Woodson v. Mendon Leasing

• Decision Date: 06 May 2003
• Citation: 100 N.Y.2d 62,760 N.Y.S.2d 727,790 N.E.2d 1156
• Parties: ZACHARY WOODSON, an Infant, by His Mother and Natural Guardian, TRACY WOODSON, et al., Appellants, v. MENDON LEASING CORPORATION et al., Defendants. AMERICAN TRANSIT INSURANCE COMPANY, Nonparty Respondent.
• Court: New York Court of Appeals Court of Appeals

100 N.Y.2d 62

790 N.E.2d 1156

760 N.Y.S.2d 727

ZACHARY WOODSON, an Infant, by His Mother and Natural Guardian, TRACY WOODSON, et al., Appellants, v. MENDON LEASING CORPORATION et al., Defendants.

AMERICAN TRANSIT INSURANCE COMPANY, Nonparty Respondent.

Court of Appeals of the State of New York.

Argued March 25, 2003.

Decided May 6, 2003.

Mintz & Gold LLP, New York City (Lisabeth Harrison and Steven G. Mintz of counsel), and Rubert & Gross, P.C., Brooklyn, for appellants.

Friedman Kaplan Seiler & Adelman LLP, New York City (Eric Seiler and Lance J. Gotko of counsel), for nonparty respondent.

Judges SMITH, CIPARICK, WESLEY, GRAFFEO and READ concur; Chief Judge KAYE taking no part.

OPINION OF THE COURT

ROSENBLATT, J.

After plaintiff obtained a four million dollar default judgment against defendant truck driver in this personal injury action, Supreme Court granted the nonparty insurance carrier's motion to vacate the judgment. The Appellate Division affirmed, and on this appeal we consider whether the vacatur was proper.

I.

On February 2, 1990, four-year-old Zachary Woodson was walking along First Avenue in Manhattan with his mother, Tracy Woodson. At the time, Mbaye Thiam was driving his livery cab when he suddenly collided with a truck driven by John Densby, and then careened onto the sidewalk, hitting Zachary. On Zachary's behalf and derivatively, Tracy Woodson sued Thiam and Densby, along with Mendon Leasing Corporation as the truck owner, seeking to recover damages for Zachary's injuries (Action No. 1). In her verified complaint, she alleged that Thiam's and Densby's vehicles "came into contact, with another, propelling one of these two vehicles into pedestrian, ZACHARY WOODSON." Plaintiff asserted that Thiam and Densby were both negligent in their failure to operate their vehicles safely.

Although Thiam and Mendon answered the complaint, Densby did not and plaintiff moved for a default judgment against him. In support of the motion, plaintiff submitted her attorney's affirmation, the summons and complaint, as well as Mendon's and Thiam's answers. Densby opposed the motion, claiming he was not served properly. He also submitted an affidavit denying any wrongdoing but admitting that his truck had come into contact with Thiam's cab. Specifically, he stated that as he was driving his truck, "a car that was on my right side[] cut in front of the truck * * * [and] tipped my truck's front bumper with [its] rear bumper at which time the car lost control. The car drove across onto the sidewalk * * * knocking down the people that were there," including a "young child." After conducting a traverse hearing and concluding that Densby had been properly served, the court on September 14, 1992 granted plaintiff's default motion, without any opposition from Densby. The court also ordered an inquest and severed the action against Thiam and Mendon.

Densby did not appear at the inquest. Plaintiff described the accident in general terms, stating that she "heard this screeching sound and the next thing I noticed was just the car jump— coming straight towards us, a big car and that was it." All she could remember was "just seeing the car come off the sidewalk and I'm saying, oh, my God, and that was it. I felt after that— after that, I felt just being pushed back." Thus, plaintiff saw the car hit Zachary and pin him against the ground. This is undisputed.

On March 3, 1995, Supreme Court entered a final judgment in plaintiff's favor against Densby for $4,172,705.63.¹ Densby appealed, arguing that he was not notified of the inquest and that the damages were excessive. The Appellate Division rejected his arguments and affirmed the judgment (see Woodson v Mendon Leasing Corp., 232 AD2d 291 [1996]

).

On March 4, 1996, as a judgment creditor and pursuant to section 3420 (a) (2) of the Insurance Law, plaintiff sued Mendon's primary liability carrier, American Transit Insurance Company (ATIC) (Action No. 2). She alleged that under its policy with Mendon, ATIC was obligated to pay the amount of the judgment based on Mendon's ownership of the truck Densby had driven. Ultimately, ATIC paid plaintiff $2,916,715.42 in full satisfaction of its liability under the policy and in partial satisfaction of the judgment. The bulk of the money was placed in court-controlled bank accounts held for Zachary's benefit during his minority.

