Court Declines to Vacate Judgment Based on the "Injustice" of Applying Federal Law in State Court

On February 6, 2020, Justice Scarpulla of the New York County Commercial Division issued a decision in Matter of Densply Sirona, Inc. Shareholders Litig. v. XXX, 2020 NY Slip Op. 30342(U), refusing to vacate a judgment on grounds of an "injustice" stemming from application of federal law on a federal claim in state court, explaining:

CPLR 5015(a) provides that a party can move to vacate a judgment based on:

1. excusable default...; or
2. newly-discovered evidence which, if introduced at the trial, would
probably have produced a different result and which could not have been
discovered in time to move for a new trial under section 4404; or
3. fraud, misrepresentation, or other misconduct of an adverse party; or
4. lack of jurisdiction to render the judgment or order; or
5. reversal, modification or vacatur of a prior judgment or order upon which it is based.

However, CPLR 5015 does not provide an exhaustive list of the grounds for vacatur. In addition to the enumerated grounds in the statute, a court may vacate its own judgment for sufficient reason and in the interests of substantial justice.

Plaintiffs argue that if they had brought claims under New York law, this motion would be unnecessary because Plaintiffs could bring a new action, pursuant to CPLR 205(a), within six months of this action's termination. Plaintiffs then theorize that because their claims were brought under the federal '33 Act, it is at least arguable that any new action timely filed in accordance with CPLR § 205 would - as a matter of federal law - nonetheless be deemed barred by the federal three-year statute of repose for 1933 Act claims under 15 U.S. C. § 77 m. As a result, it is Plaintiffs' position that its situation is unprecedented and that the interests of justice require vacating or modifying the Judgment to permit Plaintiffs to file another amended complaint in this action. Plaintiffs also argue that the September 2019 Decision did not intend to deprive Plaintiffs of an opportunity to replead because it did not state that the dismissal was with prejudice. Defendants argue that Plaintiffs' concerns about the statute of repose is not a ground for vacatur. Additionally, Defendants state that Plaintiffs were aware of the federal statute of repose and possible inapplicability of the relation back principle at the time the action was commenced and the September 2019 Decision acknowledged the applicability of 15 U.S.C. §77m. Defendants further state that courts' power to vacate is not absolute but can only be utilized to relieve a party from a judgment resulting in, among other things, fraud and mistake, and that as these circumstances do not exist in this case, Plaintiffs' motion should be denied.

Although courts may grant vacatur for reasons other than those delineated in CPLR 5015, the courts' power to exercise control over its judgments is not plenary, and should be resorted to only to relieve a party from judgments taken through fraud, mistake, inadvertence, surprise or excusable neglect. Here, Plaintiffs' proffered grounds for vacatur are not that the Judgment was the result of fraud, mistake, inadvertence, surprise, or excusable neglect necessitating vacatur in the interests of substantial justice.

In addition, Plaintiffs have not identified, nor has the Court found, any cases in support of their argument that CPLR 5015 allows vacatur based on an "injustice" stemming from application of federal law on a federal claim in state court. Plaintiffs' cases are distinguishable in that those cases involve excusable neglect, misconduct or mistake which are within the Court's authority to vacate whereas this case does not entail these circumstances and thus is outside the Court's power to vacate.

I find the remainder of Plaintiffs' arguments in favor of vacatur unavailing, thus Plaintiffs' motion to vacate is denied.

(Internal quotations and citations omitted).

There are situations where a court will vacate a judgement, but as this decision shows, the standard is strict. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding whether a judgment that has been entered against you can be changed.