NEW GENERATION WELLNESS CHIROPRACTIC P.C. a/a/o Jerusalem Hunt, Plaintiff, v. COUNTRY-WIDE INSURANCE CO., Defendant.
New Generation Wellness Chiropractic P.C. (the “Plaintiff”), as assignee of Jerusalem Hunt (the “Assignor”), commenced this action on or about January 4, 2002, based on Assignor's automobile accident that occurred on or about August 20, 2000, and Country-Wide Insurance Co. (the “Defendant”) thereafter filed an answer on February 26, 2002.
On or about July 29, 2009, New York State's Secretary of State dissolved Plaintiff by proclamation. Despite Plaintiff's dissolution, Plaintiff was not substituted as a party in this matter. In August 2009, the parties purportedly entered into a settlement agreement. On August 12, 2009, Plaintiff's counsel sent a letter to Defendant's counsel that attached a stipulation of discontinuance and general release that was executed by Plaintiff (the “Unmodified April 12, 2009 Letter”). When Plaintiff's counsel sent the Unmodified April 12, 2009 Letter to Defendant's counsel, the letter contained at least some terms of the settlement entered into by the parties and was only signed by Plaintiff. Defendant concedes that Defendant's counsel modified the provisions of the letter (the “Modified April 12, 2009 Letter”), Defendant's counsel signed the letter and sent the Modified April 12, 2009 Letter to Defendant on August 13, 2009. The Modified April 12, 2009 Letter states in pertinent part:
Enclosed please find a duly executed general release in the sum of $621.00 ($430.00 Doctors fees, $86.00 Attorney's fees and $105.00 filing fees, $0.00 interest, $0.00 Misc cost) in favor of your assured, in the above entitled matter. This sum is inclusive of any interest, attorneys fees and costs.
Please be kind enough to hold this instrument in escrow pending receipt and clearance of your check by this office.
Payment to be made within 90 days with 14 days prior written notice to Def Attorney; judgment to issue in settlement amount.
Please mail your settlement check promptly according to CPLR 5003.
The portion of the letter stating “[p]ayment to be made within 90 days with 14 days prior written notice to Def Attorney; judgment to issue in settlement amount” which is handwritten over and under a typed paragraph that Defendant's counsel struck from the letter by drawing over the paragraph. The stricken provision states:
Please note that CPRL 5003-A through 5003-E require prompt payment within 21 days, otherwise there can be an entry of judgment. In the case of City, State and judicially approved settlements, payment must be made within 90 days.
Defendant counsel's only modifications to the substance of the letter were striking this provision addressing CPLR 5003-a and adding the aforementioned handwritten provision. Plaintiff received the Modified April 12, 2009 Letter on August 13, 2009. Although the letter still displayed Plaintiff's initial signature, Plaintiff did not sign the Modified April 12, 2009 Letter. There were no discussions between the parties regarding Defendant's modifications to the letter.
On May 9, 2017, over seven years after the Plaintiff dissolved and the parties settled, Plaintiff made an ex parte application to the clerk of the Court to enter judgment on the purported settlement agreement based on Defendant's alleged default. Plaintiff submitted the Modified April 12, 2009 Letter to enter judgment. Plaintiff did not: (1) provide Defendant with notice prior to entry of judgment; (2) not submit an affidavit stating that Defendant failed to pay part, or all, of the $621 owed; and (3) notify the clerk that Plaintiff was dissolved on July 29, 2009. On December 12, 2017 the clerk entered judgment “Per Default in Stipulation” (the “December 12, 2017 Judgment”). The purported stipulation agreement that the December 12, 2017 Judgment was entered on is the Modified April 12, 2009 Letter.
In entering judgment, the clerk calculated interest at a simple rate instead of a compound rate. Plaintiff now moves pursuant to section 5019(a) of the Civil Practice Law and Rules (“CPLR”) to remand the December 12, 2017 Judgment back to the clerk to recalculate the interest at a compounded rate beginning August 12, 2009. Defendant has submitted a cross-motion to vacate the December 12, 2017 Judgment and dismiss this action based on Plaintiff's dissolution or, in the alternative, resettling the December 12, 2017 Judgment to eliminate the award for attorney fees and any interest, or awarding such other and further relief as the Court deems just and proper.
