad faith, had refused to do so. Plaintiffs insurer became subrogated to plaintiffs claim against the Joneses, and plaintiff sued as nominee of its insurer and assignee of the Joneses, asserting defendant’s bad faith. The Appellate Division held that plaintiffs “primary purpose was to protect its own interest in attempting to collect its judgment against the Joneses” and that, in taking the assignment from the Joneses, plaintiff, rather than acting with litigious purpose, had a relationship with the Joneses that gave it a substantial, legitimate interest in the transactions involved in the suit (67 AD2d at 828).

Many other New York cases can be cited for the same principle (see e.g. Red Tulip, LLC v Neiva, 44 AD3d 204, 213-214 [1st Dept 2007]; Hill Intl. v Town of Orangetown, 290 AD2d 416, 417 [2d Dept 2002]; G.G.F. Dev. Corp. v Andreadis, 251 AD2d 624 [2d Dept 1998]; Small Bus. Admin, v Mills, 203 AD2d 654, 655 [3d Dept 1994]; American Bag & Metal Co. v Alcan Aluminum Corp., 115 AD2d 958, 959-960 [4th Dept 1985]; Limpar Realty Corp. v Uswiss Realty Holding, 112 AD2d 834, 836-837 [1st Dept 1985]; 1015 Gerard Realty Corp. v A & S Improvements Corp., 91 AD2d 927, 928 [1st Dept 1983]; Prudential Oil Corp. v Phillips Petroleum Co., 69 AD2d 763 [1st Dept 1979]; American Express Co. v Control Data Corp., 50 AD2d 749, 750 [1st Dept 1975]; Concord Landscapers v Pincus, 41 AD2d 759 [2d Dept 1973]). In short, the champerty statute does not apply when the purpose of an assignment is the collection of a legitimate claim. What the statute prohibits, as the Appellate Division stated over a century ago, “is the purchase of claims with the ‘intent and for the purpose of bringing an action’ that [the purchaser] may involve parties in costs and annoyance, where such claims would not be prosecuted if not stirred up ... in [an] effort to secure costs” (Wightman v Catlin, 113 App Div 24, 28 [2d Dept 1906]).

In the present case, as the Second Circuit explains, the Trust, as the holder of the Arlington Loan and the party that would directly suffer the damages of any default on that loan, had a preexisting proprietary interest in the loan (556 F3d at 111). If, as a matter of fact, the Trust’s purpose in taking assignment of UBS’s rights under the Love MLPA was to enforce its rights, then, as a matter of law, given that the Trust had a preexisting proprietary interest in the loan, it did not violate Judiciary Law § 489 (1). Accordingly, we answer the second certified question in the negative.

III.

The Second Circuit also asks us to clarify the application of the champerty doctrine to certain facts of the present case. The District Court found that the Trust’s intent in suing Love Funding was to recover more in compensation for its losses on the Arlington Loan than it had demanded in settlement from UBS on the Arlington Loan. Moreover, the District Court noted that, in accepting the assignment, the Trust believed that Love Funding could be made to indemnify the Trust for a portion of the legal fees UBS incurred defending itself against the Trust. The District Court concluded that the Trust’s intent in suing Love Funding was not only to be made whole on losses sustained from the Arlington Loan default, but also to profit from the past litigation, a purpose the District Court found consistent with champerty.

Love Funding does not identify, and we are not aware of, any New York case holding that it is champerty to acquire, as part of a settlement, indemnification rights for reasonable costs and fees that were incurred in past legal actions. To acquire indemnification rights to the costs of past litigation is not to acquire a thing in action in order to obtain costs from prosecution thereon. Similarly, no New York case has been brought to our attention that stands for the proposition that it is champerty to settle a dispute by accepting a transfer of rights that has the potential for a larger recovery than one had demanded as a cash settlement. Nor would it be possible in many cases to assess whether rights are likely to yield a larger recovery than earlier demanded. Consequently we answer both parts of the third certified question in the negative.

Accordingly, the first certified question should not be answered as unnecessary, the second certified question should be answered in the negative, the first part of the third certified question should be answered in the negative, and the second part of the third certified question should be answered in the negative.

Chief Judge Lippman and Judges Ciparick, Graffeo, Read, Smith and Jones concur.

Following certification of questions by the United States Court of Appeals for the Second Circuit and acceptance of the questions by this Court pursuant to section 500.27 of the Rules of Practice of the New York State Court of Appeals (22 NYCRR 500.27), and after hearing argument by counsel for the parties and consideration of the briefs and the record submitted, certified questions answered in accordance with the opinion herein.

      . In October 2004, the Arlington Apartments complex was sold for some $6.5 million, from which the Trust received about $5.9 million. That December, the Trust was awarded approximately $10.9 million in damages against Cyrus and its principals, though it is not clear how much of that amount is collectible.

