In A “Fact Posture” of First Impression in the Second Department, Court Finds That Defendant Waived The Protective Stay Provisions of CPLR 321(c)

• Posted on: Jul 23 2021

Sometimes during the course of litigation, through no fault of a litigant, his, her or their attorney becomes physically, mentally or legally incapable of representing the client.  In such circumstances, being forced to proceed without the attorney could be prejudicial.  CPLR 321(c), which addresses such circumstances, provides:

Death, removal or disability of attorney.  If an attorney dies, becomes physically or mentally incapacitated, or is removed, suspended or otherwise becomes disabled at any time before judgment, no further proceeding shall be taken in the action against the party for whom he appeared, without leave of the court, until thirty days after notice to appoint another attorney has been served upon that party either personally or in such manner as the court directs.

In Wells Fargo Bank, N.A. v. Kurian, decided by the Second Department on July 21, 2021, the Court, faced with a “factual posture” of first impression in the Department, found that the defendant waived the protective stay afforded by CPLR 321(c).  The facts of Wells Fargo are simple and “typical of many residential mortgage foreclosure actions in New York”.  Wells Fargo commenced a mortgage foreclosure action after defendant borrower allegedly failed to make payments on the underlying note.  Defendant appeared by counsel and interposed an answer with counterclaims.  Eight months later, however, defendant’s counsel was suspended from the practice of law.  The suspension triggered the automatic stay provisions of CPLR 321(c), although “[a]ccording to the plaintiff, the defendant failed to notify the parties or the Supreme Court of her attorney’s suspension from the practice of law.”

One year after the suspension, and without serving a “notice to appoint another attorney” as required by CPLR 321(c), plaintiff moved for summary judgment and for an order of reference.  Six days after plaintiff made the motion, but prior to its return date, new counsel appeared for defendant, opposed the motion and cross-moved to dismiss the complaint.  Supreme court issued an order granting plaintiff’s motion and denying defendant’s cross-motion.  Defendant filed a pro se notice of appeal, but the appeal was never perfected.  About a year and a half later, a third attorney appeared for defendant.  Thereafter, the court granted plaintiff’s “unopposed motion” and issued a judgment of foreclosure and sale directing the sale of the subject property.

Nine months after the judgment of foreclosure and sale:

the defendant moved by order to show cause, inter alia, to stay the foreclosure sale and to vacate the order and judgment of foreclosure and sale. The defendant argued that since the automatic stay of CPLR 321(c) was in effect on the date that the plaintiff filed its initial motion, inter alia, for summary judgment and for an order of reference, the motion was invalid, and any orders predicated upon those papers were null and void. 

Defendant appealed the denial of her motion.

The Second Department affirmed supreme court’s order.  The Court recognized that in certain circumstances when a litigant loses counsel “CPLR 321(c) protects the client by automatically staying the action from the date of the disabling event” because the “obvious purpose of the stay is to vest the party who has lost counsel with a reasonable opportunity to obtain new counsel before further proceedings are taken and thereby avoid prejudice that might conceivably arise from the absence of counsel in the interim.”  (Citations omitted.)  Citing numerous cases, the Court noted that “[o]rders or judgments that are rendered in violation of the stay provisions of CPLR 321(c) must be vacated.”  

As to the stay, the Court explained:

The express language of CPLR 321(c) sets no particular time limit to the stay of proceedings that is automatically triggered by a qualifying event. Of course, the shield of a stay should not be used as an indefinite sword against any continuation of the action. CPLR 321(c) therefore provides any adversary party with a mechanism for lifting a stay—by serving a notice upon the nonrepresented party to obtain a new attorney. The notice is to be served personally or in such other manner as the court directs (see CPLR 321[c]). Once the notice contemplated by CPLR 321(c) is properly served, the automatic stay of the action remains in effect for another 30 days, but is then lifted upon the expiration of that period. Thus, there are actually two ways in which a CPLR 321(c) stay may be lifted. One way is if the party that lost its counsel retains new counsel at its own initiative, or otherwise communicates an intention to proceed pro se. The second way is by means of the above-described notice procedure pursuant to CPLR 321(c).

(Some citations omitted.)

Although the Wells Fargo plaintiff’s counsel moved for summary judgment before the automatic stay of CPLR 321(c) was lifted, defendant’s “new counsel formally appeared in the action six days after the plaintiff’s summary judgment motion was filed, submitted papers in opposition to that motion, and cross-moved to dismiss the complaint insofar as asserted against the defendant, all within the original or adjusted briefing schedule [and t]he defendant’s opposition papers and cross motion were considered by the Supreme Court on the merits.”  Accordingly, the protections of CPLR 321(c) were “no longer necessary or relevant” as the “appearance and activities of the defendant’s new counsel operated, in effect, as a waiver of the protections otherwise afforded to the defendant….”  (Citation omitted.)  

In finding that defendant’s conduct constituted a waiver, the Court held:

… that even in the absence of service of a notice to appoint new counsel upon the unrepresented party as procedurally required by CPLR 321(c), a continuing stay under the statute may be waived by the unrepresented party’s affirmative conduct of retaining new counsel, effective as of the time that new counsel formally appears in an action. Here, since the defendant’s waiver of the stay occurred before her opposition papers were due in response to the plaintiff’s motion, inter alia, for summary judgment and for an order of reference, the fact that the plaintiff filed its motion on an earlier date, when the stay was still in effect, is of no moment. Further, in regards to the suspension of the original attorney of record, the defendant’s opposition papers and cross motion did not include any argument, at that time, that the motion before the Supreme Court violated the stay provisions of CPLR 321(c), further bolstering our conclusion that any issue regarding the existence of a stay had been waived.

(Citation omitted.)