In accordance with the recitation of CPLR 2219 [a], the Court considered: (1) Plaintiff's motion to correct the Judgment, Plaintiff's counsel's affirmation and attached exhibits; (2) Defendant's cross-motion and opposition, Defendant counsel's affirmation and attached exhibits; (3) Plaintiff's counsels affirmation in opposition and reply and attached exhibit; and (4) Defendant counsel's Reply Affirmation and attached exhibit. As explained below, Defendant's cross motion to vacate and motion to dismiss is granted and Plaintiff's motion to correct the December 12, 2017 Judgment is denied as moot.
As an initial matter, the Defendant's motion to vacate and dismiss is properly before this Court given that the party against whom a default judgment has been entered cannot take an immediate appeal (see CPLR 5511; Marino v. Termini, 4 AD3d 342, 342 [2d Dept 2004]) and the proper procedure is to first move to vacate the default judgment (see CPLR 5015; Baecher v. Baecher, 95 AD2d 841, 842 [2d Dept 1983]; see also Fox v. T.B.S.D. Inc., 278 AD2d 612, 613 — 614 [3d Dept 2000] (finding that Defendant's only recourse for relief from a judgment entered pursuant to CPLR 5003-a based on Defendant's assertion that no enforceable settlement agreement had ever been reached is to move to vacate the judgment) (citing CPLR 5015 [a] )). Although Defendant did not specifically refer to CPLR 5015 and CPLR 1021, Defendant provided sufficient notice of the relief sought by submitting its notice of cross-motion explicitly seeking an order “vacating the judgment entered on December 12, 2017 in favor of plaintiff and dismissing this action upon the grounds that the Secretary of State dissolved plaintiff and annulled its authority on July 29, 2009 and it has not been reinstated” (see CPLR 2214 [a]; Evans v. Argent Mtge. Co., LLC, 120 AD3d 618, 620 [2d Dept 2014] (“[T]he court may grant relief that is warranted by the facts plainly appearing on the papers on both sides, if the relief granted is not too dramatically unlike the relief sought, the proof offered supports it, and there is no prejudice to any party”) (internal citations and quotations omitted); Shields v. Carbone, 99 AD3d 1100, 1102 [3d Dept 2012] (“Although in specifying the grounds of the motion, it does no harm to cite chapter and verse, and that may be the better practice as it clearly puts the party on notice of the grounds alleged, there is no requirement that the notice of motion list the statute or regulation that is the basis of the sanctions motion as long as some grounds are mentioned.”) (internal citations and quotations omitted)).
Plaintiff is not prejudiced by treating Defendant's motion to vacate as a motion pursuant to CPLR 5015 given that Plaintiff was aware of the statutory basis for the relief sought by Defendant and had an opportunity to address the issues discussed below regarding vacatur pursuant to CPLR 5015. In fact, although Plaintiff takes issue with Defendant's failure to specifically refer to CPLR 5015 as a basis for its relief, Plaintiff acknowledged in its opposition that the Defendant's “only avenue to proceed” is to seek relief pursuant to CPLR 5015. Plaintiff was also given an opportunity to submit arguments and evidence to oppose dismissal of this matter pursuant to CPLR 1021 based on Plaintiff's dissolution. Accordingly, the Court may vacate the December 12, 2017 Judgment pursuant to CPLR 5015 and dismiss this action pursuant to CPLR 1021.
