ATTORNEYS/EVIDENCE

Attorney Whose Testimony Would Support Client Should Have Been Disqualified Under Advocate-Witness Rule, However, the Motion to Disqualify the Attorney's Firm Was Properly Denied

The Second Department noted that an attorney (Wohlman) should have been disqualified under the advocate-witness rule but the motion to disqualify the attorney's firm and "of counsel" was properly denied. The attorney's testimony would not be prejudicial to the client:

The Supreme Court improvidently exercised its discretion in denying that branch of the plaintiff's motion which was to disqualify Derek Wolman from representing the defendant in this action, since Wolman's testimony will be necessary regarding "a significant issue of fact" in the dealings between the plaintiff and the defendant (Rules of Professional Conduct [22 NYCRR 1200.0] rule 3.7[a]...). Contrary to the defendant's contention, the fact that Wolman's testimony is necessary to and will support the defendant's case does not preclude application of the advocate-witness rule (see Rules of Professional Conduct [22 NYCRR 1200.0] rule 3.7...).

However, the Supreme Court providently exercised its discretion in denying those branches of the plaintiff's motion which were to disqualify Davidoff Hutcher & Citron, LLP, (hereinafter DHC), Candace C. Carponter, and Candace C. Carponter, P.C., from representing the defendant in this action. Wolman is a member of DHC, and Candace C. Carponter and her P.C. appeared as "of counsel" to DHC. Under rule 3.7(b)(1) of the Rules of Professional Conduct (see 22 NYCRR 1200.0), which are not binding authority and provide guidance only ... , "[a] lawyer may not act as an advocate before a tribunal if another lawyer in the lawyer's firm is likely to be called as a witness on a significant issue other than on behalf of the client, and it is apparent that the testimony may be prejudicial to the client" (22 NYCRR 1200.0, rule 3.7[b][1]). Here, the plaintiff did not argue that Wolman's testimony would be prejudicial to the defendant. Rather, the plaintiff argued that Wolman's testimony would support the defendant's case. Thus, the plaintiff failed to establish any basis for disqualifying DHC, Carponter, or Carponter's P.C. They can continue to represent the defendant despite the fact that Wolman, their colleague, is a necessary witness ... . NY Kids Club 125 5th Ave., LLC v Three Kings, LLC, 2015 NY Slip Op 07958, 2nd Dept 11-4-15

CIVIL PROCEDURE

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Late Motion to Amend Answer Should Have Been Granted, No Prejudice

The Second Department determined Supreme Court should have granted plaintiff's motion to amend the answer by adding an affirmative defense. The court noted that, absent prejudice, mere lateness is not a sufficient ground for denial of the motion:

Permission to amend a pleading should be "freely given" (CPLR 3025[b]...). Leave to amend an answer to assert an affirmative defense should generally be granted where the proposed amendment is neither palpably insufficient nor patently devoid of merit, and there is no evidence that it would prejudice or surprise the opposing party ... . Here, the defendant sufficiently alleged that the driver of his vehicle did not have his permission or consent to operate his vehicle at the time of the subject accident ... . The proposed affirmative defense set forth allegations based on factual matters that are not palpably insufficient or patently devoid of merit ... .

Furthermore, mere lateness is not a basis for denying an amendment unless the lateness is coupled with " significant prejudice to the other side'" ... . Although the defendant waited over 1 ½ years before moving for leave to amend the answer, there was no showing that the plaintiff would be significantly prejudiced, as discovery was ongoing ... . Jeboda v Danza, 2015 NY Slip Op 07951, 2nd Dept 11-4-15

CIVIL PROCEDURE/MUNICIPAL LAW

Due Diligence Requirements for Nail and Mail Service Do Not Apply Under the New York City Charter, One Attempt at Personal Service and Use of Nail and Mail Method for a Notice of Violation (by the NYC Department of Buildings) Sufficient

The First Department determined that, although the New York City Charter refers to CPLR article 3, the "due diligence" requirements for "nail and mail" service in article 3 do not apply to service of a notice of violation (NOV) by the Department of Buildings (DOB). Therefore, one attempt at personal service followed by use of the "nail and mail" method was sufficient service:

The reference to CPLR article 3 in the City Charter's affix and mail provision merely prescribes the class of individuals whom respondents must try to personally serve, and does not import the "due diligence" requirement of CPLR article 3 ... . This interpretation of the City Charter is supported by the statutory language as a whole, and by the legislative history showing a legislative intent to make service under section 1049-a(d)(2) of the City Charter less onerous than service under CPLR article 3 (see id.; see also Governor's Mem approving L 1979, ch 623, 1979 McKinney's Session Laws of NY at 1816-1817). Matter of Mestecky v City of New York, 2015 NY Slip Op 08077, 1st Dept 11-5-15

CIVIL PROCEDURE

Defendant Who Was Not Served Because Current Address Not on File with Secretary of State Entitled to Vacate Default Judgment Pursuant to CPLR 317

The Second Department determined defendant's motion to vacate a default judgment should have been granted pursuant to CPLR 317, even though that ground was not raised below. Apparently defendant did not keep a current address on file with the Secretary of State. Therefore, although the Secretary of State was served, defendant did not receive notice of the suit in time to defend:

