The Second Department recently held that in a foreclosure action, if a property owner does not obtain a stay of the judgment of foreclosure pending appeal, and the property is sold to a third party for value while the appeal is pending, the property owner cannot get their property back even if the Appellate Division reverses the judgment of foreclosure even where an extant notice of pendency was filed. Let’s take a look at that opinion and what else has been happening in New York’s appellate courts over the past week.
Appellate Division, First Department
Smartmatic USA Corp. v Fox Corp., 2025 NY Slip Op 02891 (1st Dept May 13, 2025)
Civil Procedure, Discovery
Issue: Was Smartmatic USA Corp. required to produce documents related to a federal investigation and subsequent criminal prosecution alleging that its executives engaged in corrupt practices in procuring a contract in the Philippines to Fox Corp., in its 2020 election defamation suit?
Facts: Fox sought documents and communications from Smartmatic, including “nonprivileged documents and communications regarding the effect on Smartmatic’s business of the DOJ’s allegations against Smartmatic, including, but not limited to, those from customers or potential customers; (b) all internal documents concerning discussions or analysis of the impact of the indictment on the company; and (c) all communications received from any actual or potential customer about the indictment.” Smartmatic refused to produce those documents, and Fox moved to compel. A Judicial Hearing Officer granted the motion, but Supreme Court vacated the order.
Holding: The First Department held that under New York’s liberal discovery rules, Supreme Court should not have vacated the order compelling disclosure of the documents. The Court explained, “Plaintiffs are pursuing special damages in the form of lost profits, which require them to identify the actual economic losses that were caused by the alleged defamatory statements. An integral part of defendants’ defense is that there are reasons for the decline of plaintiffs’ business that are unrelated to defendants’ statements, which reasons include the widely publicized criminal charges against plaintiffs’ executives. The documents and communications sought by defendants on this appeal, which reflect the potential impact of these criminal charges on Smartmatic’s business prospects, are plainly relevant to its current and future lost profits. Information tending to prove this defense is discoverable.”
Appellate Division, Second Department
Yesmin v Aliobaba, LLC, 2025 NY Slip Op 02964 (2d Dept May 14, 2025)
Mortgage Foreclosure, Real Property Law
Issue: What effect does an extant notice of pendency have on the title to real property acquired by a third party from a judicial foreclosure sale when the judgment of foreclosure and sale is reversed on the appeal of a defendant to the foreclosure action?
Facts: After Wells Fargo foreclosed on the property, the property owner appealed, but did not obtain a stay of enforcement of the judgment of foreclosure. While the appeal was pending, “the property was sold by the referee pursuant to the judgment of foreclosure and sale for the sum of $815,000. The winning bid was assigned to the defendant, Aliobaba, LLC, which took title to the property by a referee’s deed dated November 16, 2017.” Three years later, the Second Department “reversed the judgment of foreclosure and sale and denied those branches of Wells Fargo’s motion which were to confirm the referee’s report and for a judgment of foreclosure and sale. Th[e] Court determined that the referee’s report as to the total amount due on the underlying debt was not supported by admissible evidence and that Yesmin was entitled to notice pursuant to CPLR 4313 of a hearing to be held with respect to the total amount due to Wells Fargo.”
After that decision, the property owner commenced this action against Aliobaba “pursuant to RPAPL article 15 to cancel and discharge of record the referee’s deed conveying the property to Aliobaba. Aliobaba interposed an answer with various affirmative defenses and counterclaims, seeking, among other things, to recover the purchase price of the property as well as certain sums invested for the improvement thereof in the event that the property were restored to Yesmin.” Upon the parties’ cross motions for summary judgment, “Aliobaba contended, among other things, that it was a good faith purchaser for value whose title was protected from the effects of the reversal of the judgment of foreclosure and sale. In opposition to the cross-motion and in reply, [the property owner] contended, inter alia, that Aliobaba took title subject to a valid notice of pendency, which had not expired by the time of the foreclosure sale, and, therefore, Aliboaba’s title, taken by the referee’s deed, was invalidated by the reversal of the judgment of foreclosure and sale. By order entered March 30, 2022, the Supreme Court granted [the property owner’s] motion and denied Aliobaba’s cross-motion.”