A. Vacatur of December 12, 2017 Judgment
Vacatur of the December 12, 2017 Judgment is appropriate based on Defendant's dissolution and Defendant's failure to provide notice prior to entry of judgment. Although Defendant did not specifically request relief based on Plaintiff's failure to provide notice prior to entry of judgment, Plaintiff was given an opportunity to submit relevant arguments and evidence, and relief may be granted pursuant to Defendant's general relief clause in its notice of cross-motion (Tirado v. Miller, 75 AD3d 153, 158 [2d Dept 2010] (“We find that the general relief clause in the notice of motion permitted the court to consider an alternative ground for granting the motion, consistent with the ultimate relief that was requested and which was based upon material contained in the court's own file.”); see also Mochkin v. Mochkin, 120 AD3d 776, 778 [2d Dept 2014] (“[i]n addition to the statutory authority, a court has authority under the common law, in its discretion, to grant relief from a judgment or order in the interest of justice, taking into account the equities of the case and the grounds for the requested relief”)).
i. Plaintiff's Failure to Disclose Its Dissolution
The December 12, 2017 Judgment is vacated pursuant to CPLR 5015(a)(3) based on Plaintiff's failure to disclose to the clerk, when seeking to enter judgment, that it was dissolved on July 29, 2009. Plaintiff's failure constitutes a misrepresentation as to Plaintiff's corporate status. CPLR 5015(a)(3) provides that a court may relieve a party from a judgment on the grounds of “fraud, misrepresentation or other misconduct of an adverse party.” The contemplated factors are applicable to “what has either occurred prior to the judgment or was the means by which the judgment was obtained” (Herskowitz v. Friedlander, 224 AD2d 305, 306 [1st Dept 1996]). A judgment entered through “fraud, misrepresentation or other misconduct practiced on the court is a nullity” (Hernandez v. American Transit Ins. Co., 2 AD3d 584, 585 [2d Dept 2003]).
Courts have noted that a judgment may be vacated if submitted by a party who provides, or omits, material facts that mislead the court in entering judgment (see Curcio v. J.P. Hogan Coring & Sawing Corp., 303 AD2d 357, 358 [2d Dept 2003] (affirming vacatur of a judgment entered pursuant to a purported oral settlement where plaintiff's counsel could not have held a good faith belief that the matter had actually been settled and plaintiff's counsel misled the Clerk of the Supreme Court by stating that the parties agreed to settle the litigation for $25,000); Sirota v. Kloogman, 140 AD2d 426, 427 [2d Dept 1988] (affirming vacatur of judgment entered by defendant with the court clerk based on defendant's misrepresentations where the court ruling, which was the basis of the judgment, did not entitle defendant to enter judgment); Westbury Fed. Sav. & Loan Assn. v. Quinton Enters, 451 NYS2d 188, 188 [2d Dept 1982] (vacating deficiency judgment where plaintiff's submission of appraisal as evidence of value, without disclosure of the existence of a higher offer, was a misrepresentation to the court that infected the calculation of the deficiency judgment and that warranted a new determination of the deficiency); see also A. Resnick Textile Co. v. Ramapo Trading Corp., 2003 NY Slip Op 50634[U], *4 [App Term, 1st Dept 2003, Suarez, J., dissenting] (“Pursuant to CPLR 5015(a)(3), plaintiff is entitled to vacatur of the order of dismissal as against Leiman and Kasner based upon misrepresentation as to the corporate status of Ramapo Trading Corporation.”)).
Except in the limited respects permitted by statute, upon dissolution, a corporation is “legally dead” and lacks the capacity to use the courts of this State to enforce obligations (Lorisa capital Corp. v. Gallo, 119 AD2d 99, 111 [2d Dept 1986]; see 80-02 Leasehold, LLC v. CM Realty Holdings Corp., 123 AD3d 872, 873 [2d Dept 2014]). According to the Court's file, on May 9, 2017 when Plaintiff applied to the clerk to enter judgment on the terms set forth in the Modified April 12, 2009 Letter, Plaintiff did not indicate that it dissolved over seven years beforehand. Thus, a determination had not been made as to whether a statutory exception permitted Plaintiff, as a dissolved corporation, to enforce obligations by entering judgment (see Lorisa, 119 AD2d at 111, 114).