        . In November 2000, following a merger of their parent companies, UBS succeeded in interest to Paine Webber’s rights and obligations under the Love MLPA.

      . The agreement memorializing the “ASSIGNMENT OF CLAIMS AND CAUSES OF ACTION” was signed by the parties on November 18, 2004, but by its terms had become effective on September 13, 2004.

      . Judiciary Law § 488 (1) applies a similar proscription to attorneys and counselors.

      . Payment of attorneys by fees that are contingent upon successful litigation and derived from its proceeds is expressly permitted in the champerty statute (Judiciary Law § 488 [2] [d]; see also 22 NYCRR 603.7).

      . That is not to say, however, that the issue may not be amenable to summary judgment in an appropriate case.

      . The Trust also seeks the attorneys’ fees it paid and costs it expended pursuing Love Funding, as well as its fees and costs related to the Arlington Apartments foreclosure and its lawsuit against Cyrus and its principals.

      . We express no view as to whether the Love MLPA obligates Love Funding to indemnify the Trust for legal fees UBS incurred defending itself against the Trust, prior to the assignment. Although UBS purportedly spent over $30 million defending itself against the Trust, counsel for the Trust stated at oral argument before this Court that the UBS legal fees sought by the Trust amount to some $300,000, for representation relating to the Arlington Loan. We have not been asked whether these are “reasonable attorneys’ fees” arising from or related to Love Funding’s breach, within the meaning of the Love MLPA.


author: Smith, J.

text:
    [918 NE2d 124, 889 NYS2d 534]
    St. Lawrence Factory Stores, Appellant, v Ogdensburg Bridge and Port Authority, Respondent.
    Argued September 15, 2009;
    decided October 20, 2009

      POINTS OF COUNSEL

      Anderson & Buran PC, Burlington, Vermont (David C. Buran of counsel), for appellant.
    I. Plaintiff should have been allowed to prove and recover its reliance damages: plaintiffs expenses were incurred in reliance upon the contract, they are ascertainable, and they arose naturally from defendant’s breach in the ordinary course of things. (Friedland v Myers, 139 NY 432; Freund v Washington Sq. Press, 34 NY2d 379; Kenford Co. v County of Erie, 73 NY2d 312.) II. The Supreme Court wrongly considered lost profits and reliance damages together, under the same analysis. (Kenford Co. v County of Erie, 108 AD2d 132, 67 NY2d 257, 73 NY2d 312; Bernstein v Meech, 130 NY 354; Freund v Washington Sq. Press, 34 NY2d 379; American Harley Corp. v Irvin Indus., 27 NY2d 168.) III. The Third Department wrongly held that plaintiff could not recover reliance damages because plaintiff had no contractual obligation to commence development of the property or incur the costs prior to the closing. (Goodstein Constr. Corp. v City of New York, 67 NY2d 990; Friedland v Myers, 139 NY 432; Kenford Co. v County of Erie, 108 AD2d 132, 67 NY2d 257, 73 NY2d 312; Bernstein v Meech, 130 NY 354; Freund v Washington Sq. Press, 34 NY2d 379; Clifton Country Rd. Assoc. v Vinciguerra, 252 AD2d 792; Camperlino & Fatti Bldrs. v Dimovich Constr. Corp., 198 AD2d 803, 83 NY2d 906; Clifford R. Gray, Inc. v LeChase Constr. Servs., 51 AD3d 1169; Farash v Sykes Datatronics, 59 NY2d 500.) IV Defendant wrongly argues that reliance damages are never recoverable from a vendor who breaches a contract for the sale of real property, even where vendor’s breach is in bad faith. (Pumpelly v Phelps, 40 NY 59; Mokar Props. Corp. v Hall, 6 AD2d 536; Kenford Co. v County of Erie, 67 NY2d 257; BGW Dev. Corp. v Mount Kisco Lodge No. 1552 of Benevolent & Protective Order of Elks of U.S. of Am., 247 AD2d 565; Camperlino & Fatti Bldrs. v Dimovich Constr. Corp., 198 AD2d 803, 83 NY2d 906.) V The long-settled law of this state is that pre-closing costs incurred improving property are always recoverable if defendant’s breach was in bad faith. (Walton v Meeks, 120 NY 79; Lelekakis v Kamamis, 41 AD3d 662; Friedland v Myers, 139 NY 432.) VI. Reversing the decision of the Third Department is of critical importance to every commercial real property developer/builder throughout New York State. (Goodstein Constr. Corp. v City of New York, 67 NY2d 990.) VII. Plaintiff should have been allowed to submit proof of its lost profits; a third party’s offer to purchase a one-third interest in the project for $1.5 million would establish a “stable foundation” upon which lost profits could be estimated with reasonable certainty. (Kenford Co. v County of Erie, 67 NY2d 257; Freund v Washington Sq. Press, 34 NY2d 379; Tractebel Energy Mktg., Inc. v AEP Power Mktg., Inc., 487 F3d 89.) VIII. Plaintiff should have been awarded its benefit of the bargain damages; (Story Parchment Co. v Paterson Parchment Paper Co., 282 US 555; Wakeman v Wheeler & Wilson Mfg. Co., 101 NY 205; Kenford Co. v County of Erie, 108 AD2d 132; Tractebel Energy Mktg., Inc. v AEP Power Mktg., Inc., 487 F3d 89; W.T. Grant Co. v Srogi, 52 NY2d 496; Varkonyi v S.A. Empresa De Viacao Airea Rio Grandense [Varig], 22 NY2d 333; Randall-Smith v 43rd St. Estates Corp., 17 NY2d 99.)