Thereafter, Supreme Court appointed plaintiff to be Densby's receiver with respect to any claims Densby may have had in connection with Action No. 1. Pursuing the full amount of the judgment, in March 1998 plaintiff sued ATIC and the lawyers appointed to represent Densby in Action No. 1, alleging they were negligent in their defense and representation (Action No. 3). It was their negligence, plaintiff alleged, that resulted in the $4,172,705.63 judgment.

Plaintiff's deposition in Action No. 3 formed the basis of the appeal before us. In that deposition, plaintiff testified, "I just heard the sound, a screeching sound, and the next thing I knew the car was on top of both of us—well, on top of my son and me pinned up against the fence." She further testified that although she knew a livery cab had hit them, she was not certain what caused the screeching sound, what caused the livery cab to drive onto the sidewalk or whether there was a truck nearby.

About six months after plaintiff's deposition, ATIC moved pursuant to CPLR 5015 (a) (3) for an order vacating the $4,172,705.63 judgment. It based its claim on what it asserted were newly revealed inconsistencies in plaintiff's account of the accident, and contended that these inconsistencies proved that the judgment was procured through "fraud, misrepresentation, or other misconduct." ATIC also sought $2,916,715.42 in restitution.

Specifically, ATIC argued that, on the one hand, plaintiff swore in her verified complaint in Action No. 1 that Densby operated his vehicle negligently, while in her deposition testimony in Action No. 3 she stated she was not certain how the accident occurred or whether a truck was involved. Moreover, ATIC argued that in the Action No. 3 complaint plaintiff alleged that counsel for ATIC was to blame for the default judgment, and thus contradicted her allegations in Action No. 1 that the default judgment was a consequence of Densby's negligent driving. In short, ATIC claimed that these subsequent revelations showed that plaintiff's allegations in Action No. 1 were "baseless" and, as such, that the default judgment plaintiff obtained in reliance on those allegations should be vacated pursuant to the fraud, misrepresentation or misconduct provision of CPLR 5015 (a) (3). In response to ATIC's motion, plaintiff submitted an affidavit stating that she based her complaint in Action No. 1 on her personal observations at the scene and on the police report.

On March 16, 2001, about 10 years after Densby's default, Supreme Court granted ATIC's motion and vacated the default judgment "to promote the interests of justice and fairness." (Emphasis added.) The court noted that the central issue before it was "the dichotomy between the verified allegations in the respective complaints and [plaintiff's] testimony" and expressed concern that plaintiff may have been "signing documents either without reading them, or without having them adequately explained." The court, however, never made an express finding that plaintiff had committed fraud, misrepresentation or other misconduct.

The Appellate Division affirmed the vacatur. Like Supreme Court, the Appellate Division did not cite CPLR 5015 (a) (3) or otherwise conclude that there was any fraud, misrepresentation or misconduct on plaintiff's part. It held, however, that "[a] complaint not verified by a person with personal knowledge of the substantive facts is pure hearsay with no evidentiary value, and the entry of a judgment based on such a complaint must be deemed a nullity" (289 AD2d 158, 159 [2001]). The Court stated that a plaintiff seeking a default judgment is required to provide "some firsthand confirmation of the facts" (id., quoting Feffer v Malpeso, 210 AD2d 60, 61 [1994]). In the Court's view, plaintiff's allegations did not meet that standard, given her subsequent deposition testimony and verified complaint.

The Appellate Division granted plaintiff's motion for leave to appeal and certified the following question: "Were the orders of the Supreme Court, as affirmed by this Court, properly made?"² For the reasons that follow, we answer the certified question in the negative.

II.

A.

Under CPLR 5015 (a), a court is empowered to vacate a default judgment for several reasons, including excusable neglect; newly-discovered evidence; fraud, misrepresentation or other misconduct by an adverse party; lack of jurisdiction; or upon the reversal, modification or vacatur of a prior order. These categories represent a codification of the principal grounds upon which courts have traditionally vacated default judgments as part of their "inherent discretionary power" (see Siegel, Practice Commentaries, McKinney's Cons Laws of NY, Book 7B, CPLR C5015:11, at 476 [1992]). It thus follows that section 5015 (a) does not provide an exhaustive list as to when a default judgment may be vacated. Indeed, the drafters of that provision intended that courts retain and exercise their inherent discretionary power in situations that warranted vacatur but which the drafters could not easily foresee (see id.; 3d Preliminary Report of Advisory Comm on Practice and Procedure, 1959 NY Legis Doc No. 17, at 204).

In addition to the grounds set forth in section 5015 (a), a court may vacate its own judgment for sufficient reason and in the interests of substantial justice (see Ladd v Stevenson, 112 NY 325, 332 [1889]; see generally 10 Weinstein-Korn-Miller, NY Civ Prac ¶ 5015.01, at 50-299; ¶ 5015.12, at 50-338 [2002]). As one commentator has noted, "It might have been more elegant to add an additional paragraph [to CPLR...