Plaintiff's failure to disclose its dissolved status to the Court in entering judgment created the appearance that Plaintiff was a valid legal entity that was entitled to judgment. However, as discussed further in section B below, Plaintiff lacked the capacity to obtain judgment in this action (see BCL 1005 [a] ; CPLR 1017; CPLR 1021; see also Lance Intl', Inc. v. First Natl. City Bank, 86 AD3d 479, 479 [1st Dept 2011] (finding that a dissolved corporation that failed to wind up its affairs within a reasonable period of time lacked the capacity to sue)). Accordingly, the December 12, 2017 Judgment is properly vacated based on Plaintiff's misrepresentation (see CPLR 5015 [a] ; see also Madison Acquisition Group, LLC v. 7614 Fourth Real Estate Development, 2015 NY Slip Op 50508[U], *2 [Sup Ct, Kings County 2015] (vacating summary judgment order and judgment under CPLR 5015(a)(3) based on misrepresentations in plaintiff's complaint with respect to standing); cf. Commerce Commercial Leasing, LLC v. PIO Enterprises, Inc., 78 AD3d 1105, 1106 [2d Dept 2010] (where a defendant died before an order was issued and judgment was entered, and no substitution had since taken place, as required by CPLR 1015, the judgment and order were deemed nullities that must be vacated)).
ii. Plaintiff's Failure to Provide Notice
The December 12, 2017 Judgment is also properly vacated pursuant to CPLR 5015(a)(4) because Plaintiff failed to provide notice prior to entry. The December 12, 2017 Judgment was issued by the clerk “Per Default in Stipulation.” The purported stipulation on which the December 12, 2017 Judgment was entered is the Modified August 12, 2009 Letter. The Modified August 12, 2009 Letter, on its face, appears to constitute a settlement agreement between the parties (see Williamson v. Delsener, 59 AD3d 291 (1st Dept 2009) (“The e-mails exchanged between counsel, which contained their printed names at the end, constitute signed writings within the meaning of the statute of frauds”)) and included undisputed terms of the purported settlement agreement.
“A stipulation of settlement is a contract, enforceable according to its terms” (Long Island Junior Soccer League v. Back of Net, Ltd, 85 AD3d 737, 737 — 738 [2d Dept 2011]; see Mancheski v. GGCP, Inc., 41 AD3d 790, 791 [2d Dept 2007] (“A settlement agreement is a contract between the parties and must be construed according to ordinary contract law”). Defendant's modifications to the letter constituted a counteroffer (see Daimon v. Fridman, 5 AD3d 426, 427 [2d Dept 2004]). “While mere silence, when not misleading, cannot be construed as acceptance, a counteroffer may be accepted by conduct” (id.).
Although a question existed as to whether a settlement agreement was entered into due to Defendant's modification, the December 12, 2017 Judgment was entered based on Plaintiff's own submission of the Modified April 12, 2009 Letter to the clerk to enter judgment. In Plaintiff's application to the clerk, Plaintiff represented that the terms set forth in the Modified April 12, 2009 Letter, which was signed by both parties and included a notice requirement, were controlling—rather than the terms of the Unmodified April 12, 2009 Letter that was not signed by Defendant and did not expressly include a notice requirement.
Plaintiff effectively conceded to the Court that the terms of the Modified April 12, 2009 Letter constituted the terms of the settlement agreement. Accordingly, CPLR 5003-a is inapplicable because the provision regarding payment and entry of judgment pursuant to CPLR 5003-a is clearly stricken from Modified April 12, 2009 Letter and, in entering judgment, Plaintiff was required to provide evidence of compliance with the handwritten modification mandating notice prior to entry of judgment (see FoxStone Group, LLC v. Calvary Pentecostal Church, Inc., 173 AD3d 978, 980 [2d Dept 2019] (“It is a fundamental principle for contract interpretation that when a handwritten or typewritten provision conflicts with the language of a preprinted form document, the former will control, as it is presumed to express the latest intention of the parties”) (internal citations and quotations omitted).