      Harter Secrest & Emery LLP, Rochester (A. Paul Britton of counsel), for respondent.
    I. The lower court properly dismissed plaintiffs claim for lost profits. (Kenford Co. v County of Erie, 67 NY2d 257, 73 NY2d 312; Greasy Spoon v Jefferson Towers, 75 NY2d 792; Ashland Mgt. v Janien, 82 NY2d 395; AMCO Inti, v Long Is. R.R. Co., 302 AD2d 338; Zink v Mark Goodson Prods., 261 AD2d 105; Schonfeld v Hilliard, 218 F3d 164; Awards.com v Kinko’s, Inc., 42 AD3d 178; Route 7 Mobil v Machnick Bldrs., 296 AD2d 809; Goodstein Constr. Corp. v City of New York, 80 NY2d 366; Trademark Research Corp. v Maxwell Online, Inc., 995 F2d 326.) II. Plaintiff was properly precluded from seeking to recover “reliance damages.” (Northridge v Moore, 118 NY 419; Mokar Props. Corp. v Hall, 6 AD2d 536; Bulkley v Rouken Glen, Inc., 222 App Div 570, 248 NY 647; Camperlino & Fatti Bldrs. v Dimovich Constr. Corp., 198 AD2d 803; BSL Dev. Corp. v Broad Cove, 178 AD2d 394; Lotito v Mazzeo, 132 AD2d 650; Bernstein v Meech, 130 NY 354; Freund v Washington Sq. Press, 34 NY2d 379; Goodstein Constr. Corp. v City of New York, 67 NY2d 990; American Harley Corp. v Irvin Indus., 27 NY2d 168, 401 US 976.) III. The issue of benefit-of-the-bargain damages has conclusively been determined as a factual matter by the trial court. (Heary Bros. Lightning Protection Co., Inc. v Intertek Testing Servs., N.A., Inc., 4 NY3d 615; Town of Massena v Niagara Mohawk Power Corp., 45 NY2d 482; 1014 Fifth Ave. Realty Corp. v Manhattan Realty Co., 67 NY2d 718; Camperlino & Fatti Bldrs. v Dimovich Constr. Corp., 198 AD2d 803.)
   OPINION OF THE COURT

Smith, J.

In this breach of contract case, we hold that plaintiff is entitled to recover the expenses, if any, that it reasonably incurred in preparing to perform the contract.

Defendant agreed to sell, and plaintiff to buy, approximately 12 acres of land, on which plaintiff intended to build a shopping center. Supreme Court found that defendant breached the contract by failing to close, and defendant does not now challenge that finding.

Plaintiff sought damages in three categories: lost profits (money it claims it would have made if the shopping center had been built); the “benefit of its bargain” (the alleged difference between the agreed-upon price of the property and its market value); and reliance damages (money allegedly spent in preparing for performance including, among other things, efforts to arrange financing and obtain tenants for the shopping center). Supreme Court dismissed the claims for lost profits and reliance damages before trial, and the Appellate Division affirmed (St. Lawrence Factory Stores v Ogdensburg Bridge & Port Auth., 26 AD3d 700 [3d Dept 2006]). Plaintiffs benefit of bargain claim was rejected at trial, and the Appellate Division again affirmed (St. Lawrence Factory Stores v Ogdensburg Bridge & Port Auth., 49 AD3d 1069 [3d Dept 2008]). We granted leave to appeal from the Appellate Division’s 2008 order, bringing up for review also its 2006 order (11 NY3d 712 [2009]).

As to the lost profits and benefit of bargain claims, we affirm the rulings below. The lost profits claim was speculative, and the record supports the findings of the lower courts that the market value of the property at the time of the aborted closing did not exceed the contract price.

