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Legislative Memo

Ken Pokalsky
Vice President of Government Affairs
T 518.465.7511
www.bcnys.org

BILL:

S.6949 (Bonacic) / A.9953-A (Simotas)

Support

SUBJECT:

Merger Doctrine Modified

 

DATE:

May 15, 2012

 

The Business Council strongly opposes this legislation which seeks to modify New York’s application of the “merger” doctrine to ensure that a court judgment will not replace and supersede a claim underlying the judgment.

This legislation raises several significant problems. The bill is unnecessary because New York common law appropriately addresses the rights attendant to a judgment. Moreover it creates a significant risk that lawsuits will not reach finality, increasing claims and furthering litigation. This bill does not clarify state law as it purports to but rather changes state law for the benefit of one entity.

Under existing principles of New York common law, the merger doctrine is not applied in a rigid manner that defeats a party’s equitable rights. New York’s Court of Appeals has held that the merger doctrine “will not be carried any further than the ends of justice require” and a judgment does not change the essential nature and real foundation of the cause of action.” Jay’s Stores, Inc. v. Ann Lewis Shops Inc., 204 N.E. 2nd 638, 642 (N.Y. 1965).

With the merger doctrine all of the plaintiff’s prior claims are superseded by the judgment in the case, which becomes the plaintiff’s sole means of recovering from the defendant. Support of this bill is based on the perceived idea that a defendant in a case may try to use the merger doctrine to undermine the rights a plaintiff has to the underlying claim by arguing that a particular right or benefit should merge into the judgment and be extinguished.

Jay’s Stores is the leading case in New York on the merger doctrine where it was explained that merger is based on a policy to “prevent successive actions on the same cause…and is not designed to weaken rights or destroy identities which the prevailing party had in his original cause and which he succeeded in establishing by judgment in his favor.”

To the extent that judgment creditors would seek to rely on contract provisions in order to enforce or collect their unsatisfied judgments, the decision in Jay’s Stores seems supportive of their position and we should let the court decide the issue. New York’s courts have established precedent on how to rule on the merger doctrine without the need for legislation to clarify a problem that does not exist.

Another problem this legislation presents is that it allows plaintiffs to circumvent the judgment of courts in order to continue to pursue rights and benefits in the underlying cause of action they believe were lost in the judgment.  When there is a claim or lawsuit, all parties, individuals or businesses want finality, either through a settlement or judgment. Often when there is a settlement or judgment the merger doctrine is used so that certain claims that do not bear on the court reaching equity can be extinguished.  This bill would do away with this merging of claims, allowing limitless claim splitting and making it nearly impossible to bring finality to legal matters.

If enacted this bill would increase litigation and the frequency of claims.  Since a judgment would no longer constitute the final word in a legal matter, there would be no incentive for parties to end a legal dispute until they received an outcome to their liking. The courts would have no power to bring cases to an equitable conclusion.

Prolonged litigation will increase the costs to do business in New York, increase the commercial risks to businesses, lessening the desirability of New York as a commercial destination. Why would any business want to submit to a legal jurisdiction where the laws are changed to allow a party unhappy with a judgment to hold up any settlement until they are satisfied?

Finally, this bill could go a long way toward damaging New York’s brand as an impartial forum for adjudication of disputes and its long-standing attractiveness as a choice of law and court jurisdiction by contracting parties. The bill goes so far as to make its provisions retroactively applicable to all judgments that are unsatisfied prior to its effective date, solely for the benefit of a party currently in litigation.  Selective changes to common law doctrines in order to improve the litigation position of one party over that of another does not foster confidence in the stability and predictability of New York’s Courts.

A judgment for the benefit of a creditor does not equate to payment and this legislation cannot change that fact. Every day judgments go uncollected as judgment debtors are found to be insolvent or seek bankruptcy protection. The risks of certain transactions must be taken into account by parties. It is not the role of the legislature to disregard or attempt to correct such risks.

For all of the foregoing reasons, we urge the legislature to decline passage of this legislation.