John
R. Lewis, Jr., Esq., P.C., Farmingdale, NY, for appellant.
Forchelli, Curto, Deegan, Schwartz, Mineo & Terrana, LLP,
Uniondale, NY (Richard A. Blumberg and Brian J. Hufnagel of
counsel), for respondent.
JOHN
M. LEVENTHAL, J.P. SYLVIA O. HINDS-RADIX HECTOR D. LASALLE
VALERIE BRATHWAITE NELSON, JJ.
DECISION & ORDER
Appeal
by the plaintiff from an order of the Supreme Court, Nassau
County (Margaret C. Reilly, J.), entered June 4, 2015. The
order, insofar as appealed from, upon renewal and reargument,
adhered to original determinations in orders of the same
court dated September 25, 2013, and May 14, 2014, granting
those branches of the motion of the defendant Margaret Hurst
which were for leave to amend her answer and for summary
judgment dismissing the complaint.
ORDERED
that the order entered June 4, 2015, is affirmed insofar as
appealed from, with costs.
The
plaintiff retained attorney Margaret Hurst to represent it in
certain matters, including filing a second Chapter 11
petition for bankruptcy on its behalf. A few months later,
Hurst left active practice and transferred her clients to
another attorney. The bankruptcy proceeding was subsequently
dismissed. The plaintiff thereafter retained new attorneys,
who filed a third Chapter 11 bankruptcy petition on its
behalf. The asset schedules filed with the plaintiff's
third bankruptcy petition stated that the plaintiff's
only asset was certain real property, and failed to list any
causes of action against Hurst. After the mortgagee of the
real property sought to vacate the bankruptcy stay, the
bankruptcy court dismissed the plaintiff's third
bankruptcy petition based upon the lack of equity in the
property or other assets with which to pay the creditors.
The
plaintiff thereafter commenced this action against Hurst to
recover damages for breach of contract, legal malpractice,
conversion, and unjust enrichment. After motion practice on
the pleadings, and related appeals (see Moran Enters.,
Inc. v Hurst, 96 A.D.3d 914; Moran Enters., Inc. v
Hurst, 66 A.D.3d 972), Hurst moved, among other things,
for leave to amend her answer to assert a defense that
"Plaintiff's Claims are Barred Due to Failure to
Disclose in Third Bankruptcy, " and for summary judgment
dismissing the complaint based on that defense. Hurst argued
that the plaintiff's failure to disclose, in its third
bankruptcy, the claims against her, barred it from
maintaining the claims against her due to a lack of capacity
and by application of the doctrine of judicial estoppel. In
an order dated September 25, 2013, the Supreme Court granted
those branches of Hurst's motion which were for leave to
amend her answer to assert that defense and for summary
judgment dismissing the complaint pursuant to that defense
based on judicial estoppel. Thereafter, in the order appealed
from entered June 4, 2015, the Supreme Court, upon renewal
and reargument, adhered to the original determination in the
order dated September 25, 2013, and its determination in an
order dated May 14, 2014.
In the
absence of prejudice or surprise to the opposing party, leave
to amend a pleading should be freely granted unless the
proposed amendment is palpably insufficient or patently
devoid of merit (see CPLR 3025[b]; Gomez v Buena
Vida Corp., 152 A.D.3d 497). Lateness alone is not a
barrier to the amendment (see Carducci v Bensimon,
115 A.D.3d 694, 695). " It must be lateness coupled with
significant prejudice to the other side, the very elements of
the laches doctrine'" (Edenwald Contr. Co. v
City of New York, 60 N.Y.2d 957, 959, quoting David D.
Siegel, Practice Commentaries, McKinney's Cons Laws of
NY, Book 7B, CPLR 3025:5 at 477 [1975 ed]). The determination
to permit or deny amendment is committed to the sound
discretion of the trial court (see CPLR 3025[b];
Kimso Apts., LLC v Gandhi, 24 N.Y.3d 403, 411).
