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Court of Appeals Holds that the Saving Provision of CPLR 205(a) Only Applies Where the Second Action is Brought by the Same Plaintiff or an Estate Representative of the Original Plaintiff as the First Action

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  • Posted on: Jun 21 2022

By Jonathan H. Freiberger

When an action is timely commenced but gets dismissed, CPLR 205(a) may permit a plaintiff to commence a new action within six months of the dismissal notwithstanding the expiration of the limitations period.  [This Blog has previously addressed CPLR 205(a) here, and the introduction to this article is taken our former article.]  CPLR 205(a) provides:

New action by plaintiff. If an action is timely commenced and is terminated in any other manner than by a voluntary discontinuance, a failure to obtain personal jurisdiction over the defendant, a dismissal of the complaint for neglect to prosecute the action, or a final judgment upon the merits, the plaintiff or, if the plaintiff dies, and the cause of action survives, his or her executor or administrator, may commence a new action upon the same transaction or occurrence or series of transactions or occurrences within six months after the termination provided that the new action would have been timely commenced at the time of commencement of the prior action and that service upon defendant is effected within such six-month period. Where a dismissal is one for neglect to prosecute the action made pursuant to rule thirty-two hundred sixteen of this chapter or otherwise, the judge shall 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.  (Emphasis and hyperlink added.)

CPLR 205(a) is a “remedial” statute that “has existed in New York law since at least 1788” and can [t]race[] its roots to seventeenth-century England.”  Wells Fargo Bank, N.A. v. Eitani, 148 A.D.3d 193, 199 (2nd Dep’t 2017), appeal dismissed, 29 N.Y.3d 1023 (2017).  The purpose of CPLR 205(a) is to “ameliorate the potentially harsh effect of the Statute of Limitations in certain cases in which at least one of the fundamental purposes of the Statute of Limitations has in fact been served, and the defendant has been given timely notice of the claim being asserted by or on behalf of the injured party.”  George v. Mt. Sinai Hospital, 47 N.Y.2d 170, 177 (1979).  Thus, the statute provides “a second opportunity to the claimant who has failed the first time around because of some error pertaining neither to the claimant’s willingness to prosecute in a timely fashion nor to the merits of the underlying claim.”  George, 47 N.Y.2d at 178-79.

On June 16, 2022, the New York Court of Appeals decided Ace Securities Corp. v. DB Structured Products, Inc. (“Ace 2”) in which the Court held that CPLR 205(a) is available only where both actions are commenced by the same plaintiff.  [Eds. Note: An expanded recitation of the underlying facts is presented in a related decision from the Court of Appeals in Ace Securities Corp. v. DB Structured Products, Inc., 25 N.Y.3d 581 (2015) (“Ace 1”).]  The facts as set forth herein are taken from Ace 1 and Ace 2.  Defendant, DB, was the sponsor of a residential mortgage-backed securities (“RMBS”) transaction pursuant to which it purchased 8,800 mortgage loans, which were packaged and sold to an affiliate, Ace, pursuant to a “Mortgage Loan Purchase Agreement” (“MLPA”). DB made representations and warranties in the MLPA as to the “quality and characteristics” of the pooled loans.  The loans were placed in a trust.  Ace transferred all rights in the trust and arising under the MLPA to HSBC, in its capacity as a trustee of a RMBS trust, under a pooling and servicing agreement (“PSA”).  The trust issued $500 million in certificates, which were collateralized by the underlying loans.  Principal and interest was paid to certificate holders from proceeds of payments made on the underlying loans.  The PSA provided a mechanism pursuant to which the sponsor, DB, was required to cure or buy back loans that were in breach of the representations and warranties.  Thus, if loans were found to be in breach, HSBC, as trustee, was required to notify sponsor of same within 60 days and sponsor was required to cure the breach or buy back the non-conforming loan within 90 days.  

