First Department Affirms Conditional Order Striking Complaint

On October 18, 2018, a unanimous First Department panel affirmed a series of decisions by Justice Eileen Bransten of the New York County Commercial Division in Anderson & Anderson LLP-Guangzhou v North Am. Foreign Trading Corp., 2018 NY Slip Op 06971. Although the primary question before the court was Justice Bransten’s ruling enforcing a conditional order striking the complaint, the appeal also addressed a number of prior non-final orders.

The underlying action was brought by three law firms based in Asia seeking to enforce contingent-fee agreements signed by NAFT in connection with their efforts to collect on an AAA award in China. NAFT moved for a conditional order after plaintiffs refused to appear for depositions or to meet-and-confer regarding document discovery.

The Appellate Division affirmed Judge Bransten’s decision to strike the complaint on the grounds that

Plaintiffs failed to demonstrate that they were entitled to relief from the conditional order. Their proffered excuses for their noncompliance - including their claimed difficulties in locating suitable counsel - are not reasonable. Plaintiffs had plenty of time and opportunities to obtain new counsel but failed to do so . . . . As they did not submit an affidavit of merit by someone with personal knowledge of the evidentiary facts, plaintiffs also failed to demonstrate that they had a meritorious claim.

(Internal citations omitted.)

The Appellate Division also reviewed and affirmed three interlocutory orders. Specifically, the court affirmed Justice Bransten’s order imposing the conditional order, and also affirmed two prior orders denying plaintiffs’ motion for summary judgment and also granting NAFT’s motion to vacate plaintiffs’ note of issue, on the grounds that “if reversed, [they] could be dispositive.” The decision to strike the note of issue was affirmed because “there was significant fact and expert discovery outstanding at the time it was filed,” and the decision to deny summary judgment was affirmed because the motion was “premature (see CPLR 3212[f]) and because issues of fact existed as to what was required by the contingency fee agreements to trigger defendant's payment obligation, whether plaintiffs met those requirements, whether the agreements automatically terminated on December 31, 2009, and whether plaintiffs were entitled to payment even if the agreements terminated on that date. Further discovery could prove illuminating on these issues - particularly expert discovery on the correct interpretation of these agreements under Chinese law.”

However, the court refused to consider two other interlocutory orders, which denied plaintiffs’ motions to vacate a prior disqualification order and to grant an otherwise-disqualified counsel leave to appear, because “they [did] not necessarily affect the final judgment" as required by CPLR 5501(a)(1).

Although the decision to affirm enforcement of a conditional order is consistent with many recent First Department decisions, there are far fewer cases distinguishing reviewable and non-reviewable interlocutory orders on an appeal from a final judgment. The ruling is also of interest because, by affirming Judge Bransten’s decision to dismiss the action without prejudice, the First Department continuing the inconsistency between conditional orders striking an answer (always with prejudice) and conditional orders striking a complaint (without prejudice, potentially allowing re-filing if the statute of limitations has not run). For this reason, defendants faced with plaintiffs who refuse to provide discovery should consider seeking an order of preclusion as well as a conditional order.

This post was written by Niall D. O’Murchadha. Niall represented NAFT in the Supreme Court and in the Appellate Division.

A big part of complex commercial litigation is giving, receiving and evaluating evidence (this is called "discovery"). This decision discusses the problem of litigants not performing their discovery obligations and what can happen to them if they do not. Contact Niall at nomurchadha@schlamstone.com or Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client has a question regarding discovery obligations (and what to do if a litigant is not honoring those obligations).