Generally speaking, most people want to avoid becoming entangled in litigation.  But what happens when an action is pending and, although your client is not a party, his or her interests may be adversely affected?  Move to intervene.

Intervention is a procedure whereby an outsider can become a party to a pending action on its own initiative.  Intervention is sometimes available as of right (see CPLR 1012), sometimes only in the court’s discretion (see CPLR 1013), but it must be brought by motion in all instances, accompanied by a proposed pleading setting forth the claim or defense for which intervention is sought (see CPLR 1014).

The Appellate Division, Second Department recently reiterated the principles governing motions for leave to intervene in Roman Catholic Diocese of Brooklyn, N.Y. v Christ the King Regional High Sch, 2018 NY Slip Op 06131.  In that case, the plaintiff agreed to convey title to a parcel of property to the defendant on the condition that the premises would not be used for any purpose other than for the operation of a Catholic high school.  But in 2002, the defendant leased a portion of the premises to a non-party (“Non-Party 1”), which, in 2013, sublet a portion of the premises to another non-party (“Non-Party 2”), who used the leased portion to operate a charter middle school.

The plaintiff sued the defendant seeking, among other things, an injunction prohibiting the defendant from using any portion of the property as a charter school.  After the plaintiff was awarded partial summary judgment, both non-parties (the “Non-Parties”) moved to intervene as defendants in the action.  The Commercial Division in Queens County (Hon. Marguerite A. Grays) denied the Non-Parties’ motions.

The Appellate Division, Second Department reversed, reasoning that the Non-Parties each “have a real and substantial interest in the outcome of the litigation and that, although their respective interests are aligned with those of [the defendant] and with each other, [the defendant] cannot fully represent those interests.”  The Court noted that although neither of the Non-Parties would be bound by a judgment in the action, if the plaintiff prevailed, the defendant would be forced to break its lease with Non-Party 1, which in turn would be forced to break its sublease with Non-Party 2.  The Court concluded that the Non-Parties should have been allowed to intervene under these circumstances.

So, if your client has a dog in someone else’s fight and wants to intervene, under which CPLR provision should you move? CPLR 1012 specifies three narrow grounds for intervention as a matter of right: (1)  where a statute expressly confers such right; (2) where the person seeking to intervene “is or may be bound by the judgment” and where representation of the person’s interest “is or may be inadequate”; and (3) when an action concerns property in which a nonparty has an interest and the nonparty may be adversely affected by the judgment.  By contrast, CPLR 1013 allows for intervention in the court’s discretion (i.e., permissive intervention), thereby providing an additional or alternative ground for intervention based simply on a showing that the intervenor’s claim or defense shares a common question of law or fact with a claim or defense in the pending action.

But, whether intervention is sought as a matter of right under CPLR 1012, or as a matter of discretion under CPLR 1013 is of “little practical significance” because intervention will be permitted where, as in the case above, the intervenor has “a real and substantial interest in the outcome of the proceedings.”

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Can substitution of a new plaintiff who has proper standing cause “surprise or prejudice” to a defendant after the statute of limitations would have expired, such that leave to file an amended complaint should be denied? Not if the two plaintiffs are the same person switching from their individual to representative capacity, held the Second Department on August 15, 2018 in D’Angelo v Kujawski.

Plaintiff, “as proposed Administrator [sic]” of her deceased son’s estate, retained Defendants, comprising a law firm, to commence an action against the U.S. Department of Veterans Affairs (“VA”) based on medical malpractice that allegedly resulted in her son’s wrongful death. According to Plaintiff’s complaint, in 2011 Defendants filed a Notice of Claim with the VA’s Office of Regional Counsel, but the Notice of Claim negligently failed to reference the VA’s administration of contraindicated medications. After Defendants withdrew from the representation on December 20, 2013, Plaintiff commenced an action with new counsel that was ultimately dismissed by the US District Court for the Eastern District of New York for failure to timely exhaust administrative remedies. Specifically, the court found that Plaintiff had possessed “vital information bearing on the existence of her claim” that was wrongfully excluded from the Notice of Claim.

On December 15, 2016, five days before the statute of limitations would have expired, Plaintiff commenced an action for legal malpractice against Defendants. However, Plaintiff mistakenly named herself individually as the plaintiff, instead of as Administratrix of the Estate. Defendants moved to dismiss the complaint for lack of an attorney-client relationship with the individual Plaintiff. In response, Plaintiff cross-moved for leave to file an amended complaint, thus setting the stage for the court to determine the applicability of CPLR §§ 305 and 3025 to a request to substitute plaintiffs, as well as whether Plaintiff’s delay in seeking leave past expiration of the statute of limitations would “prejudice or surprise” Defendants.

Relying on Caffaro v Trayna, a 1974 Court of Appeals decision purportedly allowing substitution of plaintiffs and subsequent interposition of time-barred claims in an amended pleading, Commercial Division Justice James Hudson held that Defendants would suffer no prejudice because the original complaint adequately put Defendants on notice of the nature of the claims and allowed the amendment. However, Justice Hudson did not analyze or discuss whether CPLR §§ 305 and 3025 authorized a party without standing to substitute an otherwise time-barred party. Nor did Caffaro, which substituted the estate’s Executrix for the decedent in the decedent’s pending medical malpractice action.