Contrary
to the plaintiff's contention, Hurst's proposed
judicial estoppel defense based on its failure to schedule
its current claims against her in its third bankruptcy
proceeding was not palpably insufficient or patently devoid
of merit. The doctrine of judicial estoppel precludes a party
from taking a position in one legal proceeding which is
contrary to that which it took in a prior proceeding, simply
because its interests have changed (see Davis v Citibank,
N.A., 116 A.D.3d 819, 820; Festinger v Edrich,
32 A.D.3d 412, 413). "The twin purposes of the doctrine
are to protect the integrity of the judicial process and to
protect judicial integrity by avoiding the risk of
inconsistent results in two proceedings'" (Davis
v Citibank, N.A., 116 A.D.3d at 821, quoting Bates v
Long Is. R.R. Co., 997 F.2d 1028, 1038 [2d Cir]
[citation omitted]). "[T]he integrity of the bankruptcy
system depends on full and honest disclosure by debtors of
all of their assets" (Rosenshein v Kleban, 918
F.Supp 98, 104 [SD NY]). By failing to list causes of action
on bankruptcy schedules of assets, the debtor represents that
it has no such claims (see Crawford v Franklin Credit
Mgt. Corp., 758 F.3d 473, 486 [2d Cir]). Thus, the
doctrine of judicial estoppel may bar a party from pursuing
claims which were not listed in a previous bankruptcy
proceeding (see B.N. Realty Assoc. v Lichtenstein,
21 A.D.3d 793, 798; McIntosh Bldrs. v Ball, 264
A.D.2d 869, 870; Cafferty v Thompson, 223 A.D.2d 99,
102).
For the
doctrine to apply, there must be "a final determination
in the bankruptcy proceeding endorsing the party's
inconsistent position concerning his or her assets"
(Koch v National Basketball Assn., 245 A.D.2d 230,
231). However, a discharge from bankruptcy is not required
for the application of the doctrine. "The bankruptcy
court may accept' the debtor's assertions by relying
on the debtor's nondisclosure of potential claims in many
other ways" (Hamilton v State Farm Fire & Cas.
Co., 270 F.3d 778, 784 [9th Cir]; see In re Coastal
Plains, Inc., 179 F.3d 197, 210 [5th Cir]).
Here,
in dismissing the plaintiff's third bankruptcy
proceeding, the bankruptcy court expressly relied upon the
plaintiff's representation in its asset schedules that it
had no assets other than the real property (see USC
§ 1112[b]; In re Preferred Door Co., 990 F.2d
547, 549 [10th Cir]; In re Babayoff, 445 BR 64,
81-82 [ED NY]). Accordingly, the bankruptcy court accepted
and endorsed the plaintiff's characterization of its
assets, and the Supreme Court properly determined that
judicial estoppel barred the plaintiff from now maintaining
the undisclosed claims (see In re Coastal Plains,
Inc., 179 F.3d at 210; cf. Davis v Citibank,
N.A., 116 A.D.3d at 821; Crawford v Franklin Credit
Mgt., Corp., 758 F.3d at 486).
The
plaintiff further contends that leave to amend the answer
should have been denied because Hurst's delay in
asserting the defense would prejudice it due to the
expiration of the statute of limitations for a legal
malpractice cause of action against its subsequent bankruptcy
attorneys who failed to list the claims against Hurst in the
bankruptcy schedules. However, the plaintiff asserted a
timely legal malpractice cause of action against the
subsequent bankruptcy attorneys, which was dismissed because
the plaintiff was dissolved by the Secretary of State for
failure to pay franchise taxes, and the plaintiff lacked the
capacity to enforce obligations arising out of the
representation until it secured retroactive de jure status by
payment of delinquent franchise taxes (see Moran Enters.,
Inc. v Hurst, 66 A.D.3d at 976). Thus, the
plaintiff's loss of any claims against those attorneys
was due to its own failure to pay the delinquent franchise
taxes and to timely recommence the action against those
attorneys (see CPLR 205[a]), and was not the result
of Hurst's delay in asserting the defense (see
generally CPLR 203[f]; Pendleton v City of New
York, 44 A.D.3d 733, 736; cf. Daughtry v
Rosegarten, 180 Misc.2d 102, 103-104 [App Term 2d
Dept]).
Accordingly,
the Supreme Court providently exercised its discretion in
granting Hurst leave to amend her answer to assert a judicial
estoppel defense based on the plaintiff's failure to
schedule its current claims against her in its third
bankruptcy proceeding, and properly awarded Hurst summary
judgment dismissing the complaint based on that defense.
In
light of our determination, we need not address the
parties' remaining contentions regarding the
plaintiff's alleged lack of capacity to maintain this
action or ...