Siegmund Strauss, Inc. v. E. 149th Realty Corp.

• Court: New York Court of Appeals Court of Appeals
• Writing for the Court: JONES
• Citation: Siegmund Strauss, Inc. v. E. 149th Realty Corp., 20 N.Y.3d 37, 980 N.E.2d 483, 956 N.Y.S.2d 435, 2012 N.Y. Slip Op. 7048 (N.Y. 2012)
• Decision Date: 23 October 2012
• Parties: SIEGMUND STRAUSS, INC., Respondent, v. EAST 149TH REALTY CORP., Defendant, Windsor Brands, Ltd., et al., Appellants.

20 N.Y.3d 37

980 N.E.2d 483

956 N.Y.S.2d 435

2012 N.Y. Slip Op. 07048

SIEGMUND STRAUSS, INC., Respondent,

v. EAST 149TH REALTY CORP., Defendant,Windsor Brands, Ltd., et al., Appellants.

Court of Appeals of New York.

Oct. 23, 2012.

Mischel & Horn, P.C., New York City (Scott T. Horn and Naomi M. Taub of counsel), for appellants.

LeClairRyan, New York City (Barry A. Cozier and Ralph Berman of counsel), for respondent.

OPINION OF THE COURT

JONES, J.

The primary question in this commercial dispute involving, among other things, the right to a leasehold to certain commercial property, is whether, pursuant to the “necessarily affects” requirement (CPLR 5501[a] [1] ), defendants' appeal to the Appellate Division from a judgment declaring plaintiff Siegmund Strauss, Inc. (Strauss) the lawful tenant of the subject property brought up for review two non-final Supreme Court orders: one dismissing defendants' counterclaims and third-party complaint (2007 N.Y. Slip Op. 32436[U] [2007] ) and the other denying defendants' motion for leave to amend their answer. We conclude the Appellate Division improperly held that defendants' appeal from the judgment did not bring up for review the order dismissing defendants' counterclaims and third-party complaint. That is, the Appellate Division erred in ruling that this order did not necessarily affect the final judgment. We do not find it necessary to address the reviewability of the order denying defendants' motion for leave to amend. Accordingly, we modify the order of the Appellate Division.

Strauss, a wholesale food and beverage vendor, entered into negotiations with defendants Windsor Brands, Ltd. (Windsor) and Twinkle Import Co., Inc. (Twinkle) to merge their corporations and operate out of a building located at 520 Exterior Street (also known as 110 East 149th Street) in the South Bronx. The building was leased by Windsor. Windsor and Twinkle were wholly owned and operated by defendants Robert and Teresa Rodriguez. Strauss and the Rodriguezes drafted but did not execute a contract to merge their businesses by which (1) Strauss would move onto the premises and Windsor would use its best efforts to help Strauss negotiate a new lease with defendant East 149th Realty Corp. (landlord), (2) Strauss would purchase Windsor's assets for $100,000, (3) Windsor and Twinkle would dissolve and (4) the Rodriguezes would purchase a one-third interest in the resulting merged corporation. Subsequently, Strauss and the Rodriguezes began performing under the purported merger agreement even though the contract had not yet been executed, i.e., the Rodriguezes helped Strauss move into the premises, Twinkle terminated its business, and Windsor's and Twinkle's employees became Strauss's employees.

After a dispute arose between the parties, Strauss sought to buy the Rodriguezes out of the merged corporation, but no buyout agreement was ever reached. Strauss subsequently removed the Rodriguezes from the corporation's payroll and changed the locks on the premises. Further, it is alleged that Strauss never paid the Rodriguezes the agreed upon $100,000 for Windsor's assets.

In June 2006, Strauss commenced this action against the Rodriguezes and landlord, seeking, among other things, a judgment declaring that it was the tenant entitled to sole possession of the property located at 520 Exterior Street, subject to a new lease with landlord.¹ In their answer, the Rodriguezes counterclaimed against Strauss and asserted a third-party complaint against Strauss's principals, alleging fraud, conversion, and tortious interference with a contractual relationship. They did not assert a breach of contract claim. Strauss and its principals moved to dismiss the counterclaims and third-party complaint for failure to state a cause of action.

By order entered August 6, 2007, Supreme Court granted Strauss's motion, dismissing the counterclaims and the third-party complaint. The court reasoned that the Rodriguezes' allegations made out only a breach of contract claim, not the tort claims identified in their answer. The Rodriguezes did not appeal to the Appellate Division from the August 2007 order prior to trial and entry of judgment.

After Strauss filed its note of issue, certifying readiness for trial, the Rodriguezes moved for leave to amend their answer, counterclaims, and cross claims, and to file a third-party complaint to assert claims for breach of contract. But Supreme Court, by order entered February 25, 2008, denied the motion as untimely. The Rodriguezes appealed to the Appellate Division from the February 2008 order, but did not perfect the appeal.

A bench trial proceeded solely on the issue of possession of the subject premises. After trial, the court adjudged Strauss the lawful tenant of the premises, subject to a lease with landlord. Judgment was entered April 7, 2009. The Rodriguezes appealed to the Appellate Division from the judgment, seeking to review the August 2007 and February 2008 orders.

The Appellate Division affirmed the judgment, holding that the appeal from the judgment did not bring up for review the prior Supreme Court orders (81 A.D.3d 260, 919 N.Y.S.2d 1 [1st Dept.2010] ). Specifically, the court found the August 2007 and February 2008 orders did not “necessarily affect” the April 2009 judgment because, if those orders were reversed, the Rodriguezes' “claims would be reinstated and they would be permitted to pursue a claim for breach of contract. However, the judgment which declared that Strauss was entitled to possession of the leased premises would still stand” ( id. at 265, 919 N.Y.S.2d 1). The court also denied the Rodriguezes' motion for enlargement of time to perfect their direct appeal of the February 2008 order and dismissed that appeal.

Defendants appeal pursuant to leave granted by this Court from so much of the Appellate Division order which affirmed Supreme Court's April 2009 judgment (17 N.Y.3d 936, 935 N.Y.S.2d 577, 959 N.E.2d 515 [2011] ).² They argue that the August 2007 and February 2008 orders are reviewable upon appeal from the April 2009 judgment because they necessarily affect that judgment.

The correctness of a final judgment may turn on the correctness of an intermediate non-final order(s); thus, it is the practice of this state that an appeal from a final judgment may, on certain occasions, bring up for review the non-final order(s). Pursuant to CPLR 5501(a)(1), an appellate court is permitted to review, on an appeal from a final judgment, any non-final determination necessarily affecting the final judgment which has not been previously reviewed by the appellate court.³ AlthoughIT IS DIFficult to distill a rule of general applicability regarding the “necessarily affects” requirement, Karger has put forth a definition that is helpful in resolving many cases. According to Karger, a non-final order “necessarily affects” a final judgment “if the result of reversing that order would necessarily be to require a reversal or modification of the final [judgment]” and “there shall have been no further opportunity during the litigation to raise again the questions decided by the [non-final] order” (Karger, Powers of the New York Court of Appeals § 9:5 at 304–305, 311 [3d ed. rev.] ).

In reaching its conclusions, the Appellate Division below relied on a test suggested by Professor David Siegel as “not perfect but helpful”: “[A]ssuming that the nonfinal order or judgment is erroneous, would its reversal overturn the judgment? If it would, it's a reviewable item; if it would not, and the judgment can stand despite it, it is not reviewable” (Siegel, ...