Plaintiff has further admitted that it failed to provide Defendant with notice of its intention to apply to the clerk for a default judgment. Plaintiff's failure to provide notice is a jurisdictional defect that requires vacatur of the judgment (see CPLR 5015 [a] ; Deutsche Bank Natl. Trust Co. v. Gavrielova, 130 AD3d 674, 675 — 676 [2d Dept 2015] (“A party is entitled to vacatur of a default judgment pursuant to CPLR 5015(a)(4) when the court lacked jurisdiction to render judgment. The failure to provide a defendant who has appeared in an action with the notice required by CPLR 3215(g)(1), like the failure to provide proper notice of other kinds of motions, is a jurisdictional defect that deprives the court of the authority to entertain a motion for leave to enter a default judgment”) (internal citations and quotations omitted); HSBC Bank USA, Nat. Ass'n v. Wielgus, 131 AD3d 510, 511 — 512 [2d Dept 2015]; Solid Gold Constr. v. Robertson, 2003 NY Slip Op 51662[U], *1 [App Term 2d & 11th Jud Dists 2003] (vacating default judgment where stipulation of settlement required notice prior to entry of judgment and “plaintiff failed to submit sufficient proof of mailing of the requisite notice of default”); Arrow Fin. Servs., LLC v. Benjamin, 56 Misc 3d 483, 486 — 487 [Civ. Ct Bronx County 2017]; see also Teitelbaum Holdings, Ltd. v. Gold, 48 NY2d 51, 55  (indicating that a properly interposed motion for relief from a judgment pursuant to 5015 is permissible where judgment is not properly entered pursuant to the terms of a settlement); Marine Bulkheading, Inc. v. Joseph Mannino, 150 AD3d 1096, 1096 [2d Dept 2017]).
iii. Disputed Terms of Purported Settlement Agreement
Given that both parties assert that a settlement was reached, the Court need not delve into the issue of whether the purported any purported agreement was unenforceable. However, the Court notes that Plaintiff's argument that Defendant's handwritten changes in the Modified April 12, 2009 Letter constituted an impermissible and unilateral change to the terms of the settlement does not demonstrate that the terms of the Unmodified April 12, 2009 Letter controlled because the unmodified version was only signed by Plaintiff and was not submitted to the clerk for entry of judgment. Instead, Plaintiff's argument suggests that a settlement agreement was not reached. Defendant's prompt repudiation of the stricken provision regarding CPLR 5003-a from the terms of the Modified April 12, 2009 Letter, and handwritten inclusion of a notice requirement, shows that Defendant did not agree to permit Plaintiff to enter judgment on a settlement without prior notice (see Daimon v. Fridman, 5 AD3d 426, 427 [2d Dept 2004]).
Without a meeting of the minds as to the terms, the purported stipulation of settlement that served as the basis of the December 12, 2017 Judgment would not be enforceable (see 259 Broadway Realty Corp. v. Incorporated Village of Amityville, 29 AD3d 596, 598 [2d Dept 2006] (finding that a stipulation of settlement was unenforceable where both parties did not sign the transcript of the settlement acknowledging their approval and the “transcript of the settlement was unclear as to whether the [a party] had full knowledge of, or consented to, the terms of the settlement, there was no meeting of the minds”)) and the vacatur would be appropriate pursuant to 5015(a)(3) due to Plaintiff's misrepresentation that the parties entered into a binding stipulation of settlement (see Curcio v. J.P. Hogan Coring & Sawing Corp., 303 AD2d 357, 358 [2d Dept 2003]).
B. Dismissal of Plaintiff's Action
This matter must be dismissed pursuant to CPLR 1021 due to the failure to substitute the Plaintiff as a party within a reasonable time after Plaintiff dissolved. Limited circumstances in which a corporation may continue to act upon dissolution are delineated in sections 1005 and 1006 of the Business Corporations Law (“BCL”), which provide that a dissolved corporation retains a limited de jure existence solely for the purpose of winding up its affairs (see 80-02 Leasehold, LLC v. CM Realty Holdings Corp., 123 AD3d 872, 873 [2d Dept 2014]).
BCL 1005 states, in relevant part, that after dissolution:
(1) The corporation shall carry on no business except for the purpose of winding up its affairs”
(2) The corporation shall proceed to wind up its affairs, with power to fulfill or discharge its contracts, collect its assets, sell its assets for cash at public or private sale, discharge or pay its liabilities, and do all other acts appropriate to liquidate its business.
