Claims Adding New Defendants Related-Back to Original Claims Even Though New Defendants Could Have Been Identified Earlier

On December 20, 2018, the Third Department issued a decision in NYAHSA Servs., Inc., Self-Insurance Trust v. People Care Inc., 2018 NY Slip Op. 08735, holding that claims adding new defendants related-back to the date of the original claims even though the new defendants could have been identified earlier, explaining:

[I]n order to avoid dismissal, it was defendant's burden to demonstrate that said counterclaims were entitled to the benefit of the relation back doctrine. In order to avail itself of the benefit of this doctrine, defendant had to demonstrate that the following three requirements were established: (1) both claims must arise out of the same occurrence, (2) the trust and the individual trustees were united in interest, and by reason of that relationship can be charged with notice of the institution of the action such that it will not be prejudiced in maintaining a defense on the merits, and (3) the individual trustees knew or should have known that, but for a mistake by defendant as to the identity of the proper party, the action against the trust would have been brought against it as well.

Here, there is no dispute that the first two requirements of the doctrine were established — both claims unquestionably arose out of the same conduct, transaction or occurrence and the trust and the individual trustees were admittedly united in interest with the trust. With respect to the third requirement, Supreme Court determined that, because defendant was aware of the identity of the trustees when it interposed its original answer and counterclaims in September 2010, its failure to assert claims against the individual trustees between September 2010 and December 2016 represented either a strategic litigation decision on its part or a mistake of law, neither of which it found would entitle defendant to application of the doctrine. We disagree.

There is nothing in the record before us demonstrating that defendant intentionally elected not to assert its counterclaims against the individual trustees and/or that it did so to obtain a tactical advantage in the litigation. A review of defendant's pleadings demonstrates that it intended to sue the individual trustees. Although the specific names of the individual trustees could have been ascertained from certain documentation that the trust provided to defendant on an annual basis, we need no longer consider whether such a mistake was excusable. Rather, as the Court of Appeals has recognized, the primary question — and the linchpin of the relation back doctrine — is whether the newly added party had actual notice of the claim. As trustees of the trust, we find it implausible that the individual trustees were not aware of the trust's commencement of this action and the counterclaims that defendant asserted against the trust — such knowledge being imputed to them as trustees. Moreover, insofar as the counterclaims asserted against the individual trustees are essentially the same counterclaims that defendant asserted against the trust in its original answer and answer to the first amended complaint, it cannot be said that the individual trustees were surprised or prejudiced in their ability to prepare a defense to defendant's counterclaims. Given these facts, we find that the individual trustees knew or should have known that the action would have been brought against them in the absence of defendant's mistake and, therefore, find that defendant established its entitlement to the benefit of the relation back doctrine. Accordingly, Supreme Court should not have granted plaintiffs' motion to dismiss defendant's counterclaims for fraud/fraud in the inducement and breach of fiduciary duty against the individual trustees, and it should have granted defendant's cross motion for leave to amend the complaint to add a cause of action against the individual trustees pursuant to General Business Law §§ 349 and 350.

(Internal quotations and citations omitted) (emphasis added).

It is not unusual for the statute of limitations to be an issue in complex commercial litigation. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding whether a claim is barred by the statute of limitations.