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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.

In commercial litigation, it is not at all unusual for courts to be called upon to determine whether an unsigned agreement is binding.  The federal courts have a long line of cases dealing with this very issue, and perhaps the seminal one in this area is the Second Circuit’s decision in Winston v Mediafare Enter. Corp., a case considering whether an unsigned settlement agreement was enforceable.  The court there identified several factors to be considered in determining whether an agreement — in that case, a settlement — is binding:  “(1) whether there has been an express reservation of the right not to be bound in the absence of a writing; (2) whether there has been partial performance of the contract; (3) whether all of the terms of the alleged contract have been agreed upon; and (4) whether the agreement at issue is the type of contract that is usually committed to writing.”

New York courts take a similar approach.  They have long recognized that a binding agreement may be found, even though a contract was not signed, so long as it is not proscribed by New York’s statute of frauds, NY Gen. Obligs. L. 5-701.  In  Brown Bros. Elec. Contrs. v Beam Constr. Corp., for example, the Court of Appeals held that “[i]n determining whether the parties entered into a contractual agreement and what were its terms, it is necessary to look . . . to the objective manifestations of the intent of the parties as gathered by their expressed words and deeds.” See also Flores v. The Lower East Side Service Center, Inc.  Not exactly a recipe suitable for summary judgment.

Recently, in 223 Sam, LLC v. 223 15th Street, LLC, the Appellate Division, Second Department affirmed the trial court’s order denying defendants’ motion for summary judgment seeking to dismiss breach of contract claim.  The case arose out of plaintiff’s claim for breach of contract based upon an unexecuted amendment to an operating agreement.  The amendment added plaintiff as a 50% member of defendants, and also acknowledged plaintiff as a co-manager.  The damages sought reflect the management fees allegedly earned.

Defendants argument, made in the context of a motion for summary judgment was simple:  the amendment was never executed by the parties, and therefore is not binding.

In rejecting defendants’ argument, the court first noted that New York has long recognized the rule that parties will not be bound if  they state their intent not to be bound unless and until the agreement is signed by all.  However, if the parties reach agreement on “all the substantial terms” and nothing material is left for the future, then even if the parties intended to reduce the agreement but did not, this may nevertheless create a binding agreement between them.  Express reservation is the key.  The ultimate question of whether the parties intended to be bound is a question of fact.

In denying defendants’ motion, the court referred to emails exchanged between the parties which simply “failed to eliminate triable issues of fact as to whether the parties had agreed upon the major terms of the agreement and whether the parties began to perform . . . .”

The hard lesson:  be careful in exchanging drafts, revisions and amendments (1) without expressly reserving the right not to be bound unless and until signed by all, and (2) partially performing before the agreement is signed.  Otherwise, once all material terms are agreed upon, you may indeed have a binding agreement.

 

 

 

Ian Pai was an early participant in the Blue Man Group (“BMG”).  Between 1989 and 1991, he met and began collaborating with the founders of BMG, namely, Chris Wink, Phillip Stanton and Matt Goldman.  Pai claims to have made significant contributions to BMG’s creative and musical aspects over the decades-long relationship he had with the group, having ultimately assumed the duties of Music Director and Conductor.   In 2014, Pai’s royalty checks were abruptly cut in half without explanation.  Ultimately, Pai filed a  complaint against BMG and its founders, claiming breach of fiduciary duty, breach of contract, accounting, quantum meruit and unjust enrichment.  Following discovery, defendants moved for summary judgment on all counts.  Justice Barry Ostrager denied the motion in part, but granted summary judgment dismissing the two counts premised upon the existence of a fiduciary duty:  breach of fiduciary duty and accounting.  The remaining claims survived the motion, and trial is now scheduled for April 9, 2018.

Pai concedes that his fiduciary duty and accounting claims are not based upon a “formal” fiduciary relationship, but rather on his decades-old personal relationship with the three founders, and the founders’ alleged representations that they would “take care” of him.   In sum, his fiduciary duty claims were based solely upon the close relationship they developed over the years.  The defendants denied a fiduciary relationship ever existed, but did admit they had a long close-knit relationship with Pai.

So, can a mere close personal relationship create a fiduciary duty?   Maybe!  Indeed, as the Court recognized, citing Kohan v. Nehmadi, a fiduciary relationship can be found to exist between close friends under certain circumstances.   Here, the Court considered that “Pai’s age, lack of financial experience, and trust in the Individual Defendants to look out for him” may very well have given rise to a fiduciary relationship.  However, fatal to Pai’s claims was applicable six-year statute of limitations which barred any claims he may have had in the 1990s.  The Court reasoned that since 2009, Pai has been represented by counsel, negotiating agreements between Pai and BMG, all at arms-length.  The result is that the contract-based claims survive for trial, but the fiduciary relationship-based do not.

The concept of a close personal relationship giving rise to fiduciary duty is not new.    Whether a fiduciary relationship exists is, of course, a very fact-intensive inquiry.  The Court in the Pai case recognized this and, in the end, did not have to decide whether the early relationship in fact gave rise to a fiduciary one since it was time barred.  A good overview of this very issue — how New York courts determine the existence of a fiduciary duty — is found in an EDNY case, St. John’s Univ. v. Bolton (Garaufis, J., 2010) (“a fiduciary relationship embraces not only those the law has long adopted . . . but also more informal relationships where it can be readily seen that one party reasonably trusted another”).  The starting point (and maybe the ending one too) is whether there is an agreement between the parties governing their rights and obligations.  In the absence of such, a close personal relationship intertwined with a business one can very well create at least issues of fact whether a fiduciary relationship exists between them.