BCL 1006 states, in relevant part:
(a) A dissolved corporation, its directors, officers and shareholders may continue to function for the purpose of winding up the affairs of the corporation in the same manner as if the dissolution had not taken place, except as otherwise provided in this chapter or by court order. In particular, and without limiting the generality of the foregoing: ․
(4) The corporation may sue or be sued in all courts and participate in actions and proceedings, whether judicial, administrative, arbitrative or otherwise, in its corporate name, and process may be served by or upon it․
(b) The dissolution of a corporation shall not affect any remedy available to or against such corporation, its directors, officers or shareholders for any right or claim existing or any liability incurred before such dissolution ․
BCL 1005 and BCL 1006 were passed in 1961 as a part of the Legislature's revision of New York's corporation laws in place of the General Corporation Law and the Stock Corporation Law (see Airtran New York, LLC v. Midwest Air Group, Inc., 46 AD3d 208, 213 [1st Dept 2007]). The relevant language of BCL 1005 and BCL 1006 quoted above has remained unchanged since 1961 (see 1961 McKinney's Session Laws of NY at 1639 - 1640).
After BCL 1005 and BCL 1006 were passed, the Legislature enacted CPLR 1017 and CPLR 1021 in 1962 as a part of the Legislatures revision and recodification of the Civil Practice Act and the Rules of Civil Practice (see CPLR 101). CPLR 1017, which is entitled “Substitution in case of receivership or dissolution of a corporation,” states that “if a ․ corporate party is dissolved, the court shall order substitution of the proper parties” (CPLR 1017 (emphasis added)). Significantly, in discussing CPLR 1017, the Legislature stated that the term “shall” was used instead of “may” since there is no apparent need for discretion (see 5th Preliminary Rep, 1961 Legis Doc No. 15 at 321).
Moreover, CPLR 1021 provides:
If the event requiring substitution occurs before final judgment and substitution is not made within a reasonable time, the action may be dismissed as to the party for whom substitution should have been made, however, such dismissal shall not be on the merits unless the court shall so indicate. If the event requiring substitution occurs after final judgment, substitution may be made in either the court from or to which an appeal could be or is taken, or the court of original instance, and if substitution is not made within four months after the event requiring substitution, the court to which the appeal is or could be taken may dismiss the appeal, impose conditions or prevent it from being taken.
Courts have noted the potential conflict between the provisions of BCL 1005 and BCL 1006 that allow a dissolved corporation to wind up its affairs and the provisions of CPLR 1017 and CPLR 1021 that mandate the substitution of a dissolved corporation as a party in an action (see Lance Intern., Inc. v. First Nat. City Bank, 878 NYS2d 572, 576 [Civ. Ct, New York County 2009]; Painless Medical, P.C. v. Geico, 929 NYS2d 357, 718 n 1 [Civ. Ct, Kings County 2011]). Moreover, in 1957, while the CPLR was still being drafted and before the BCL was passed, the Legislature noted this potential conflict in comparing the subsequently unchanged draft of CPLR 1017 with BCL 1006's predecessor, stating:
[T]he statutory law on the subject of substitution in case of dissolution of a corporation seems to be in a state of confusion. Article 10 of [former] McKinney's Stock Corporation Law deals with dissolution without judicial proceedings. Section 105(8) provides that such a corporation continues for the purpose of paying debts, collecting assets and winding up affairs and 'may sue or be sued in its corporate name.' See also McKinney's Gen. Corp. § 29 [now Business Corporation Law §§ 1006, 1113]; McKinney's Tax Law § 203-a. The general provision for receivers is section 106 of the Stock Corporation Law. See also McKinney's Gen. Corp. Law, art. 12 [now Business Corporation Law Article 12]. These provisions are not articulate on the subject of substitution in case of appointment of a receiver for a corporate party. Compare section 977-b(19) of the civil practice act, where substitution is contemplated in case of appointment of a receiver for a foreign corporation.