However, the dismissal before trial of plaintiffs claim for reliance damages was error. The Appellate Division held that, under “a contract for the sale of land requiring plaintiff to tender defendant the sale price upon closing,” reliance damages are limited to “only those ordinarily incurred regarding such a contract, such as a title search, survey and attorney’s closing fees” (St. Lawrence Factory Stores v Ogdensburg Bridge & Port Auth., 26 AD3d at 702). This is incorrect. In land transactions, as in other contracts, the rule is the one stated in Restatement (Second) of Contracts § 349: as an alternative to expectation-based damages (which would include lost profits and benefit of bargain), a plaintiff may recover “damages based on his reliance interest, including expenditures made in preparation for performance or in performance, less any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been performed.” The principle expressed in the Restatement has long been part of New York law (Friedland v Myers, 139 NY 432, 436-437 [1893]; Bernstein v Meech, 130 NY 354, 359 [1891]; see also Freund v Washington Sq. Press, 34 NY2d 379, 383 [1974] [“reliance losses suffered ... in making necessary preparations to perform” would be recoverable “if foreseeable and ascertainable”]).

Accordingly, the order of the Appellate Division should be modified to reinstate plaintiffs claim for reliance damages, and as modified affirmed, without costs, and the case remitted to Supreme Court for further proceedings in accordance with this opinion.

Chief Judge Lippman and Judges Ciparick, Graffeo, Read, Pigott and Jones concur.

Order modified, without costs, by remitting to Supreme Court, St. Lawrence County, for further proceedings in accordance with the opinion herein and, as so modified, affirmed.


author: Jones, J.

text:
    [918 NE2d 913, 890 NYS2d 401]
    IDT Corp. et al., Appellants, v Tyco Group, S.A.R.L., et al., Respondents.
    Argued September 15, 2009;
    decided October 22, 2009

      POINTS OF COUNSEL

      Patterson Belknap Webb & Tyler LLP, New York City 0Stephen P Younger, Sarah E. Zgliniec and Gregory Scopino of counsel), Grayson & Kubli, P.C., McLean, Virginia, and Kubli & Associates, PC., Gaithersburg, Maryland, for appellants.
    I. The Appellate Division erred in holding that this binding settlement agreement was an unenforceable preliminary agreement. (Brown v Cara, 420 F3d 148; Adjustrite Sys., Inc. v GAB Bus. Servs., Inc., 145 F3d 543; Mellencamp v Riva Music, Ltd., 698 F Supp 1154; Hallock v State of New York, 64 NY2d 224; Racanelli Constr. Co., Inc. v Tadco Constr. Corp., 50 AD3d 875; Matter of Kanter, 209 AD2d 365; Medinol Ltd. v Guidant Corp., 500 F Supp 2d 345; William E. McClain Realty v Rivers, 144 AD2d 216; Hotel Cameron, Inc. v Purcell, 35 AD3d 153; Elizabeth St. v 217 Elizabeth St. Corp., 276 AD2d 295.) II. The Appellate Division erred in failing to hold that Tyco had breached the settlement agreement. (Matter of Brusco v Braun, 84 NY2d 674; State of New York v Gordon, 102 AD2d 990, 64 NY2d 712; Tesoro Petroleum Corp. v Holborn Oil Co., 108 AD2d 607; Non-Linear Trading Co. v Braddis Assoc., 243 AD2d 107; SPI Communications v WTZA-TV Assoc. Ltd. Partnership, 229 AD2d 644; CanWest Global Communications Corp. v Mirkaei Tikshoret Ltd., 9 Misc 3d 845; Towers Charter & Mar. Corp. v Cadillac Ins. Co., 894 F2d 516; Lusher v Tannen, 90 AD2d 118; Witherell v Lasky, 286 App Div 533; Computer Possibilities Unlimited v Mobil Oil Corp., 301 AD2d 70.) III. The Appellate Division erred in granting summary judgment to Tyco in the face of numerous genuine disputes of material fact.

      Dewey Pegno & Kramarsky LLP, New York City (Thomas E.L. Dewey of counsel), for respondents.
    I. The settlement agreement is a Type II binding preliminary agreement. (Joseph Martin, Jr., Delicatessen v Schumacher, 52 NY2d 105; Goodstein Constr. Corp. v City of New York, 80 NY2d 366; 180 Water St. Assoc, v Lehman Bros. Holdings, 7 AD3d 316; SNC, Ltd. v Kamine Eng’g & Mech. Contr. Co., 238 AD2d 146; Teachers Ins. &