... [A]lthough the defendant did not cite CPLR 317 in support of its motion, this Court may, under the circumstances presented here, consider CPLR 317 as a basis for vacating the default (see CPLR 2001...). CPLR 317 permits a defendant who has been "served with a summons other than by personal delivery" to defend the action upon a finding by the court that the defendant "did not personally receive notice of the summons in time to defend and has a meritorious defense" (CPLR 317...). Here, there was no evidence that the defendant or its agent received actual notice of the summons, which was delivered to the Secretary of State, in time to defend this action ... . Proof that additional copies of the summons and complaint were delivered to an employee of the tenant occupying premises owned by the defendant was insufficient to establish that the defendant received notice of the summons and complaint ... . Furthermore, there is no basis in the record to conclude that the defendant deliberately attempted to avoid service, especially since the plaintiff had knowledge of the defendant's actual business address ... . Moreover, the defendant met its burden of demonstrating the existence of a potentially meritorious defense ... . Schacker Real Estate Corp. v 553 Burnside Ave., LLC, 2015 NY Slip Op 07963, 2nd Dept 11-4-15

CONTRACT LAW/DEBTOR-CREDITOR/MEDICAID

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Transfer of Assets to Qualify for Medicaid Constituted a Breach of the Defendants' Contract with Plaintiff Continuing Care Retirement Community

The Third Department, in a full-fledged opinion by Justice Lynch, determined the defendants' (the Yezzis') transfer of funds in order to qualify for Medicaid constituted a breach of the contract with the plaintiff (GSV), a continuing care retirement community (CCRC), as well as a fraudulent transfer under the Debtor-Creditor Law:

... [T]he essence of the CCRC financial model requires a tradeoff between the resident and the facility, in which the resident must disclose and spend his or her assets for the services provided, while the facility must continue to provide those services for the duration of the resident's lifetime even after private funds are exhausted and Medicaid becomes the only source of payment. With this long-term commitment, the facility necessarily must evaluate the financial feasibility of accepting a resident in the first instance.

Pertinent here, the contract provided that the Yezzis could "not transfer assets represented as available in [their] application to be a [r]esident of [GSV] for less than fair market value, unless the transfer [would] not impair [their] ability to pay [their] financial obligations to [GSV]." The contract further required the Yezzis to "make every reasonable effort to meet [their] financial obligations" to GSV and prohibited them from making "any transfers or gifts after actual occupancy, which would substantially impair [their] ability or the ability of [their] estate to satisfy [their] financial obligations to [GSV]." Further, the contract specifies that the financial information disclosed with their application was "a material part of this [contract], . . . [that was] incorporated as a part of this [contract]." Although, as defendants correctly contend, the contract does not affirmatively state that the Yezzis must expend the private resources identified with their application, it does expressly preclude the transfer of such resources without fair consideration.

Given the long-term nature of the contract, which expressly embraced the prospect of nursing facility care, we agree with Supreme Court that the admission agreement is supplemental to, and does not supercede, the contract. We recognize that, under the admission agreement, the Yezzis were required to "pay for, or arrange to have paid for by Medicaid, . . . all services provided by [GSV]" (emphasis added). We are not, however, persuaded by defendants' interpretation that this disjunctive provision required plaintiff to accept Medicaid as an alternative payment source. Construed together, the contract and admission agreement are actually compatible in that the CCRC financial model anticipates that, upon depletion of a resident's personal resources, Medicaid will be the ultimate source of payment — and plaintiff is contractually obligated to accept Medicaid while continuing to provide the same services. Consistently, addendum X to the admission agreement specifies that, "[i]t is the responsibility of residents, and those who assist them, to use the residents' assets and income to pay the costs associated with their residency and health care." Good Shepherd Vil. at Endwell, Inc. v Yezzi, 2015 NY Slip Op 08031, 3rd Dept 11-5-15

CONTRACT LAW

Voluntary Payment Doctrine Precluded Lawsuit

The First Department, over a dissent, determined plaintiff's (Klein's) complaint alleging  breach of contract, fraud, violation of General Business Law, etc., was properly dismissed pursuant to the voluntary payment doctrine. Klein procured a loan from defendant. After paying interest and fees to defendant in order to refinance with another lender, Klein sued defendant alleging the fees were excessive and were paid under duress. The majority concluded the voluntary payment doctrine warranted dismissal of the complaint. The dissent argued plaintiff had stated a cause of action alleging the payment was made under duress, and, therefore, was not voluntary:

The voluntary payment doctrine bars recovery of payments voluntarily made with full knowledge of the facts, in the absence of fraud or mistake of material fact or law ... . The onus is on a party that receives what it perceives as an improper demand for money to "take its position at the time of the demand, and litigate the issue before, rather than after, payment is made" ... . Here, there is no claim of fraud or mistake. Defendant was entirely aboveboard about the amount of money it expected to be paid to settle the loan. Nevertheless, Klein made the calculated decision to schedule the closing and to pay off the entire amount demanded. Nor, as discussed below, did Klein "take [his] position at the time of the demand."

Plaintiffs argue that the voluntary doctrine should not apply because Klein was deprived of a meaningful choice as to whether to pay off the loan on defendant's terms. They further claim that Klein protested the demand and that this shielded plaintiffs from any application of the doctrine. Nothing in plaintiffs' complaint or papers in opposition to the motion suggests that these are viable positions. It is assumed, of course, that plaintiffs' factual allegations are true, both in the complaint and in opposition to the motion ... . However, conclusory allegations will not serve to defeat a motion to dismiss ... . Nothing in the complaint or the affidavit alleges any reason why Klein had no choice but to go through with the closing; indeed, he was able to put off the closing the first time he received from defendant what he considered an unreasonable payoff demand. DRMAK Realty LLC v Progressive Credit Union, 2015 NY Slip Op 08044, 1st Dept 11-5-15