New York Law Review

Tag: CPLR 1007

  • George Cohen Agency, Inc. v. Donald S. Perlman Agency, Inc., 51 N.Y.2d 358 (1980): Scope of Third-Party Practice

    George Cohen Agency, Inc. v. Donald S. Perlman Agency, Inc., 51 N.Y.2d 358 (1980)

    CPLR 1007 permits a third-party plaintiff to seek damages exceeding those in the main action and maintain a claim even while contending they are not liable to the original plaintiff.

    Summary

    This case clarifies the scope of third-party practice under CPLR 1007, holding that a third-party plaintiff can seek damages exceeding the original plaintiff’s claim and can maintain the action even while denying liability to the original plaintiff. The dispute arose from the sale of an insurance portfolio, with the buyer (Perlman) claiming fraud by the seller (Cohen), insurance carrier (Continental), and attorney (Pogoda). Perlman, sued by Cohen for non-payment, brought third-party actions against Continental and Pogoda. The court emphasized the purpose of third-party practice is to avoid multiple lawsuits and efficiently resolve interrelated disputes, thereby enabling a complete resolution even if damages exceed the original claim.

    Facts

    George Cohen Agency, Inc. (Cohen) sold an insurance portfolio to Donald S. Perlman Agency, Inc. (Perlman). Perlman executed promissory notes for payment, but later refused to honor them, alleging the policies were unsalable due to regulatory issues. Cohen sued Perlman for $52,528. Perlman counterclaimed, alleging Cohen, Continental Casualty Company, and attorney-broker I. Edward Pogoda conspired to defraud him by inducing the purchase of a worthless insurance portfolio. Perlman sought rescission or reformation of the contract, or alternatively, significant compensatory and punitive damages.

    Procedural History

    Cohen sued Perlman in the main action. Perlman then filed third-party actions against Continental and Pogoda. Continental moved to dismiss Perlman’s third-party action. Special Term denied Continental’s motion. The Appellate Division affirmed, and the case then went to the New York Court of Appeals.

    Issue(s)

    1. Whether CPLR 1007 permits a third-party plaintiff to seek damages exceeding the amount demanded by the plaintiff in the main action.
    2. Whether a third-party claim is maintainable when the third-party plaintiff simultaneously contends they are not liable to the plaintiff in the main action.

    Holding

    1. Yes, because CPLR 1007 does not limit the amount recoverable in a third-party action to the amount of the original claim; a narrower reading would subvert the purpose of the statute which is to avoid multiplicity of actions.
    2. Yes, because pleading claims in the alternative, including a claim for indemnity, is permissible and does not require dismissal of the third-party complaint.

    Court’s Reasoning

    The Court of Appeals noted a trend toward liberalization and expansion of impleader in New York. CPLR 1007’s language, which allows a third-party claim against someone “who is or may be liable to him for all or part of the plaintiff’s claim against him,” should not be read as limiting recovery solely to strict indemnity claims. The court reasoned that the main purpose of third-party practice is to avoid multiple lawsuits and determine primary and ultimate liability in one proceeding. Limiting recovery to the original claim amount would lead to incomplete resolutions and necessitate separate lawsuits. The court emphasized the importance of allowing excess recovery, subject to the trial court’s discretion to sever claims that are unduly burdensome under CPLR 1010. The court also rejected the argument that pleading facts negating liability in the main action precludes a third-party claim, as alternative pleading, including claims for indemnity, is permissible. Finally, the court dismissed Continental’s argument that the third-party complaint impeded its right to remove the case to federal court, stating that federal removal power should not dictate state civil practice.

  • Krause v. American Guarantee & Liability Insurance Co., 22 N.Y.2d 147 (1968): Insurer’s Right to Implead Third Parties Before Payment

    Krause v. American Guarantee & Liability Insurance Co., 22 N.Y.2d 147 (1968)

    An insurer may implead a third party who is or may be liable to the insured, even before the insurer has made any payment to the insured, to avoid multiplicity of actions and ensure judicial efficiency, provided no contractual provision bars such action.

    Summary

    These cases, arising from the “salad oil swindle,” address whether an insurer can implead a third party allegedly responsible for the insured’s losses before the insurer pays the insured’s claim. The New York Court of Appeals held that impleader is permissible under CPLR 1007, promoting judicial efficiency by resolving primary and ultimate liability in one proceeding. The Court reasoned that delaying the third-party action could prejudice the insurer’s subrogation rights. The Court distinguished its prior holding in Ross v. Pawtucket Mut. Ins. Co. by emphasizing the absence of contractual restrictions on subrogation rights and the unique context of broker’s bonds involving potentially large losses, as opposed to minor auto collision claims.

    Facts

    D.R. Comenzo, Inc., and Ira Haupt & Co., two brokerage houses, suffered losses due to fraudulent warehouse receipts related to Allied Crude Vegetable Oil Refining Corporation’s (“Allied”) commodities storage. The plaintiffs, trustees in bankruptcy for Comenzo and Haupt, sought recovery on broker’s bonds issued by the defendant insurance companies. The insurers impleaded American Express Company (Amexco), alleging that Amexco, through its control of its subsidiary, American Express Warehousing, Ltd., was responsible for supervising Allied’s tanks and contributed to the losses.

    Procedural History

    In Krause, both the trustee and Amexco moved to dismiss the third-party complaint, which Special Term granted. The Appellate Division reversed, reinstating the third-party complaint. In Seligson, Amexco sought similar relief. Special Term denied the motion to dismiss but granted a stay. The Appellate Division affirmed the denial of dismissal. The Court of Appeals granted leave to appeal and consolidated the issues.

    Issue(s)

    Whether an insurer can implead a third party who may be liable to the insured before the insurer has made any payment to the insured.

    Holding

    Yes, because CPLR 1007 permits a defendant to implead any person “who is or may be liable to him.”

    Court’s Reasoning

    The Court reasoned that CPLR 1007’s language is broad enough to encompass contingent claims based on subrogation. Permitting impleader aligns with the spirit of an advanced practice code, which seeks “the avoidance of multiplicity and circuity of action, and the determination of the primary liability as well as the ultimate liability in one proceeding, whenever convenient.” While acknowledging potential concerns like delaying recovery for the insured, the Court emphasized that procedural devices like severances, separate trials, and stays can mitigate prejudice. The Court rejected arguments that impleader would deprive the insured of control over their claim, noting the insured’s freedom to press on with their claim or settle if no payment has been made by the insurer. The Court also reasoned that delaying the third-party action could severely prejudice the insurer’s subrogation rights, potentially leading to lost evidence or time-barred claims. Distinguishing Ross v. Pawtucket Mut. Ins. Co., the Court noted that the policy in Ross had specific restrictions on subrogation rights. The Court clarified that while impleader could be denied in minor auto collision cases for efficiency, this case involved a broker’s bond with the potential for ruinous losses. As stated in the opinion, “Procedural rules exist to further the ends of justice, not to force parties to forego substantive rights and not to give parties advantages which the true merits of their claims or defenses do not warrant.”