      Annuity Assn, of Am. v Tribune Co., 670 F Supp 491; Fairbrook Leasing, Inc. v Mesaba Aviation, Inc., 519 F3d 421; Adjustrite Sys., Inc. v GAB Bus. Servs., Inc., 145 F3d 543; Richbell Info. Servs. v Jupiter Partners, 309 AD2d 288; River Glen Assoc. v Merrill Lynch Credit Corp., 295 AD2d 274; Arcadian Phosphates, Inc. v Arcadian Corp., 884 F2d 69.) II. IDT’s two liability theories are baseless. (Brown v Cara, 420 F3d 148; Adjustrite Sys., Inc. v GAB Bus. Servs., Inc., 145 F3d 543; Goodstein Constr. Corp. v City of New York, 80 NY2d 366; Tradax Energy, Inc. v Cedar Petrochemicals, Inc., 317 F Supp 2d 373; Broad Props, v Wheels Inc., 43 AD2d 276; Louis Dreyfus Energy Corp. v MG Ref. & Mktg., Inc., 2 NY3d 495.) III. IDT did not preserve the argument that the “definitive agreements” were not to be based on Tyco’s standard agreements, and in any event that argument is meritless. (Bingham v New York City Tr. Auth., 99 NY2d 355; Wilson v Galicia Contr. & Restoration Corp., 10 NY3d 827; Matter of Salino v Cimino, 1 NY3d 166; Parkin v Cornell Univ., 78 NY2d 523.) IV The First Department correctly held that Tyco did not repudiate the settlement agreement. (O’Connor v Sleasman, 37 AD3d 954; Didier v Macfadden Publs., 299 NY 49; Canali U.S.A. v Solow Bldg. Co., 292 AD2d 170; Rachmani Corp. v 9 E. 96th St. Apt. Corp., 211 AD2d 262; Ga Nun v Palmer, 202 NY 483; O’Shanter Resources, Inc. v Niagara Mohawk Power Corp., 915 F Supp 560; Created Gemstones v Union Carbide Corp., 47 NY2d 250; American List Corp. v U.S. News & World Report, 75 NY2d 38; City of New York v New York Yankees, 117 Misc 2d 332; Tradax Energy, Inc. v Cedar Petrochemicals, Inc., 317 F Supp 2d 373.) V. The First Department correctly held that Tyco is entitled to summary judgment. (805 Third Ave. Co. v M.W. Realty Assoc., 58 NY2d 447; Horphag Research Ltd. v Henkel Corp., 115 F Supp 2d 455; Fairbrook Leasing, Inc. v Mesaba Aviation, Inc., 519 F3d 421.)
   OPINION OF THE COURT

Jones, J.

At issue in this breach of contract action is whether the settlement agreement made the negotiation and execution of further agreements a precondition to the parties’ obligation. We hold that it did and affirm the order of the Appellate Division.

By written settlement agreement entered into October 10, 2000, IDT and Tyco agreed to drop their pending lawsuits. The pending lawsuits arose from a dispute between IDT and Tyco over a memorandum of understanding. IDT claimed that Tyco owed it $30,000,000 after withdrawing from a joint venture to construct a fiber optic communications network. Tyco also had a claim against IDT. All pending claims between the parties were discharged pursuant to the settlement agreement. The settlement agreement, among other things, also called for Tyco to provide IDT with an “indefeasible right of use” (IRU) of certain fiber optic capacity free of charge for a 15-year period. The capacity was to be on Tyco’s TyCom Global Network (TGN), a subsea cable system planned to connect North America, Asia and Europe. At the time of the settlement, the TGN was not yet constructed. The agreement states that “[t]he IRU shall be documented pursuant to definitive agreements to be mutually agreed upon and, in any event, containing terms and conditions consistent with those described herein.” These further definitive agreements, and the IRU, were to be in writing and consistent with Tyco’s standard agreements with similarly situated customers. Tyco’s standard agreements were not in existence at the time the settlement was made.

On June 12, 2001, Tyco submitted the proposed IRU document to IDT. The submitted IRU had provisions that IDT claims were inconsistent with the settlement agreement, including one for decommissioning the network after five years, without IDT’s permission. In addition, IDT claimed there were other terms and conditions in the IRU which were inconsistent with the settlement agreement. The parties negotiated over the draft, however, and IDT eventually acquiesced in a decommissioning provision. Negotiations continued to be active, but flagged after a sharp drop in the market greatly reduced the value of the capacity Tyco had agreed to supply. The negotiations finally came to an end in March 2004.

On May 5, 2004 IDT brought suit against Tyco, alleging breach of the settlement agreement. After Tyco filed its answer and counterclaims, IDT moved for summary judgment on the issue of liability and on Tyco’s counterclaims. Tyco cross-moved for summary judgment on IDT’s breach of contract claim. Supreme Court granted IDT’s motion, finding Tyco liable, and dismissed Tyco’s counterclaims and cross motion. The Appellate Division reversed Supreme Court’s order by denying IDT’s summary judgment motion and granting Tyco’s cross motion to dismiss the complaint (54 AD3d 273 [2008]). The Court held that (1) the settlement agreement was not a fully enforceable contract when entered into, (2) the agreement was contingent on the negotiation of additional terms and (3) Tyco’s proposal of purportedly inconsistent terms did not constitute a breach of contract. The Appellate Division granted IDT leave to appeal and certified the following question to this Court: “Was the order of this Court, which reversed the order of the Supreme Court, properly made?” We now affirm the order of the Appellate Division and answer the certified question in the affirmative.

