New York Law Review

Tag: third-party practice

  • 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.

  • McCabe v. Queensboro Farm Products, Inc., 22 N.Y.2d 204 (1968): Third-Party Indemnity Before Actual Loss

    22 N.Y.2d 204 (1968)

    A third-party plaintiff in an indemnity action can obtain a conditional judgment against a third-party defendant, fixing potential liability, even before the third-party plaintiff has sustained an actual loss by paying the underlying judgment, allowing for an early determination of reimbursement obligations.

    Summary

    McCabe sued Gelfand, a roofing contractor, for injuries sustained at a construction site. Gelfand then impleaded Banner Roofing, alleging a joint venture agreement to share losses. After McCabe won against Gelfand, Banner moved to dismiss the third-party complaint, arguing Gelfand hadn’t personally paid the judgment since his insurer covered part of it. The Court of Appeals held that while actual loss is required for recovery under an indemnity agreement, a conditional judgment can be issued to determine potential liability before payment. This allows for earlier resolution of the indemnity claim, promoting judicial efficiency, and Gelfand is entitled to reimbursement regardless of whether his insurer paid part of the judgment.

    Facts

    Bernard McCabe was injured at a construction site and sued Sam Gelfand, the roofing contractor.
    Gelfand impleaded Banner Roofing Co., claiming they were joint venturers and agreed to share losses.
    The main action (McCabe v. Gelfand) was severed and proceeded to trial, resulting in a judgment for McCabe against Gelfand for over $176,000.
    Gelfand’s insurance paid $55,000 towards the judgment.

    Procedural History

    McCabe sued Gelfand in Supreme Court.
    Gelfand filed a third-party complaint against Banner Roofing, which was severed.
    The main action resulted in a judgment for McCabe against Gelfand.
    Gelfand amended his third-party complaint against Banner to reflect the judgment amount.
    Banner moved to dismiss the third-party complaint, arguing Gelfand had not personally paid the judgment.
    Special Term denied the motion, but the Appellate Division reversed and dismissed the third-party complaint.
    Gelfand appealed to the Court of Appeals.

    Issue(s)

    Whether a third-party plaintiff seeking indemnity must demonstrate actual loss by personal payment of the underlying judgment before obtaining a conditional judgment against the third-party defendant.
    Whether payments made by the third-party plaintiff’s insurance company towards the underlying judgment constitute a loss that triggers the indemnity agreement with the third-party defendant.

    Holding

    No, because while actual loss is required for ultimate recovery under an indemnity agreement, a third-party plaintiff can obtain a conditional judgment fixing potential liability before demonstrating actual loss, which promotes judicial efficiency.
    Yes, because whether Gelfand pays the judgment himself or his insurer pays it, he is entitled to reimbursement from his partner under the joint venture agreement.

    Court’s Reasoning

    The court stated that under the joint venture agreement, Banner was obligated to indemnify Gelfand for half of any loss suffered due to McCabe’s lawsuit, assuming Gelfand wasn’t actively negligent. Quoting 755 Seventh Ave. Corp. v. Carroll, 266 N.Y. 157, 161, the court acknowledged that no obligation accrues under an agreement for indemnity against loss until actual loss has been sustained.
    Despite the absence of payment, the court allowed Gelfand to implead Banner, reasoning that while a showing of actual loss is required before recovery, a conditional judgment can fix potential liability without requiring payment until the main judgment is satisfied. The court cited 125 W. 45th St. Rest. Corp. v. Framax Realty Corp., 249 App. Div. 589, 590, and other cases in support.
    The court rejected Banner’s argument that Gelfand’s insurer’s payment didn’t count as a loss, holding that the joint venture agreement and insurance policy are independent contracts, and Gelfand is entitled to reimbursement regardless of who pays the judgment.
    The court emphasized efficiency and the proper administration of justice, demanding the contractual obligation between Banner and Gelfand be determined without further delay. The court reversed the order dismissing the complaint, remanding the case for trial to determine the nature of Banner’s obligation. Should Gelfand prevail, he can recover half of any amounts paid toward the satisfaction of McCabe’s judgment, even if the payment was made by his insurer.