There has been a recent increase in the number of federal actions filed on diversity grounds by successor mortgagees to foreclose on real property located in New York. Sokoloff v Schor, 2019 Slip Op. 06178 (2nd Dept. 2019), in which the Second Department construed CPLR § 205(a), will have an impact on a number of those foreclosure actions.
Section 205(a) extends the time to commence an action after the termination of an earlier action providing both actions involved the same transaction or occurrence. The second action will still be timely for statute of limitation purposes as long as: a) the first action was itself timely filed; b) the second action is filed within six months of its dismissal; and c) the first action was not dismissed for failure to prosecute. As to the latter requirement, courts have held that in cases where there are dismissals for delays, disregard for scheduling orders, lack of diligence, inaction, and laxity, it is not acceptable to permit plaintiffs to start all over again after the statute of limitations has expired.
The Sokoloff Court noted that effective July 7, 2008, CPLR § 205(a) requires a court dismissing an action for neglect to prosecute to “set forth on the record the specific conduct constituting the neglect, which conduct shall demonstrate a general pattern of delay in proceeding with the litigation.”
When a Court post-July 7, 2008 dismisses a case without such a finding of neglect, can it later fill that void by making such a finding in a second related case filed under § 205(a)? In Sokoloff, the Second Department unanimously held in the negative. The Court found that CPLR Rule 5019(a), which permits correction of a mistake, effect or irregularity that does not affect the substantive right of a party, is restricted to instances in which the correction occurs in the same action in which the mistake occurred:
Indeed, we are concerned that if CPLR 5019(a) is interpreted as permitting a cross-pollination of separate actions in such a fashion, courts may feel invited to revisit previously determined orders or judgments in other actions and change them in some manner so as to render them less conclusive.
The Court also held that § 5019(a) applies only to clerical errors. A new finding that a case had been dismissed for failure to prosecute was substantive:
Absent such language at that time, the plaintiff was logically and understandably free under the statute to commence a subsequent action against the same defendants, over the same transactions or occurrences, within the six-month grace period of CPLR 205(a). The court’s explanation several months later, in the order dated June 6, 2016, in this action, that the dismissal of the complaint in the 2013 action was for neglect to prosecute had the practical and prejudicial effect of retroactively depriving the plaintiff of the right under CPLR 205(a) to proceed with a new action that was previously and otherwise authorized by the statute. There would be an innate unfairness if, after a subsequent action is commenced, the court can be allowed to change the terms of a dismissal of a prior action through a later-created record, and thereby divest a plaintiff of remedies that were properly and previously available by operation of CPLR 205(a).
Lastly, the Second Department addressed the fact that the lower court had declared the first action to be a “a nullity” because, unbeknownst to plaintiff’s counsel, his client had died three months before the commencement of the first action. The lower court refused to invoke the Section 205(a) extension for that reason. The Second Department disagreed, holding that:
“. . . even if the Supreme Court had expressly dismissed the complaint in the 2013 action as a “nullity,” such determination would have been incorrect. The Court of Appeals in George v Mt. Sinai Hosp. (47 NY2d at 170), addressed this issue head-on 40 years ago. . . . The Court of Appeals noted that CPLR 205(a), by its very nature, exists to permit the commencement of a subsequent action when the earlier action has been dismissed because of some fatal flaw. The statute bestows such an allowance upon plaintiffs because the first action, though dismissed, nonetheless provides the defendants with timely notice of the transactions and occurrences on which the subsequent action is based … thereby ameliorating any prejudice to the defense. The Court of Appeals held that the action commenced in the name of a decedent was not a “nullity,” but rather, a prior action subject to grounds for dismissal and within the ambit of CPLR 205(a). The Court of Appeals explained that where the defect in the prior action involves the identity of the named plaintiff, “it [is] not the type of defect which precludes the application” of CPLR 205(a).
Although Sokoloff involved a medical malpractice action, it will have potential application to the mortgage foreclosure sector. These foreclosure cases often involve actions that were: a) filed after the 2008 recession and the effective date of the amendment to § 205(a), and b) thereafter dismissed by the Court without a specific finding of neglect to prosecute. For example, such cases were frequently dismissed as abandoned under CPLR 3215(c) for failure to move for a default judgment on a timely basis. Plaintiff mortgagees often slow walked the foreclosure action because their loan was under water. With the recovery of the real estate market, the economic incentive to foreclose has changed. Similarly, where the mortgagee initially chose not to continue pressing a foreclosure action because problems may have existed with respect to its standing or chain of title, once such problems are cured, that mortgagee or its successor will now be eager to foreclose in a later filed action. An argument by the mortgagor that Section 205(a) is inapplicable because the first action was a “nullity” (i.e., because the initial plaintiff lacked standing), will be unavailing.
As a result of these later-filed foreclosure cases working their way through the system, there will be continued litigation concerning Section 205(a), and one can expect the various Appellate Divisions to speak further on its scope and limitations. The case law developing on this front will determine whether the statute of limitations bars enforcement of the underlying mortgage.
Joe DiBenedetto recently retired from Winston & Strawn LLP, after spending 46 years in its Manhattan office as a capital partner specializing in commercial litigation. He formed JDB Mediation LLC to further develop his mediation and arbitration practice, which is centered in Manhattan and its surrounding counties (including Westchester, Nassau, and Suffolk). Joe DiBenedetto’s experience, training, and other credentials are more fully described at www.JDBMediation.com