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Joel Stashenko

New York Law Journal

10-12-2007

Fearful of releasing a "new tributary in the law," the New York Court of Appeals ruled Thursday that New York's "savings" statute does not allow a corporation to refile an action that was dismissed for naming the wrong plaintiff.

In separate rulings Thursday, the court also thwarted the state comptroller's attempts to extend his pre- and post-audit oversight authority to the state Insurance Department's Liquidation Bureau and held that counsel fees cannot be apportioned in permanent, partial workers' compensation disability cases because future benefit payments are speculative.

The case concerning the "savings" statute, CPLR §205(a), came to the Court of Appeals in the form of a certified question from the 2nd U.S. Circuit Court of Appeals. The federal panel asked the court to settle an "unresolved, important" issue of state law, namely whether a plaintiff can invoke the six-month grace period under the statute for refiling claims if the original claims were dismissed because they misstated the name of the plaintiff.

Chief Judge Judith S. Kaye, writing for the unanimous court Thursday, traced the concept of allowing the remedial filing of claims in New York law back to at least 1788. In its current incarnation, represented by CPLR §205(a), plaintiffs are allowed to make remedial filings, despite the running of the statute of limitations, if dismissal was not based on a voluntary discontinuance, failure to obtain personal jurisdiction, failure to prosecute or a final judgment on the merits.

The new filing must also be based on the same occurrences.

Kaye found that the statute "explicitly and exclusively" extends the benefit of a remedial filing to "the plaintiff" who "prosecuted the initial action."

That is different than the situation that prompted the case decided Thursday, Reliance Insurance Company v. Polyvision Corporation, 117, the Court said.

Here, the plaintiff, Reliance Insurance Company (RIC), is seeking to revive an action originally brought under the wrong plaintiff's name, the related Reliance Insurance Company of New York. RIC is seeking to "enforce its own, separate rights, rather than the rights of the plaintiff in the original action," the court determined.

"To allow RIC to proceed also would open a new tributary in the law, presumably available to individuals as well as corporations, and breathe life into otherwise stale claims -- some, like this one, going back nearly 20 years," Kaye wrote.

Extending the benefits of CPLR §205(a) to a related corporate entity, as RIC argued for in its case, might have consequences the court can only guess at, the chief judge wrote.

"We are ... mindful of the potential ramifications of a rule allowing a 'different, related corporate entity' the benefit of the statutory grace period, not knowing precisely what that means or portends," she said. "What may be a genuine corporate twin or alter ego in one case could be a far-flung affiliate in another. Under these circumstances, we prefer to read CPLR 205(a) as it was written by the Legislature and has consistently been applied by this Court."

The Reliance Insurance Company and the Reliance Insurance Company of New York (RNY) both issued surety bonds for the same school construction project in the late 1980s in Lindenhurst, Long Island.

At the time, RNY was a wholly owned subsidiary of RIC, although courts subsequently noted that the corporate relationship between the two entities became less clear.

In 1994, RIC sued Polyvision for what it contended was nearly $1 million worth of prematurely rusting metal curtain wall panels supplied for the project by a Polyvision predecessor company. As the court noted Thursday, however, "for unknown reasons" RNY was named in the action instead of the proper plaintiff, RIC.

The mistake was not exposed until a decade later, when the Appellate Division, 3rd Department, ruled that "it is undisputed that this action was commenced by the wrong party." Polyvision successfully sought to have the case dismissed on the grounds that RNY was not the real party in interest.

RIC started an action (Reliance Insurance Co. v. Polyvision Corp., 06-1717-cv) in U.S. District Court for the Eastern District of New York on diversity grounds. Judge Leonard Wexler dismissed the case on statute of limitations grounds, but on appeal, a unanimous 2nd Circuit panel asked the Court of Appeals for guidance on limitations of the state's "savings" statute.