Most of the case law regarding substitution in case of dissolution deals with the situation where a receiver is appointed for a corporation. The general rule seems to be that the receiver must be substituted in pending actions.
(1st Rep of Temp Commn on the Courts, 1957 Legis Doc No. 6(b) at 49) (citations omitted) (emphasis added). Thus, at the time CPLR 1017 was drafted: (1) the Legislature was aware of the potential conflict with the winding up provisions of BCL 1006's predecessor; (2) consciously decided to use mandatory language of “shall” rather than “may”; and (3) did not provide an exception to circumstances in which a corporation was winding up its affairs. Notably, appellate courts have not ruled upon the question how these statutes coexist.
As the Court of Appeals has stated, “it is familiar and salutary canon of construction that courts, in construing apparently conflicting statutory provisions must try to harmonize them” (Burger King, Inc. v. State Tax Comm'n, 51 NY2d 614, 620-621 ; see Dutchess County Dept. of Social Services ex rel. Day v. Day, 96 NY2d 149, 154  (“Statutes which relate to the same subject matter must be construed together unless a contrary legislative intent is expressed. Court's must harmonize the various provisions of the related statutes and construe them in a way that renders them internally compatible”)). Although another well-established rule of statutory construction provides that a prior general statute yields to a “later-enacted” specific or special statute, this rule does not require that the later statute be disregarded (see Dutchess, 96 NY2d at 154). To the contrary, in construing two potentially conflicting statutes, the Court of Appeals applied the rule that a prior general statute yields to a later specific statute in reaching a harmonious reading of the statutes (see id.) (“The construction we adopt today reconciles both provisions and leaves a role for the [general statute]”).
CPLR 1017 was enacted after BCL 1005 and BCL 1006 and specifically addresses the issue of “[s]ubstitution in case of receivership or dissolution of a corporation” (see CPLR 1017; BCL 1005; BCL 1006; Dutchess, 96 NY2d at 154. Furthermore, if this Court were to wholly disregard CPLR 1017 and CPLR 1021 in favor of BCL 1005 and BCL 1006, then dissolved corporations could indefinitely avoid substitution under the guise of winding up its affairs, and the provisions of CPLR 1017 and CPLR 1021 governing dissolved corporations would have virtually no role in civil procedural law. The only circumstance in which CPLR 1017 and CPLR 1021 could apply to a dissolved corporation is if the corporation was purportedly winding up its affairs given that a dissolved corporation that is not winding up cannot sue or be sued (see BCL 1005; BCL 1006). Indeed, a dissolved corporation that is not purportedly winding up under BCL 1005 and BCL 1006 could not be a party to an action requiring substitution under CPLR 1017 and CPLR 1021. Additionally, CPLR 101 does not require the Court to overlook any of these statutes because they are not inconsistent and do not fall within an individual court act (see Ling Ling Yung v. County of Nassau, 77 NY2d 568, 571  (noting that CPLR 101 provides that the “CPLR is to govern civil practice and procedure, but only to the extent that it is not inconsistent with the procedure of the individual courts as described in their court acts”) (emphasis added).
Harmony can be found in the statutory construction of CPLR 1017 and CPLR 1021 as well as BCL 1005 and BCL 1006 in reference to CPLR 1021, which specifically provides a dissolved corporation with a window to continue to act as a party to an action without substitution: i) for a “reasonable time” if the dissolution occurs prior to final judgment; and ii) for “four months” if the dissolution occurs after final judgment. Notably, the provisions of the BCL do not include any time limit for winding up a dissolved corporation's affairs and the Court of Appeals has implied a reasonable period of time as a limit to statutes that are silent (see e.g. Spiegelberg v. Gomez, 44 NY2d 920, 921 ; Matter of Jonathan Neil Corp. v. State Liq. Auth., 112 AD2d 70, 72 ).