IDT asserts that the settlement agreement was a fully enforceable contract which bound the parties. It further claims that the settlement agreement was breached on June 12, 2001 when Tyco submitted the IRU containing terms inconsistent with the terms of the settlement agreement. First, IDT says the IRU had a “decommissioning” provision which provided that Tyco could decommission the network after five years without IDT’s permission even though IDT has an indefeasible right to use the network for 15 years free of charge. Second, it required IDT to pay for the premature shutdown of the network despite IDT’s entitlement to free access, as well as free operations, administration and maintenance of the network. In addition, IDT argues that the IRU required IDT to waive its damage remedies in the event that Tyco breached the settlement agreement, even though IDT had dismissed its prior claim against Tyco as part of the settlement agreement.

At the outset, we agree with IDT that the parties entered into a valid settlement agreement. “[Stipulations of settlement are judicially favored and may not be lightly set aside” (Matter of Ranter, 209 AD2d 365, 365 [1st Dept 1994] [citation omitted]). As we said in Hallock v State of New York (64 NY2d 224, 230 [1984]), “strict enforcement [of settlement agreements] not only serves the interest of efficient dispute resolution but is also essential to the management of court calendars and integrity of the litigation process.” Although there was a valid settlement agreement in this case, Tyco’s obligation to furnish capacity never became enforceable because agreed-upon conditions were not met.

“[A] contract is to be construed in accordance with the parties’ intent, which is generally discerned from the four corners of the document itself. Consequently, ‘a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms’ ” (MHR Capital Partners LP v Presstek, Inc., 12 NY3d 640, 645 [2009], quoting Greenfield v Philles Records, 98 NY2d 562, 569 [2002]). Further,

“[a] condition precedent is ‘an act or event, other than a lapse of time, which, unless the condition is excused, must occur before a duty to perform a promise in the agreement arises’ (Calamari and Perillo, Contracts § 11-2, at 438 [3d ed]; see, Restatement [Second] of Contracts § 224; see also, Merritt Hill Vineyards v Windy Hgts. Vineyard, 61 NY2d 106, 112-113). Most conditions precedent describe acts or events which must occur before a party is obliged to perform a promise made pursuant to an existing contract, a situation to be distinguished conceptually from a condition precedent to the formation or existence of the contract itself (see, M.K. Metals v Container Recovery Corp., 645 F2d 583)” (Oppenheimer & Co. v Oppenheim, Appel, Dixon & Co., 86 NY2d 685, 690 [1995]).

Here, the settlement agreement contemplated the occurrence of numerous conditions, i.e., the negotiation and execution of four additional agreements, most importantly, the IRU. Regarding the IRU, the clear intent of the parties was that it had to be executed before any handover of capacity. As such, it cannot be said that defendants breached the settlement agreement by merely proposing an IRU which allegedly contained terms inconsistent with settlement.

Nevertheless, under the settlement agreement, the parties were required to negotiate the terms of the IRU and other agreements in good faith. Despite the fact that (1) the parties negotiated various open terms on and off for almost three years and (2) each side had a right to require conformance with Tyco’s standard agreements, except to the extent that any term conflicted with the settlement agreement—i.e., the parties had an alternative mechanism for determining those terms if the negotiations were unsuccessful—the IRU was never executed. Finally, the record does not support a finding that Tyco breached any of its obligations.

Accordingly, the order of the Appellate Division should be affirmed, with costs, and the certified question answered in the affirmative.

Judges Ciparick, Graffeo, Read, Smith and Pigott concur; Chief Judge Lippman taking no part.

Order affirmed, etc.

      . An IRU is a legal interest that confers a right of access to some or all of the capacity in a telecommunications cable system of another party.

