Court of Appeals Broadly Interprets “Necessarily Affects” Requirement Applicable to Prior Nonfinal Orders and Judgments

In Strauss, Inc. v. East 149th Realty Corp., the Appellate Division declined to review, on an appeal from a final judgment, an earlier order dismissing appellant’s counterclaims and third-party claims.  The Court of Appeals, however, granted leave and reversed, holding that, contrary to the Appellate Division’s determination, the order dismissing appellant’s counterclaims and third-party claim does “necessarily affect” the final judgment within the meaning of CPLR 5501(a)(1).

 

By way of background, CPLR 5501(a)(1) provides that “[a]n appeal from a final judgment brings up for review ... any non-final judgment or order which necessarily affects the final judgment.”  For purposes of CPLR 5501(a)(1), “a final order is one that disposes of all causes of action between the parties in an action or proceeding and leaves nothing for further judicial action apart from mere ministerial matters” (Town of Coeymans v. Malphrus, 252 A.D.2d 874, 875 [3d Dept. 1998]).  Further, an order has been said to “necessarily affect” a final judgment if its reversal would overturn the judgment (Siegel, NY Prac § 530, at 940 [5th ed]).  Applying this test, the Appellate Division found in Strauss, that the order dismissing the counterclaims and third-party claim did not “necessarily affect” the judgment because, if the order were reversed, it would not require a reversal or modification of the final judgment.  Rather, it would mean only that the counterclaims and third-party claim would be reinstated and appellant would be permitted to pursue those claims.

 

But the Court of Appeals disagreed, holding that the Appellate Division erred in ruling that the order dismissing the counterclaims and third-party claim did not necessarily affect the final judgment, explaining that, “this Court has not applied a definition of ‘necessarily affects’ as narrow as that employed by the Appellate Division in this case.  To satisfy ‘necessarily affects’ in this context, it is not required, as the Appellate Division held, for the reinstatement of the ... counterclaim upon a reversal or modification to overturn completely the judgment.”  Instead, the Court of Appeals held that because the order dismissing the counterclaims and third-party claim “necessarily removed that legal issue from the case (i.e., there was no further opportunity during the litigation to raise the question decided by the prior non-final order), that order necessarily affected the final judgment.”

 

On its face, this holding may leave some scratching their heads wondering why does it matter that the order dismissing the counterclaims and third-party claim “necessarily removed that legal issue from the case” in determining whether the order “necessarily affects” the final judgment.  To the contrary, intuitively an order that removes completely a “legal issue from the case” would be a “final” order, which would not be brought up for review by the judgment.  An answer can be found in Burke v. Crosson (85 N.Y.2d 10 [1995]).  There, the Court of Appeals held that “an order or judgment that disposes of some but not all of the substantive and monetary disputes between the same parties is, in most cases, nonfinal.  Thus, a nonfinal order or judgment results when a court decides one or more but not all causes of action in the complaint against a particular defendant or where the court disposes of a counterclaim or affirmative defense but leaves other causes of action between the same parties for resolution in further judicial proceedings” (id. at 16).