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Related Entities Not “Necessary” to Pending Litigation For Intervention Purposes

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  • Posted on: Feb 8 2021

Last month, this Blog examined Shilon v. New Upreal LLC, 2021 N.Y. Slip Op. 30146(U) (Sup. Ct., Kings County Jan. 11, 2021), a case involving a motion by a nonparty to intervene in the litigation. (Here.) Today, we look at 1467 Bedford Holdings LLC v. Spitzer, 2021 N.Y. Slip Op. 30302(U) (Sup. Ct., Kings County Feb. 1, 2021) (here), a case involving intervention as of right under CPLR §1012(a)(2).

Under CPLR §1012(a)(2), a party may intervene as a matter of right “when the representation of the person’s interest by the parties is or may be inadequate and the person is or may be bound by the judgment.” The Court of Appeals has explained that intervention is available only where the judgement will bind the potential intervenor “by its res judicate effect”. Vantage Petroleum v. Board of Assessment Review of the Town of Babylon, 61 N.Y.2d 695 (1984). The Court further explained that the potential intervenor should be in “privity” with the parties to the lawsuit to grant the motion to intervene. Green v. Sante Fe Indus. Inc., 70 N.Y.2d 244 (1987). Thus, where the potential intervenor has no interest in either the real property at issue or the outcome of the litigation, then the motion to intervene should be denied. Citibank N.A. v. Plagakis, 8 A.D.3d 604 (2d Dept. 2004).

1467 Bedford Holdings involved a dispute over the management of property owned and operated by plaintiff 1467 Bedford Holdings LLC – a company owned by three entities: Gemcap Equity Corp., 50%; Mazel Equities Group LLC, 25%; and Cobblestone Equity LLC, 25%.  1467 Bedford Holdings was formed to acquire, develop and maintain property located at 1467 Bedford Avenue in Kings County.  

Pursuant to the operating agreement, 1467 Bedford Holdings was managed by Judah Zelmanovitz and Sam Wieder. Notwithstanding the terms of the operating agreement, plaintiffs alleged that defendant Joel Spitzer (“Spitzer”) had (a) been acting as the manager of the property, (b) been presenting himself as the manager of the property, and (c) rented units that were already occupied. They further alleged that he trespassed and loitered at the property. Plaintiffs maintained that those activities violated the operating agreement and was harming not only the financial success of the enterprise but the physical well-being of the tenants that resided there.

Plaintiffs sought an injunction preventing Spitzer from acting as the owner of the property and from having any interaction with any of the tenants. Defendants opposed the motion and cross-moved, seeking an injunction preventing plaintiffs from slandering him. The Court granted the motion and denied the cross-motion.

At the time of the motions, two potential intervenors, Triboro Realty Asset Management LLC and Alpha Space LLC, both of which Spitzer own, moved to intervene in the action. Triboro had acted as managing agent of the property and claimed that money was owed. Alpha was a tenant and the subject of a landlord tenant action that had been discontinued. In ruling on the motions, the Court did not rule on the motion to intervene.

Spitzer moved, pursuant to CPLR § 2221, to reargue a portion of the Court’s earlier decision – namely, the motion to intervene. The Court denied the motion.

In denying the motion, the Court held that neither Triboro nor Alpha were “necessary” parties to the action. Slip Op. at *3. The Court explained that neither entity had anything to do with the allegations in the complaint as they pertained to Spitzer (e.g., breach of the operating agreement, trespass, tortious interference with contract, conversion, breach of fiduciary duty, declaratory judgement and a permanent injunction). Id. Triboro, said the Court, was not a necessary party to the action, even it “ha[d] claims for offsets or payments”, because the claims “ha[d] nothing whatsoever to do with the allegations against Spitzer.…” Id. Similarly, Alpha, which possessed claims for improvements to the unit, was not a necessary party to the litigation because those claims did “not touch upon the claims of this action.…” Id. In short, concluded the Court, “Alpha [was] not a ‘necessary’ party to an action that essentially argue[d] Spitzer acted improperly.” Id.

Takeaway

Although the courts do not always make the distinction between mandatory and permissive intervention (Matter of HSBC Bank U.S.A., 135 A.D.3d 534, 534 (1st Dept. 2016)), they will make such a distinction when, as in 1467 Bedford Holdings, the motion is understood to be brought under one of the intervention provisions of the CPLR. In 1467 Bedford Holdings, the Court treated the motion as being brought under CPLR §1012(a)(2) – that is, the mandatory intervention provision of the CPLR. [Ed. Note: the underlying motion papers suggest that the intervenors moved under both CPLR §1012(a)(2) and CPLR §1013.] As such, the intervenors were required to show that they would be adversely affected by a judgment in the action. The Court held that because they were not necessary to the action, they could not show that they would be adversely affected by a judgment in the action.

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