Relates to the effect of the entry of judgment on certain rights attendant to a cause of action

Summary of provisions

Section 1 creates a new section of the civil practice law and rules that ensures that all rights, benefits, and advantages attendant to a cause of action survive the entry of judgment and append to the judgment.

Section 2 provides that the act will take effect immediately and shall apply to all judgments that are rendered after the date of enactment or that are unsatisfied as of the date of enactment.

Justification

New York is an international commercial center with capital markets that are utilized by parties from around the world. One recent empirical study found that New York law is the most commonly chosen body of law in contracts that are significant enough to be included in public securities filings. Theodore Eisenberg & Geoffrey Miller, The Flight to New York: An Empirical Study of Choice of Law and Choice of Forum Clauses Publicly Held Companies' Contracts, 30 CARDOZO L. REV. 1475, 1478 (2009). The same authors conclude that "New York attracts contracts by offering a menu of substantive rules that are desired by the contracting parties and by providing prompt, efficient, and reliable procedures and institutions for resolving disputes." Theodore Eisenberg & Geoffrey Miller, The Market for Contracts, 30 CARDOZO L. REV. 2073, 2073-74 (2009).

New York can enhance this reputation by clarifying the aspects of its dispute resolution procedures that remain unclear and unpredictable. One such area is the scope of the "merger doctrine" that accompanies the entry of a judgment. Judgments are enforced under Articles 51 and 52 of the CPLR, but such enforcement is not available on a plaintiffs claim unless and until it has been reduced to a judgment. The "merger doctrine" is premised on the idea that the plaintiff, now having become a judgment creditor, no longer needs the underlying claim, and so the claim becomes "merged" into the judgment.

Although New York case law and commentaries indicate that a judgment should not undermine rights underlying a cause of action and that such rights survive the entry of judgment, New York courts have not

fully defined the boundaries of the merger doctrine. In a number of situations, litigants have attempted to use the merger doctrine to undermine rights that accompany the claim underlying - and that therefore should inhere in - a judgment, contrary to the very assumptions that underlie the merger doctrine. As a result, uncertainty remains as to whether a party can lose critical rights, benefits, and advantages attendant to a cause of action by reducing the cause of action to judgment. This bill would clarify the merger doctrine to eliminate the uncertainty surrounding the merger doctrine.

The merger doctrine has been improperly invoked, both substantively and jurisdictionally, in a wide variety of situations, including contract and tort actions. An example of such a tort case is McCormick v. American Press Publications, Inc., 52 Misc. 2d 297 (N.Y. Sup. Ct. 1966). The New York attachment statute (CPLR 6201) originally allowed as a ground for attachment the simple fact that the plaintiff was suing on a fraud claim (a ground since eliminated from the statute). The plaintiff in McCormick sued for fraud in Kansas and obtained a Kansas judgment. Now suing on the judgment in New York (to convert it into a New York judgment), the plaintiff sought a New York attachment based on the underlying fraud ground. The court refused the plaintiff's request, saying there was no longer a claim ,for fraud; instead, the fraud claim had been "merged" in the Kansas judgment and therefore no longer existed. This result was plainly incorrect and undoubtedly surprising to the plaintiff, whose right to obtain relief for fraud was diminished, rather than enhanced, by the entry of a favorable judgment.

A proper application of the merger doctrine - in the face of an attempt to invoke it improperly - occurred in Jay's Stores, Inc. v. Ann Lewis Shops, Inc., 15 N.Y.2d 141 (1965). There, "merger" was denied in the corporate realm because application of "merger" would have divested a New York court of jurisdiction in an action to enforce a Massachusetts judgment. In Jay's Stores, the defendant was registered to do business in New York at the time the underlying cause of action arose. And service of process can be made through the New York Secretary of State if a defendant is registered to do business in New York when a cause of action arises. However, the defendant withdrew its registration before the Massachusetts action was reduced to judgment. The Court of Appeals held that service of process through the New York Secretary of State was proper in an action to enforce the Massachusetts judgment because the merger doctrine should not destroy the plaintiffs' right to serve process through the Secretary of State, a right that attended the underlying cause of action.

A similar example involving liens can be found in Comment g to Section 18 of the Restatement (Second) of Judgments. A defendant cannot claim that when a plaintiff with a lien wins a judgment, the lien merges in the judgment just as the claim itself does, and is hence lost. In the commercial context, the merger doctrine can be a significant issue in litigation involving contracts issued under New York law. For

example, contracts in debt offerings typically restrict the amount or types of debt that a borrower can incur, prevent a borrower from subordinating the rights of its lenders to the rights of other creditors, require a borrower to rank the debt equally with other debt, and, if the borrower grants a new security interest in its property, to grant a similar security interest to its lenders. Although basic characteristics of the debt - that it cannot be subordinated, ranked below other debt, or deprived of security interests granted with respect to other debt - should not be altered simply because the debt is reduced to judgment, and although the breach of such debt covenants gives rise to contract claims that are independent from claims for non-payment of principal and interest, some debtors nevertheless argue that the merger doctrine extinguishes a creditor's ability to invoke these covenants once defaulted debt is reduced to judgment. See, e.g., Macrotecnic Int'l Corp. v. the Republic of Argentina, No. 02 Civ. 5932 (TPG), Docket # 30. This bill would clarify that these rights - each of which attends the debt underlying a cause of action on that debt - also append to the judgment created when final judgment is entered.

Such a loss unquestionably would be inequitable, as it would leave a party who is successful in litigation in a worse position after a judgment is entered in its favor than it was in before such a judgment was entered. Indeed, the very provisions that might unintentionally be lost in merger could prove decisive in subsequent enforcement of the judgment. New York can reinforce its reputation as a jurisdiction that predictably enforces parties' rights by removing any ambiguity as to whether rights, benefits, and advantages attendant to a cause of action remain enforceable after a cause of action is reduced to judgment. The bill provides certainty and equity, which make New York a more desirable forum for commercial parties.

The proposed CPLR 5011-a uses general language that would cover all of these situations and ensure that in these and like cases the merger doctrine would not deprive prevailing parties - now judgment creditors - of benefits inhering in their claims, but will instead ensure them the retention of those benefits. At the same tune, It will guard against any other attempts to deprive successful plaintiffs of the fruits of their victories.

Legislative history

New bill. The statute has been designated CPLR 5011-a so as to secure it a place immediately following the CPLR's basic definition of a judgment in CPLR 5011. CPLR 5011 states that a judgment "is the determination of the rights of the parties." Since the aim of the proposed CPLR 5011-a is to assure that rights so determined are not lost through an application of a possibly hostile doctrine (like merger), the statute is ideally located immediately after CPLR 5011.

Fiscal implications for state and local governments

The New York State Bar Association has estimated that, "(w)ithout attempting to project the increased revenues which would be generated for hotels, restaurants, court reporters, economic experts and the like, if the business of dispute resolution in New York were to increase by 10%-20%, it could produce approximately $200 to $400 million in incremental revenues annually for law firms in New York." New York State Bar Association, Final Report of the Task Force On New York Law In International Matters (June 25, 2011). Removing the ambiguities surrounding an important question in New York's dispute resolution procedures will enhance the principal advantages of New York as a commercial center, and thus will positively affect this important source of taxable income.

Effective date

This act shall take effect immediately and shall apply to all judgments that are rendered after the date of enactment or that are unsatisfied as of the date of enactment.