      . The parties debate whether the settlement is a Type I or Type II preliminary agreement as used in federal line of cases, such as Brown v Cara (420 F3d 148 [2d Cir 2005]) and Teachers Ins. & Annuity Assn. of Ain. v Tribune Co. (670 F Supp 491 [SD NY 1987]). While we do not disagree with the reasoning in federal cases, we do not find the rigid classifications into “Types” useful. In reaching its decision the Appellate Division constructed a new category—a “contingent Type I agreement” (54 AD3d at 275). However, we find that it is enough to ask in this case whether the agreement contemplated the negotiation of later agreements and if the consummation of those agreements was a precondition to a party’s performance. In the instant matter, it clearly was.


author: Chief Judge Lippman.

text:
    [918 NE2d 126, 889 NYS2d 536]
    The People of the State of New York, Respondent, v Guiseppe D’Alessandro, Appellant.
    Argued September 17, 2009;
    decided October 27, 2009

      POINTS OF COUNSEL

      Sullivan Gardner PC, New York City (Brian Gardner and Christopher Tumulty of counsel), for appellant.
    I. The Appellate Division, First Department, erred in labeling a successive error coram nobis application as reargument when the application was not brought as a reargument motion and it raised entirely new legal issues that were not addressed in the prior application. (People v Turner, 5 NY3d 476; People v Garcia, 19 AD 3d 17; People v Bachert, 69 NY2d 593; People v Correa, 77 NY2d 930; People v McKenna, 76 NY2d 59; People v Giles, 73 NY2d 666; People v Albro, 52 NY2d 619.) II. The Appellate Division, First Department, erred in denying appellant’s application for a writ of error coram nobis where prior appellate counsel was ineffective for failing to raise a clear-cut and completely dispositive speedy trial argument. (People

      v Ramchair, 8 NY3d 313; People v Turner, 5 NY3d 476; Strickland v Washington, 466 US 668; People v Caban, 5 NY3d 143; People v Stultz, 2 NY3d 277; People v Baldi, 54 NY2d 137; People v Benevento, 91 NY2d 708; People v Stirrup, 91 NY2d 434; People v Manning, 52 AD3d 1295; People v St. Louis, 41 AD3d 897.)

      Robert M. Morgenthau, District Attorney, New York City (Hilary Hassler and Eleanor J. Ostrow of counsel), for respondent.
    Defendant’s appeal must be dismissed. The Appellate Division properly treated defendant’s second coram nobis petition as a motion to reargue, and its order denying such motion is nonappealable. In any event, by any measure, the Appellate Division’s ruling was an appropriate exercise of discretion and should be affirmed. (People v De La Hoz, 131 AD2d 154; People v Bautista, 7 NY3d 838; People v De Jesus, 54 NY2d 447; Matter of State of New York v King, 36 NY2d 59; Matter of Henry v Goldberg, 40 NY2d 895; Created Gemstones v Union Carbide Corp., 45 NY2d 959; Matter of Williams & Geiger v Edelman, Berger, Peters & Koshel, 39 NY2d 1034; Matter of Cunningham v District Attorney, N.Y. County, 37 NY2d 856; People v Valinoti, 26 NY2d 553; People v Soto, 80 NY2d 824.)
   OPINION OF THE COURT

Chief Judge Lippman.

Nearly 12 years after his conviction for kidnapping in the first degree and other related crimes was affirmed on direct appeal (People v D’Alessandro, 230 AD2d 656 [1st Dept 1996], Iv denied 89 NY2d 863 [1996]), defendant, represented by counsel, petitioned the Appellate Division for a writ of error coram nobis on the ground that his appellate counsel had been ineffective for failing to raise a speedy trial argument on the appeal. The Appellate Division deemed the application a motion to reargue an order of that court denying a previous coram nobis application—brought by defendant pro se nine years earlier—and denied reargument.

Initially, the People argue that defendant’s appeal to this Court must be dismissed, as no appeal lies from an Appellate Division order denying reargument. While we acknowledge this limitation on our jurisdiction, it is not dispositive in this case, given our inherent authority to look beyond the Appellate Division’s recital in the decretal clause of the order to determine if defendant’s petition in actuality sought coram nobis relief, the denial of which is reviewable by this Court (see CPL 450.90 [1]). We have previously exercised this power—albeit in a different context—in People v Giles (73 NY2d 666, 669-670 [1989]), where we held that this Court is not bound by the Appellate Division’s characterization of the order, and must “determine for itself ’ whether a reviewable legal question exists (id. at 670 [citation omitted]). Any other interpretation would allow a mislabeled or wrongly denominated order of the Appellate Division to bar appellate review of “real issues of law,” thereby interfering with this Court’s “[unique] authority ... to determine [its] jurisdictional range” (id.).

Exercising that authority here, the essential inquiry on this appeal thus becomes whether the Appellate Division properly characterized defendant’s petition as a motion to reargue. Pursuant to CPLR 2221 (d) (2), a motion to reargue must “be based upon matters of fact or law allegedly overlooked or misapprehended by the court in determining the prior motion.” It is well settled that a motion to reargue “is not an appropriate vehicle for raising new questions . . . which were not previously advanced” (People v Bachert, 69 NY2d 593, 597 [1987] [internal quotation marks and citation omitted]). Necessarily, where a new argument is presented on the motion, that argument could not have been “overlooked or misapprehended” by the Appellate Division in the first instance.