The Second Department affirmed:

“[A]n amendment which would shift a claim from a party without standing to another party who could have asserted that claim in the first instance is proper since such an amendment, by its nature, does not result in surprise or prejudice to the defendants who had prior knowledge of the claim and an opportunity to prepare a proper defense” (JCD Farms v Juul-Nielsen, 300 AD2d 446, 446 [internal quotation marks omitted]; see United Fairness, Inc. v Town of Woodbury, 113 AD3d 754, 755; Matter of Highland Hall Apts., LLC v New York State Div. of Hous. & Community Renewal, 66 AD3d 678, 682; Plotkin v New York City Tr. Auth., 220 AD2d 653, 654).

The Second Department appeared primarily concerned with protecting Defendants from new allegations or claims, rather than whether the “relation back” doctrine codified in CPLR § 203(f) applied in actions commenced by a party without standing. The Second Department did not address authority from the Court of Appeals and other Departments of the Appellate Division that appeared to hold otherwise, such as Nomura Asset Acceptance Corp. v Nomura Credit and Capital, Inc., 139 AD3d 519 (1st Dept 2016). There, the First Department held that an untimely claim could not relate back to a defective summons issued by a plaintiff without standing, “because no valid action was commenced by the filing of that summons.” The Fourth Department held the same in Truty v Fed. Bakers Supply Corp., 217 AD 2d 951 (4th Dept 1995). Both decisions cited Goldberg v Camp Mikan-Recro, 42 NY2d 1029 [1977], in which the Court of Appeals distinguished Caffaro based on the original plaintiff having standing to commence the action.

Practitioners are thus cautioned that between the First and Fourth Departments, on the one hand, and the Second Department, on the other, there appears to be a split as to whether an untimely amended pleading may “relate back” to an earlier action brought by a plaintiff who lacks standing.

For those unfamiliar with what today’s young kids are listening to, Aubrey “Drake” Graham is one of the most commercially-successful recording artists of all time, with multiple multiple-platinum records to his credit. For frame of reference, Drake’s recent album “Scorpion,” on its first day of release, was streamed over 300 million times on Apple Music and Spotify alone. In other words, Drake generates enough revenue to rap about his taxes: “Nowadays it’s six-figures when they tax me/ Oh well, guess you lose some and win some, long as the outcome is income.

Aspire Music Group (“Aspire”) was the fortunate record label with the foresight to enter into an Exclusive Recording Artist Agreement with Drake in 2008, when he was still relatively unknown. In 2009, Aspire provided Drake’s services to a joint venture between Cash Money Records (“Cash Money”) and Dwayne Carter’s (aka rapper “Lil Wayne”) company Young Money Entertainment (“Young Money”), in exchange for a third of net profits from Drake’s albums and a third of the copyrights, and for monthly accounting statements.

The sordid history between Cash Money and Lil Wayne is a story for another blog, but suffice it to say that by 2015, Cash Money’s principals were short on both cash and money. Lil Wayne sued Cash Money and its principals for $51 million in January 2015. Universal Music Group (“Universal”) stepped in. Since its inception in 1998, Universal Music Group (“Universal”) had served as Cash Money’s music distributor. However, as alleged by Aspire, in 2015 Universal advanced large sums of money to Cash Money and agreed to take on certain of Cash Money’s liabilities in exchange for unfettered control over a significant portion of Cash Money’s business operations.

Aspire filed a lawsuit in New York County Supreme Court in April 2017 against Cash Money and its principals, Young Money, and Universal. According to Aspire, Cash Money and Young Money had failed to pay Enough Money to Aspire for Drake-related profits, and Universal was liable as Cash Money’s alter ego.

Universal moved to dismiss, arguing that (i) Universal did not own Cash Money, so could not be its alter ego; (ii) Universal was not alleged to be the alter ego of Young Money and therefore not responsible for Young Money’s actions; (iii) Aspire’s rights are governed by a contract to which Universal was not a party; and (iv) Aspire’s allegations of domination and control are conclusory.

In an Order entered on July 3, 2018, Justice Barry R. Ostrager denied Universal’s motion to dismiss. Although recognizing that New York courts do not apply alter-ego liability on non-owners, the court found that Aspire had sufficiently alleged facts suggesting that Universal had obtained “equitable ownership” over Cash Money. Aspire had alleged that, pursuant to contracts, Universal shared offices with Cash Money, operated its website, intermingled its business affairs, and kept Cash Money undercapitalized and entirely dependent on advances and direct payments from Universal. Citing the First Department’s 2000 decision in Trans. International Corp. v. Clear View Technologies, Ltd., the court found that such allegations were sufficient to confer equitable ownership, and thus alter-ego liability, on a non-owner.

It is not clear that the Clear View Technologies decision involved a non-owner, non-director defendant. In its reply brief, Universal cited allegations in the complaint that “each invidividual defendant is and at all relevant times, was an officer, director and shareholder of Clear View.” After acknowledging a long line of New York decisions declining to impose alter ego liability against non-owners, Justice Ostrager concluded that such liability was nonetheless permitted under New York law. However, the court cited only federal cases from the Second Circuit in support.

As for Universal’s other arguments, the court held that Cash Money was liable for Young Money’s acts in furtherance of their joint venture partnership, and therefore Universal need not be alleged to be Young Money’s alter-ego. And Universal’s absence from Aspire’s contract with the joint venture was irrelevant, because Universal did not become Cash Money’s alter ego until 2015. Aspire did not know of Universal’s role at the time it entered the contract with Cash Money.

It remains to be seen whether sufficient evidence exists of Universal’s alleged control over Cash Money. Either way, be forewarned: too much contractual control over a borrower can potentially give rise to liability for that borrower’s obligations.