Anthony McNulty of Bivona & Cohen, Polyvision's attorney, said Thursday that the Court of Appeals made a "policy-oriented" decision based on concerns of not letting the use of CPLR §205(a) "go haywire."

"They were very wary of what this could open up," McNulty said. "When advocates use the term 'opening a Pandora's box,' we didn't use that term in our briefs, but that was the tenor of our oral arguments."

Gary A. Wilson of Post & Schell in Philadelphia represented Reliance Insurance Company. He said Thursday he had not had a chance to study the ruling and declined comment.

The unanimous court also determined Thursday that the Liquidation Bureau in the Insurance Department is beyond the reach of the government auditing authority of the state comptroller's office.

In overruling the Appellate Division, 1st Department, the court unanimously held that the insurance superintendent is not acting in his official capacity as chief insurance regulator when he steps in to handle the finances of financially imperiled insurance companies through the Liquidation Bureau.

"The Bureau does not perform a governmental or proprietary function 'for the state,' but rather runs the day-to-day operations of private businesses in liquidation pursuant to Supreme Court order," Justice Eugene F. Pigott Jr. wrote for the court in Dinallo v. DiNapoli, 111. "The Bureau is not part of the Insurance Department's budget, operates without the benefit of state funds, maintains its own errors and omissions coverage, and is represented by its own private counsel, not the Attorney General, as is normally the case when a state agency is sued."

The ruling upheld the Supreme Court's quashing of the subpoenas issued in 2004 to then-Insurance Superintendent Gregory Serio and eight officials of the Liquidation Bureau by then-Comptroller Alan Hevesi. Attorneys for Hevesi, and DiNapoli after him, argued that Article V, §1 of the state Constitution invests the comptroller with broad powers to approve the spending and audit the books of government agencies, including the Liquidation Bureau.

Thursday's ruling ran counter to the determination by the 1st Department in a case then titled Serio v. Hevesi, 40 AD3d 72 (2007), that characterized the Liquidation Bureau as a "state agency" performing a "governmental or proprietary function for the state."

The court noted Thursday that it had updated the title of the case to reflect the current holders of the offices involved in the dispute, Insurance Superintendent Eric R. Dinallo and Comptroller Thomas P. DiNapoli.

Guy Miller Struve of Davis Polk & Wardwell argued for the Liquidation Bureau; Evan A. Davis of Cleary, Gottlieb, Steen & Hamilton represented the comptroller's office.

The court upheld the Appellate Division in finding that counsel fees for a Workers' Compensation claimant deemed to be permanently, partially disabled cannot be apportioned according to future benefits.

In Burns v. Varriale, 112, the unanimous court held that by their nature, permanent, partial disabilities are speculative because their duration is uncertain. Apportioning attorney fees based on a carrier's future benefit, "if the value of such benefit cannot be quantified by actuarial or other reliable means" is "impermissible," Judge Theodore T. Jones Jr. wrote for the court.

The case concerned the payment of nearly $19,000 in so-called "fresh money" by St. Paul/Travelers stemming from Workers' Compensation coverage of a suburban Albany police investigator, Owen F. Burns III, for injuries he sustained in an on-the-job automobile accident.

The Workers' Compensation Board declared Burns permanently, partially disabled and ordered its carrier, St. Paul/Travelers, to pay him $400 a week. When Burns settled with the insurer of the other vehicle for $300,000, St. Paul/Travelers sought a refund and Burns sought an additional $19,000 in legal fees.

The 3rd Department, ruling along the same lines as the court Thursday, decided in Burns v. Varriale, 34 AD3d 59 (2006), that St. Paul/Travelers did not have to make the payment because the duration and the total amount of permanent, partial disability benefits are not "readily predictable."

Cornelius D. Murray of O'Connell & Aronowitz in Albany represented Burns. Michael D. Violando of Sullivan, Cunningham, Keenan, Mraz, Oliver & Violando in Albany represented St. Paul/Travelers.