Omega Diagnostic Imaging, P.C. v State Farm Mut. Ins. Co.

[*1] Omega Diagnostic Imaging, P.C. v State Farm Mut. Ins. Co. 2007 NY Slip Op 51405(U) [16 Misc 3d 1113(A)] Decided on July 20, 2007 Nassau Dist Ct Miller, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on July 20, 2007
Nassau Dist Ct

Omega Diagnostic Imaging, P.C., a/a/o Oswin Lynch, Plaintiff(s)

against

State Farm Mutual Insurance Company, Defendant(s)



01211/03



APPEARANCES:

Jason Tenenbaum, Esq.

Picciano & Scahill, P.C.

For Defendants

900 Merchants Concourse

Wesbury, NY 11559

W. Matthew Iler, Esq.

Israel, Israel & Purdy, LLP

For Plaintiff

11 Grace Avenue, Suite 111

Great Neck, NY 11021

Howard S. Miller, J.

In this relatively minor no-fault action, Defendant moves (by ordinary notice of motion dated March 26, 2007) for an order staying Plaintiff's enforcement of a judgment based on non-compliance with a stipulation of settlement. The stipulation required Defendant to pay Plaintiff the sum of $2,633.37 within thirty days of its execution. In the event of default, the stipulation further provided for Plaintiff's entry of judgment for the full amount demanded in the complaint. The amount demanded in the complaint, with statutory interest and attorneys' fees, was $5,101.72.

Defendant admittedly failed to make payment within thirty days, and allegedly attempted to make payment a few days later. On Plaintiff's application under the stipulation, the Clerk entered judgment on February 26, 2007, for $5,211.72, which also included costs. Defendant now argues that entry of judgment for the full amount of the complaint constitutes an unconscionable penalty for a few days' delay, and that Plaintiff's remedy is limited to a few days of statutory interest on the settlement amount. The Court disagrees.

To begin, Defendant has invoked the wrong procedure. Once a judgment has been entered, relief from that judgment is available only under CPLR 5015, with motions to be made by order to show cause. Defendant utilized an ordinary notice of motion. For that reason alone, the motion must be denied.

In addition to its procedural defect, however, the motion must also be denied on its merits. Defendant's motion papers contain extensive citation to a proposition with which the Court agrees. "Penalty" clauses in contracts are unenforceable. All of the cases Defendant cites in support of that proposition are off the main point. The real question here is whether a stipulation of settlement in a judicial action, on the advice of counsel, is subject to the same rules as an ordinary contract. The Court believes that it is not.

Analysis begins with the proposition that a party may always consent to the entry of judgment as a way of terminating a litigation, for any reason. The consideration is the termination of the litigation. It is not considered a "penalty." A party may simply conclude that the merits of its defense (or lack thereof) do not warrant the time and expense of further litigation. The courts encourage parties to stipulate the entry of judgment in such circumstances to avoid a waste of judicial time on defenses that are frivolous or essentially useless. When parties are represented by counsel, there is no need for a public policy concern of one party taking unfair advantage of another.

A stipulation of settlement such as the one at bar is merely a variant of a [*2]judgment on consent. The defendant consents to entry of judgment for the full amount of the complaint, subject to a condition subsequent that payment of a reduced sum within a time certain will satisfy the obligation. Timely satisfaction of the condition is the bargained-for consideration for the reduced sum.

Defendant's argument turns the stipulation inside out. Correctly construed, a stipulation of settlement such as the one at bar is not a contract substituting a new obligation to pay a reduced sum, with a penalty clause attached for failure to comply. That is clear from the fact that this action continues until the settlement is concluded. If the parties had intended the stipulation to constitute a new obligation, they should have provided for discontinuance of this action upon execution of the stipulation.

The Court considers that ABCO Refrigeration Supply Corp. v Designs by Keiser Corp., 239 AD2d 165, 657 NYS2d 638 (1st Dept 1997), is directly on point in this matter. As here, that case involved a stipulation in an ongoing action where the proposed judgment was essentially for the amount demanded in the complaint, the parties expressed no intent that the original contract would be supplanted, and there was no fraud, collusion, mistake or accident alleged. The First Department held that such stipulations in such cases are "favored."

To the contrary, Defendant cites two Second Department holdings, Quaker Oats Company v Reilly, 274 AD2d 565, 711 NYS2d 498 (2nd Dept 2000), and Zervakis v Kyreakedes, 257 AD2d 619, 684 NYS2d 291 (2nd Dept 1999). In Quaker Oats, the Second Department contrasted its holding with ABCO, supra , for the obvious reason that Quaker Oats did not involve a stipulation in an ongoing judicial action. For that reason, the Quaker Oats stipulation was governed by the usual rules about penalty clauses in contracts, and the Quaker Oats case is thus distinguishable from the one at bar.

The Zervakis case, supra , is somewhat more problematic in that it did involve an ongoing judicial action. In that action, the plaintiff sought to enter judgment for $100,000, minus amounts paid, when the defendant timely paid $36,000 out of the agreed $40,000 settlement, but withheld the $4,000 balance until a dispute had been adjudicated. It is clear from the Second Department's opinion that the Court focused on the gross disparity between the unpaid amount and the amount of the proposed judgment. Apparently the Second Department found that disparity unconscionable. The Second Department's opinion does not disclose the relationship between the $100,000 figure and the amount demanded in the complaint. [*3]

It may be that Zervakis is distinguishable from ABCO on the ground that the proposed Zervakis judgment was for more than the amount in the complaint, or perhaps Zervakis should be considered sui generis. Even if Zervakis is on point and represents good law [FN1] in this Department, however, the Court finds Zervakis to be distinguishable from the case at bar because there is no such gross disparity here. The difference between the settlement amount and the proposed judgment is only $2,578. Regardless of the percentages involved, that amount does not shock the conscience of the Court, particularly in view of the fact that a substantial portion of that $2,578 has probably already been spent on the attorneys' fees required for this motion.

The motion is denied. There is no stay in effect against enforcement of the judgment.

So Ordered. Footnotes

Footnote 1:Which, if true, is something that this Court would respectfully urge the Second Department to reconsider, given the potential for abuse that it invites, with a consequent disincentive for plaintiffs to agree to settlements. Plaintiffs usually agree to settlements in reduced amounts because they think they are guaranteed an end to litigation. If the settlement is merely a prelude to further litigation with a smaller payout at the end, what is the point, from a plaintiff's point of view, in agreeing to the settlement? That is particularly true in cases as small as this one.