Holding: The Second Department reversed, and dismissed the complaint. The Court held that “where a judgment has been set aside or vacated, the Supreme Court is authorized to direct and enforce restitution in like manner and subject to the same conditions as where a judgment is reversed or modified on appeal. Of significance, the ability of a trial or appellate court to order restitution of property is qualified by the condition that where the title of a purchaser in good faith and for value would be affected, the court may order the value or the purchase price restored or deposited in court. The effect of this provision is that where title to the property has been transferred to a purchaser in good faith and for value, in the event of an appellate reversal, restitution of the property is no longer available and the successful appellant must content itself with restoration of the value or purchase price already paid.”
The Court explained that the purpose of a notice of pendency is “to prevent a defendant from thwarting the objective of an action by transferring the property to an unwitting third party. It serves to provide constructive notice of a plaintiff’s claim to potential purchasers or incumbrancers, and not for a defendant’s benefit. When property is sold at a judicial foreclosure sale, constructive notice is not needed, as the purchaser has actual notice of the plaintiff’s claim to a lien on the property and is well aware that the title to the property is transferring through foreclosure. Moreover, once a judgment has been entered in the plaintiff’s favor, the rights of the plaintiff are not potential; they are real and have been determined by a court.” Thus, “[o]nce a judgment is entered, the need to obtain a stay pending appeal in order to protect the right to restitution of the property is shared equally by a defendant or a plaintiff against whom the judgment is entered. Where a judgment has been entered against a plaintiff, the plaintiff’s right to impair the marketability of the property during the pendency of an appeal is conditioned upon the issuance of a discretionary CPLR 5519(c) stay. Thus, regardless of whether the judgment is issued in favor of a defendant or the plaintiff, once a judgment is entered, a stay is necessary to protect the property, and in the absence of a stay, the winning party is free to transfer the property as it sees fit.”
Here, because the property owner did not obtain a stay of the judgment of foreclosure pending appeal, Wells Fargo was actually required to transfer the property in a judicial foreclosure sale within 90 days of the judgment. Thus, the extant notice of pendency did not operate to invalidate the referee’s deed to Aliobaba upon the reversal of the judgment of foreclosure on appeal. Rather, “[s]ince Aliobaba established that it is a purchaser in good faith and for value whose title would be affected by restitution of [the property owner’s] property rights lost by the judgment of foreclosure and sale, [the property owner] may not seek restitution by canceling the referee’s deed and, instead, is limited to monetary relief against [Wells Fargo] to the foreclosure action.”
Appellate Division, Third Department
Williams v State of New York, 2025 NY Slip Op 02977 (3d Dept May 15, 2025)
Civil Procedure, Court of Claims Act
Issue: Once a Court of Claims claim is dismissed, may a claimant rely on CPLR 205(a) to recommence the suit within six months of its dismissal, and must service be completed on the Attorney General before the expiration of the six-month recommencement period?
Facts: “In June 2021, claimant brought a claim against defendant pursuant to the Child Victims Act. Upon defendant’s motion, the Court of Claims found that claimant’s failure to satisfy the pleading requirements of Court of Claims Act § 11 (b) deprived it of jurisdiction. As such, the court dismissed that claim through an order entered July 1, 2022; claimant did not appeal therefrom. Then, in December 2022, claimant filed the instant claim against defendant based on the same series of events. Defendant filed a pre-answer motion to dismiss arguing, as relevant on appeal, that although the claim was filed within the time limit set forth in CPLR 205 (a), service had been untimely. Claimant opposed the motion, acknowledging that the Attorney General was not timely served, but he cross-moved seeking to deem said late service acceptable or for an extension of time to serve the claim. The Court of Claims found that claimant’s failure to timely serve was fatal to his claim, as it deprived the court of jurisdiction. Accordingly, the court denied claimant’s cross-motion, granted defendant’s motion and dismissed the instant claim.”
Holding: The Third Department affirmed, holding that the Court of Claims Act specifically requires a claimant to “file the instant claim with the court and serve it upon the Attorney General” within the six month period. Because claimant filed but failed to serve the claim on the Attorney General within the six months, the Court held that he did not properly recommence the suit under CPLR 205(a). The Court also rejected claimant’s argument that the Court of Claims should have granted him leave to complete late service under CPLR 306-b, explaining that “CPLR 306-b expressly provides a timeline for service ‘after the commencement’ of an action or proceeding. By contrast, commencing litigation before the Court of Claims requires both filing and service. As the application of CPLR 306-b would be in direct conflict with the requirements of Court of Claims Act § 11, we find that the Court of Claims did not err in declining to apply it.”
New York Appeals 