Provides that no right, benefit, or advantage that attends a cause of action shall be lost when the cause of action is successfully reduced to a judgment, but shall be deemed to append to the judgment.
NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A2687
SPONSOR: Simotas TITLE OF BILL:
An act to amend the civil practice law and rules, in relation to the
effect of the entry of judgment on certain rights attendant to a cause
of action
PURPOSE OR GENERAL IDEA OF BILL:
The bill will amend the CPLR to ensure that a judgment will not be
undermined by an application of the so-called "merger" doctrine, the
purpose of which is to let a judgment replace and supersede the claim
underlying the judgment.
SUMMARY OF SPECIFIC 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.
EFFECTS OF PRESENT LAW WHICH THIS BILL WOULD ALTER:
Provide an additional unpaid twelve weeks of job protected leave allow-
ance.
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 securi-
ties 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 situ-
ations, 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 surround-
ing 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. Ameri-
can 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 judg-
ment), the plaintiff sought a New York attachment based on the underly-
ing 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 plain-
tiff, 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 proc-
ess 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 subor-
dinating 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 character-
istics 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 judg-
ment, 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 judg-
ment 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 judg-
ment. New York can reinforce sits 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 time, it will guard against any
other attempts to deprive successful plaintiffs of the fruits of their
victories.
PRIOR LEGISLATIVE HISTORY:
2015-2016 - A10664: Referred to judiciary
FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS:
The New York State Bar Association has estimated that, "without attempt-
ing 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 incre-
mental revenues annually for law firms in New York." New York State Bar
Association, Final Report of the Task Force On New York Law In Interna-
tional 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.