No reasonable view of defendant’s application supports the Appellate Division’s conclusion that it sought relief in the form of reargument. Defendant did not identify any points overlooked or misapprehended by the Appellate Division in its previous order denying his first petition for a writ of error coram nobis. Rather, defendant raised the novel argument that appellate counsel had been ineffective for failing to argue that the trial court improperly denied his motion to dismiss the indictment on speedy trial grounds in light of this Court’s decisions in People v McKenna (76 NY2d 59 [1990]) and People v Correa (77 NY2d 930 [1991]), both of which were decided before defendant’s trial and appeal. Specifically, defendant argued that, under this Court’s decision in McKenna, the period of delay during which the People failed to turn over the grand jury minutes in response to defendant’s motion to dismiss the indictment for legal insufficiency—a total of 196 days—should have been charged to the People. Further, in reliance on Correa, defendant argued that two specific time periods—11 days between the original indictment and the arraignment thereon and 21 days between the superceding indictment and the subsequent arraignment—should have been charged to the People. Although defendant’s first petition for a writ of error coram nobis also argued that appellate counsel was ineffective for failing to raise a speedy trial claim, it was based on an entirely different theory, namely, that the time period between the defendant’s arrest and the return of the second indictment—a total of 357 days—should have been charged to the People. Significantly, in opposition to defendant’s second application, the People acknowledged that defendant “never raised the speedy trial claims advanced in his current petition” and that the first application contained “a challenge premised on a different theory than the one defendant advances now.”

Despite this apparent concession below, the People now argue that the Appellate Division properly denominated defendant’s petition as a motion to reargue because it raised the same “type” of claim as the first application. The determinative question here, however, is not whether the argument on the second petition fell within the same broad legal category as the argument in the first petition, but whether the specific argument was the same as that previously raised, but overlooked or misapprehended by the reviewing court—a question that must be answered in the negative here. If we were to accept the Appellate Division’s superficial characterization of defendant’s application here as a motion to reargue, we would implicitly approve of a scenario in which litigants may raise any new issue on reargument. This would result in a proliferation of these types of motions—a consequence we are sure the Appellate Division did not intend—and conflict with straightforward statutory and decisional law that narrowly limits reargument to issues previously raised.

The People suggest that, where the defendant has previously brought a coram nobis application, the Appellate Division possesses the discretion to summarily decline to review the merits of a second application seeking the same relief. Indeed, in People v Mazzella (13 NY2d 997, 998 [1963]), we held “[w]hile a denial of coram nobis relief is not res judicata as to a subsequent petition on the same grounds, the question whether to entertain such an application is ordinarily one of discretion.” Mazzella, however, is procedurally distinguishable, because the writ in that case was brought at the trial court to vacate the judgment of conviction. Even if the Appellate Division had the discretion to decline to review the merits of subsequent coram nobis applications, it would have been an abuse of such discretion to refuse to entertain the second application in this case, which was brought by counsel nine years after the first application and raised different and much more substantial arguments than those previously raised. Further, although we acknowledge that a significant period of time has passed since defendant’s conviction was affirmed on appeal, we should not allow the lengthy passage of time, in itself, to bar review of a defendant’s claims.

In sum, because defendant’s application for a writ of error coram nobis raised new arguments not raised in his previous application, the Appellate Division erred in characterizing the second application as a motion to reargue. Inasmuch as the Appellate Division did not pass on the merits of defendant’s application, we remit the matter to that court for a consideration of defendant’s claims. Although defendant urges us to review the merits here rather than remitting to the Appellate Division, we note that a claim of ineffective assistance of counsel should first be heard and decided in the court where the allegedly deficient representation occurred (see Bachert, 69 NY2d at 599). Further, the proffered approach would deprive defendants of the potential to have the merits of their claims addressed twice—once by the Appellate Division and, if unsuccessful, once by this Court on a motion for leave to appeal from the order denying the writ (see CPL 450.90 [1]). Finally, we are not in the habit of reviewing the merits of an argument in the first instance without the benefit of the lower court’s reasoned analysis.

Accordingly, the order of the Appellate Division should be reversed and the matter remitted to that court for further proceedings consistent with this opinion.

Judges Ciparick, Graffeo, Read, Smith, Pigott and Jones concur.

Order reversed, etc.

       We note that Mazzella predated the codification of CPL article 440, which comprehensively addresses the proper procedure and standard of review for motions to vacate judgments of conviction made at the trial court, and thereby obviated the use of the writ in that context. Despite invitation by this Court, the Legislature has not passed a similar statutory mechanism to address claims of ineffective assistance of counsel brought at the Appellate Division (see Bachert, 69 NY2d at 595-596), thus requiring litigants to continue to rely on the common-law writ to raise such claims.