In Lance Intern., Inc. v. First Nat. City Bank, the First Department has relied on this “reasonable period of time” rule of construction to place a time limitation on a dissolved corporation for the winding up of its affairs (86 AD3d 479, 480 [1st Dept 2011] (“[T]he winding up of affairs cannot continue indefinitely”). The First Department further noted that “what constitutes a reasonable time for a dissolved corporation to wind up its affairs before ceasing to exist altogether is generally a question of law for the court” (id. at 480 n 1). The First Department's in decision Lance is consistent with a harmonious reading of the statutes (see id. at 480; see also Next Millenium Realty, LLC v. Adchem Corp., 690 Fed Appx 710, 716 [2d Cir 2017] (applying a “reasonable period of time” limitation on a dissolved corporation's ability to wind up its affairs pursuant to BCL 1006).
Specifically, immediately after a corporation is dissolved, the provisions of BCL 1005 and BCL 1006 permit the corporation to continue to act for the purpose of winding up its affairs. CPLR 1017 and CPLR 1021 essentially place a time limitation on said dissolved corporation to wind up its affairs before substitution is required. The case may be dismissed, without prejudice, if the dissolved corporation is not substituted as a party pursuant to the time limitations set forth in CPLR 1021. This interpretation encourages prompt resolution of outstanding legal matters of dissolved corporations and discourages counsel from treating a dissolved corporate plaintiff as a “mere puppet” used to accrue fees that may include accumulated interest (Lance Intern., Inc. v. First Nat. City Bank, 878 NYS2d 572, 578 [Civ. Ct, New York County 2009]).
In the current matter, the Plaintiff dissolved prior to the December 12, 2019 Judgment, which is a final judgment (see McKesson Automated Healthcare, Inc. v. Brooklyn Hosp. Ctr., 4 Misc 3d 491, 495 [Sup Ct, Kings County 2004] (noting that a judgment entered ex parte by the clerk to enforce a stipulation of settlement is a final judgment pursuant to CPLR 5001)). Accordingly, pursuant to CPLR 1021, Plaintiff was required to be substituted within a “reasonable time” to avoid the dismissal of this action. Instead, Plaintiff waited to apply to the clerk to enter judgment on the April 12, 2009 Letter over seven years after: 1) Plaintiff dissolved; 2) the April 12, 2009 Letter was executed by the parties; and 3) purported failure to comply with the stipulation of settlement, which, according to the evidence submitted, required payment in 2009.
The record lacks any indication that the seven-year gap constitutes a reasonable time for Plaintiff to wind up its affairs. In light of Defendant's cross-motion to vacate the December 12, 2017 Judgment and dismiss the action based on the Plaintiff's dissolution, Plaintiff was given an opportunity to submit evidence and arguments demonstrating the reasonableness of the seven-year period to wind up its affairs without substitution (see River View at Patchogue, LLC v. Hudson Ins. Co., 112 AD3d 824, 825 [2d Dept 2014] (affirming Supreme Court's decision granting defendant's motion for summary judgment where Supreme Court adjourned the motion for the express purpose of allowing the parties to submit additional evidence and arguments with respect to a specific argument raised by defendant). However, Plaintiff has failed to demonstrate that the seven-year delay without substituting Plaintiff with a shareholder or other appropriate party was reasonable (see Rose Ocko Foundation, Inc. v. Lebovits, 259 AD2d 685, 690 [2d Dept 199] (noting that when a corporation is dissolved after an action has been commenced, the court should, under CPLR 1017, allow shareholders to be substituted as parties in its place); Lance Intern., Inc. v. First Nat. City Bank, 878 NYS2d 572, 576, 576 n [Civ. Ct, New York County 2009] (in finding that a time limit must be placed on how long a corporation may wind up its affairs, the court noted that “by suing and being sued, the business would be resolving both sides of the ledger; it would not just be waiting for a pot of gold at the end of the rainbow. Second, all suits would proceed to quick resolutions, by settlement or trial. A year or two or three comes to mind.”)). Accordingly, dismissal pursuant to CPLR 1021 is appropriate.
Accordingly, it is hereby ordered that Defendant's motion to vacate the December 12, 2017 Judgment and Defendant's motion to dismiss is granted. Plaintiff's motion to recalculate interest is denied as moot.
This constitutes the decision and order of the Court.
John C.V. Katsanos, J.
Was this helpful?