The Continued Importance and Sophistication of CPLR 3213 “Motion-Actions” Before New York State Cour

16-Dec-2014

In a decision from earlier this year, New York Supreme Court Justice Marcy S. Friedman (Commercial Division, N.Y. Cnty.) granted summary judgment in lieu of a complaint – via New York’s expedited “motion-action” under CPLR  3213 – enforcing “an instrument for the payment of money only” in the form of guarantees of payment-in-kind (PIK) and subordinated notes.  Justice Friedman’s decision in Cortlandt Street Recovery Corp., et al. v. Bonderman, et al., 2014 WL 4650231 (Sup. Ct., N.Y. Cnty. Sept. 16, 2014) demonstrates, among other things, the continued importance and sophistication of CPLR 3213 in providing appropriate plaintiffs with relatively speedy, effective and efficient legal redress.

At issue in Cortlandt Street Recovery Corp. were dispositive arguments advanced in one or more of four separate and related actions in which the plaintiffs sought payment of principal and interest on notes issued in public offerings.  In three of the actions, Cortlandt Street Recovery Corp. (“Cortlandt”), as an assignee for collection, and Wilmington Trust Co. (“WTC”), as the indenture trustee, sought to recover sums due on PIK and subordinated notes (together, the “PIK Notes”).  2014 WL 4650231 at *1-3.  Cortlandt and WTC commenced one of the actions (Index No. 653363/2011) under CPLR 3213 for summary judgment in lieu of a complaint against Hellas Finance and Hellas I, as issuer and guarantor (collectively, “Hellas”).  Cortlandt and WTC sought expedited judgment in this action in an amount not less than €333,205,735, plus indenture trustee fees, costs and expenses (including attorneys’ fees).  See id.

After holding that Cortlandt lacked standing to sue on the PIK Notes – explaining that, although Cortlandt was assigned the right to collection, it was not assigned title to the claims, id. *5-6 – Justice Friedman held that WTC was entitled to judgment against Hellas for principal and interest due under the PIK Notes and indenture, see id. at *9-13.

In particular, Justice Friedman concluded that “WTC establishes its prima facie case in support of its motion for summary judgment by adducing [i] proof of the PIK Notes and guaranty, containing unconditional payment obligations, [ii] proof . . . showing that [a] Hellas Finance has defaulted on the PIK Notes [as the result of the insolvency of a Hellas-related entity], and [b] Hellas I has not paid the guaranty in accordance with its terms.”  Id. at *11.  Notably, she also observed that “[i]n opposition, defendants do not dispute WTC’s factual assertions that [i] the PIK Notes are in default because of the bankruptcy, [ii] the date for the repayment of the PIK Notes has been accelerated, [iii] the trustee has made a demand for payment of the PIK Notes, and [iv] the PIK Notes have not been paid.”  Id.

In opposition to the CPLR 3213 motion, the defendants advanced two procedural defenses.  First, the defendants argued that the action should be dismissed, pursuant to CPLR 3211(a)(4), on the ground that another of the cases before the Court was “pending between the same parties for the same cause of action.”  Id. at *11.  After explaining that “the court does not condone plaintiff’s pleading of serial actions based on the same transaction” and noting that “plaintiffs’ pleading has created a procedural morass,” Justice Friedman nonetheless “decline[d] to dismiss the CPLR 3213 action because it [was] the only action by a party with standing (WTC) which pleads the express breach of contract cause of action, and because the action is meritorious.”  Id.

Second, the defendants argued that relief was not available under CPLR 3213 because “the right to bring an action, the right to recover under the guarantee, and the calculation of the sum due cannot be ascertained without reference to the indenture, which is not itself an instrument for the payment of money only.”  Id. at *12.  Explaining that “[t]he PIK Notes are indisputably instruments for the payment of money only, as the right to repayment appears on their face,” Justice Friedman found this argument “unpersuasive.”  Id.  Not only did [t]he PIK Notes refer to the terms of the indenture only to the extent necessary for the enforcement of the PIK Notes,” but “the terms of the indenture [did] not alter the unconditional obligation to pay imposed by the PIK Notes.”  Id.  Critically, the amount of principal and interest owed by the issuer and guarantor could be ascertained from the face of the Notes.  See id. at *13.

Finally, after concluding that “WTC [was] entitled to judgment against defendants Hellas Finance and Hellas I for principal and interest due under the PIK Notes and indenture,” Justice Friedman examined WTC’s additional claims for attorneys’ fees and expenses.  Id.  Although the defendants argued that, on its CPLR 3213 motion-action, WTC was not entitled to the recovery of attorneys’ fees and expenses because “[t]he PIK Notes [did] not expressly provide for the Issuer to pay the trustee’s fees and expenses in recovering payment of principal and interest,” Justice Friedman observed that “the PIK Notes provide that they are subject to the terms of the indenture” (and the indenture obligated the guarantor to indemnify the trustee for its “expense of enforcing this Indenture against the Issuer and each Guarantor.”  Id.  Accordingly, she held that “[a]lthough the amount of the attorneys’ fees and expenses is not ascertainable form the face of the PIC Notes or indenture, a hearing is properly held on this issue, notwithstanding that judgment is awarded pursuant to CPLR 3213.”  Id.

Among the lessons to be learned from Justice Friedman’s decision in Cortlandt Street Recovery Corp. is fundamental principal that, so long as a CPLR 3213 plaintiff submits sufficient proof to establish an unconditional payment obligation, and the defendant’s a default and failure to pay, there is little that a defendant can do to avoid summary judgment in lieu of a complaint.  What’s more, as with more traditional summary judgment pursuant to CPLR 3212 – and as evidenced by WTC’s  award of €333,205,735, plus attorneys’ fees and expenses – both in concept and in fact, there is no limit on the magnitude of money damages that may be awarded to a plaintiff seeking expedited summary judgment pursuant to CPLR 3213.

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Having recently left a large law firm environment, the founder and principal member of Aldous pllc, Kenneth E. Aldous, is an experienced lawyer qualified to practice in both the U.S. and UK. Mr. Aldous has represented a broad range of diverse interests in complex litigation before various federal and state courts, as well as in domestic and international arbitration.

Prior to founding Aldous pllc, Mr. Aldous worked for twelve years as an associate in the Litigation & Dispute Resolution Department of Proskauer Rose LLP, focusing his general litigation practice on international, multi-jurisdictional and cross-border dispute resolution. He also gained considerable experience working on secondment as the Head of Litigation for BT Americas Inc. (a subsidiary of British Telecommunications plc) and as litigation counsel for NYSE Euronext.

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