In a ruling that will be noticed only by appellate lawyers, but will likely have important consequences for trial strategy, the New York Court of Appeals held that orders made at the pre-answer or summary judgment stage that dismiss (1) causes of action asserted in the complaint or (2) counterclaims or cross-claims asserted in the answer may be brought up on appeal from the final judgment in the case.
In Strauss v. East 149th Realty Corp., 2012 NY Slip Op 07048 (October 23, 2012), a breach of contract action arising from a failed merger of two small companies, the trial court granted the plaintiff’s motion to dismiss the defendants’ counterclaims and third-party claims for fraud, conversion and tortious interference with contract. The defendants did not take an immediate appeal from that order. The matter went forward to a bench trial, which resulted in a judgment for the plaintiff, from which the defendants appealed. The Appellate Division dismissed the portion of the appeal in which the defendants argued that the prior order dismissing their counterclaims and third-party claims was in error. The Court of Appeals reversed and remitted the matter to the Appellate Division to decide the issues raised by the defendants.
The Court of Appeals’ decision turned on the permissive nature of appeals in New York. In New York, an appeal can be taken, as of right, to the Appellate Division, New York's intermediate appellate court, at any stage of the action from any order determining a motion made on notice. See CPLR 5701. In addition, an appeal from the final judgment in the case brings up for review “any non-final judgment or order which necessarily affects the final judgment.” CPLR 5501(a)(1). The issue in Strauss was whether the non-final order dismissing the counterclaims “necessarily affected” the final judgment in favor of the plaintiff. The Court of Appeals held that it did, reasoning that “because Supreme Court's dismissal of the counterclaims and third-party claim necessarily removed that legal issue from the case …, that order necessarily affected the final judgment.”
The importance of this ruling for trial lawyers is that claims disposed of by motion practice early in the case are not really concluded until an appeal from the judgment is decided. As a result, even though a claim or defense that has been dismissed will not be tried, that claim remains a factor in evaluating the case for settlement purposes if the order dismissing it may not be sustainable on appeal. While the party whose claim is dismissed can take an interlocutory appeal from the order, the successful party cannot because that party is not aggrieved. The issue can be resolved prior to final judgment, however, if the party whose claim was dismissed files a notice of appeal but fails to perfect the appeal before it is deemed abandoned. In that case, the appeal from the interlocutory order is subject to dismissal and, if that appeal is dismissed for failure to prosecute, the issue cannot be raised without leave of court on the appeal from the final judgment.