Due to extensive losses caused by underlying loans defaults, two certificate holders commissioned a forensic analysis of the loans that revealed significant breaches of the representations and warranties.  These certificate holders demanded that HSBC follow procedures in the underlying documents so as to force the sponsor to repurchase the entire pool of loans.  Because of statute of limitations issues, the certificate holders also requested that HSBC seek a tolling agreement.  In the absence of HSBC’s failure to take any of the requested actions, the certificate holders commenced a lawsuit against the sponsor by filing a Summons with Notice on the last day before the expiration of the statute of limitations.  Six months later, in response to the sponsor’s demand for a complaint, “HSBC filed a complaint on behalf of the trust, purporting to substitute as plaintiff for the certificate holders.”  The sponsor moved to dismiss.  After numerous appeals, it was ultimately determined that HSBC’s complaint was untimely because it was filed after the expiration of the statute of limitations and the certificate holders did not validly commence their action by the filing of the Summons with Notice because “they failed to comply with the contractual condition precedent to suit since they did not give the sponsor the requisite notice and opportunity to cure or repurchase.”  (Internal quotation marks omitted.)

During the pendency of the previously discussed appeals “HSBC commenced the instant action against the sponsor seeking to ‘revive’ the certificate holders’ action pursuant to CPLR 205 (a) [by] assert[ing] that the certificate holders’ action was timely commenced and based on the same transaction, and that it had been dismissed less than six months before on grounds that did not preclude CPLR 205 (a) relief.”  HSBC argued that “CPLR 205 (a) authorized commencement of the present action, which would otherwise be barred by the statute of limitations.”

Sponsor moved to dismiss HSBC’s second Complaint arguing that “the action was untimely and CPLR 205 (a) did not apply because HSBC was not the same “plaintiff” as the certificateholders who commenced the prior action.” Supreme court granted the sponsor’s motion [here] and the Appellate Division affirmed [here].  The Court of Appeals granted leave to appeal.

Quoting George, 47 N.Y.3d at 175, the Court, noted that “[t]he effect of the statute is quite simple: if a timely brought action has been terminated for any reason other than one . . . specified in the statute, the plaintiff may commence another action based on the same transactions or occurrences within six months of the dismissal of the first action” and obtain the benefit of the prior timely filing for statute of limitations purposes.”

The Court recognized that its resolution of the matter was based on a “question of statutory interpretation”, and, therefore, the Court’s “primary consideration is to ascertain and give effect to the intention of the legislature, the clearest indicator of which is the statutory text.”  (Citations, internal quotation marks and brackets omitted.)  Further, the Court noted that “[a]ny construction that would render a portion of the statute superfluous must be avoided.”  (Citation omitted.)

HSBC argued that while it is not the same entity as the plaintiff in the prior action, “this new action may nevertheless be deemed timely under CPLR 205 (a) because HSBC, as trustee, is only “nominally” different from the plaintiffs in the original action insofar as it seeks to enforce the “same rights” as the certificate holders—namely, those of the RMBS trust itself.”  The Court rejected HSBC’s position and stated:

HSBC’s argument in favor of applying CPLR 205 (a) cannot be reconciled with the text of the savings statute, the public policy underlying the provision, or our precedent. We have long recognized that the benefit provided by CPLR 205 (a) is explicitly, and exclusively, bestowed on “the plaintiff” who prosecuted the initial action except in the limited scenario where “the plaintiff” dies, the cause of action survives, and an administrator or executor of the deceased plaintiff’s estate seeks to commence a new action based on the same occurrence. That is, the savings statute applies only where the second action is brought by the same plaintiff or an estate representative.

(Citations, internal quotation marks, and brackets omitted, emphasis in original.)  The Court reasoned that HSBC’s argument that “[c]onstruing the term “the plaintiff” in CPLR 205 (a) to authorize commencement of a new action by any entity seeking to pursue the “same rights” as the prior plaintiff—as HSBC urges us to do—would render the statutory language permitting commencement of new actions by administrators and executors superfluous.”

Because “HSBC is not ‘the plaintiff’ in the prior action” “the benefit of CPLR 205(a) is unavailable to save its untimely complaint.” The Court stated:

Where, as here, the litigant commencing the second action is not the original plaintiff, application of CPLR 205 (a) would protect the rights of a dilatory—not a diligent—suitor. By failing to bring the action within the statute of limitations, HSBC signaled that it had no intention to pursue its claims in court. CPLR 205 (a) does not apply and HSBC’s failure to commence an action within the statute of limitations is fatal.

Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes and is not intended to be and should not be taken as legal advice.

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