Settlement by Related Party In Earlier Action Does Not Bind Plaintiffs in New Action

On December 17, 2013, the First Department issued a decision in BDCM Opportunity Fund II, LP v. Yucaipa Am. Alliance Fund I, LP, 2013 NY Slip Op. 08387, addressing whether plaintiffs were bound by a settlement agreement entered into by a related party in another action.

The First Department agreed with the trial court that plaintiffs were not bound, writing:

Contrary to defendants' contention, plaintiffs and nonparty (to this action) The CIT Group/Business Credit, Inc.—the defendant and counterclaim plaintiff in the Georgia action—were not privies. In the Georgia complaint, defendants—the plaintiffs in the Georgia action—alleged that CIT's interests were adverse to those of the other lenders, such as plaintiffs. Nor was CIT acting as plaintiffs' agent, which in general would make them privies. The settlement agreement between CIT and defendants makes it clear that CIT was acting only on its own behalf, not on plaintiffs' behalf.

(Internal quotations and citations omitted).