AVOID Act Creates 3rd-Party Litigation Risks For Transpo Cos.

Originally published in Law360: AVOID Act Creates 3rd-Party Litigation Risks For Transpo Cos.

The New York Legislature attempted to drastically change the scope of third-party litigation in the state late last year with the Avoiding Vexatious Overuse of Impleading to Delay, or AVOID, Act, which takes effect next month.

There are numerous layers to the impact of this law beyond its text, including whether this law violates the substantive due process of litigants who could now be held liable in actions due to a procedural technicality rather than the merits.

New York courts assert a desire to see that matters are resolved on the merits rather than on procedural issues, whether those be untimely pleadings, delays in discovery or other nonsubstantive matters.

This law will test whether the resolution of disputes on the merits remains the paramount ideal.

Rather than providing a simple restatement of the new law, this article will discuss its practical impact on transportation companies.

Background

It is first important to understand the law’s context, and the fact that that litigants were already protected against undue and inordinate delay of third-party actions.

New York’s Civil Practice Law and Rules Section 1010 exists to provide a safety valve against undue delay or prejudice by way of a third-party complaint.[1] Under that law, dismissal or severance lies within the sound discretion of the court, and courts were advised to exercise this discretion with caution.[2]

With the AVOID Act, the Legislature has sought to take this discretion out of the hands of judges.

Meanwhile, the act is incredibly vague with regard to noncontractual claims. The key changes, which go into effect on April 18, are as follows:

Any third-party action that arises from a contractual relationship must be filed within 60 days of a defendant’s answer;

Noncontractual claims must be filed within 60 days of becoming aware of a potentially liable third-party defendant, an inherently vague standard;

No extension beyond 30 days are permitted without court order, and no defendant is permitted to file a third-party complaint 12 months after the answer without written consent of both the court and the plaintiff, meaning that the plaintiffs bar now holds the discretion as to whether defendants can file third-party complaints;

Second-tier third-party actions must be commenced within 45 days after service of the third party answer, a second-tier third-party defendant must commence within 30 days after their answer, and all subsequent third-party defendants must commence their actions within 20 days after their answer, meaning that a second-tier third-party defendant brought into a case well after its filing sees the most prejudice in its procedural restrictions;

No third-party litigation is permitted whatsoever after filing of the note of issue, with no affordance to judicial discretion; and

All third-party complaints must be served within 20 days, as opposed to the 120-day limit previously permitted under the Civil Practice Law and Rules.

Though there are currently some narrow exceptions, those exceptions only apply to matters involving the grave injury exception to the workers’ compensation law, and affect a small percentage of cases.

How the AVOID Act Creates New Problems

This legislation fails to come to grips with the practical realities in civil litigation. The following is only a small sample of the problems created by this law.

Unknown Potential Litigants

Personal injury plaintiffs in civil litigation are often involved in prior or subsequent accidents that could contribute to the alleged injuries. At the same time, plaintiffs are often slow responding to discovery.

It is highly common to learn of other contributing events and accidents involving a plaintiff more than a year after an answer, based upon the pace of paper discovery or not learning this information until plaintiff’s deposition.

Flood of Third-Party Filings

This law is likely to invite third-party litigations, driving up defense costs and insurance rates, because defendants will be forced to either make these claims or have them waived.

The specter of additional and higher defense costs may push clients and carriers to resolve cases rather than litigate.

Unnecessary Motion Practice

We will likely see an uptick in motion practice and costs, whether this comes from motions to file late third-party actions, motions to dismiss third-party actions that the third-party defendants deem frivolous, or even motions for sanctions for frivolous claims. The unforeseen consequences may be far-reaching.

Implications and Strategies

As with many procedural changes, the practical impact of this law will depend on how courts interpret and apply it in real cases. Much of the risk management effort will need to occur prior to the filing of the complaint.

For companies operating in the transportation and logistics sectors, the compressed timelines and expanded procedural hurdles make early investigation and coordinated defense strategies more important than ever.

Here are some recommendations and issues to be aware of as we are confronted with the practical fallout of this new law.

Knowing Your Contracts

After an event occurs, whether it be a motor vehicle accident, a workplace incident, or a dispute over a shipment or delivery, immediately identify all vendors, contractual partners, and relevant insurance companies that could owe defense or indemnity.

Make sure that full, executed and up-to-date agreements are in the relevant claims file and provided to defense counsel immediately, so defense counsel is prepared to draft and file third-party actions upon appearing in any litigation.

Background and Investigation

One of the most common issues in transportation-related litigation is the existence of prior or subsequent accidents involving the plaintiff that only come to light as the case progresses. That reality makes prompt, thorough investigation critical.

As soon as an incident is reported, parties should take appropriate steps to gather available background information, evaluate prior claims activity where permitted and develop a clear picture of the claimant’s history.

Understanding the full context of a plaintiff’s prior incidents and claims at the earliest possible stage can significantly affect defense strategy and the identification of potentially responsible third parties.

Preserving All Defenses

While increased motion practice is a likely consequence of the new law, the greater concern is the potential waiver of contribution or indemnity claims if deadlines are missed. The compressed timelines may lead to a rise in third-party filings, as defendants act earlier to protect their rights.

It may also result in more disputes over proper parties, particularly where there is uncertainty about whether the correct entity has been named in the underlying action.

In this environment, early evaluation and, where appropriate, timely third-party claims may be necessary to preserve the defense, with the option to reassess or discontinue those claims as the case develops.

We also wish to note that New York does still have a six-year statute of limitations during which it is possible to sue for contribution after judgment.

While the prospect of a separate, post-judgment contribution action is neither ideal nor efficient, that framework provides additional context for how this procedural change may affect the dynamics between plaintiffs and defendants, particularly when issues of contribution arise after the underlying litigation concludes.

Possible Further Changes to the Law

It is also highly probable that this law will likely change in some regards, just as the similar Comprehensive Insurance Disclosure Act did in 2021.

There will be significant noise in Albany relative to the impact of this law. As courts and legislators respond to the real-world consequences of the statute, the contours of the law are expected to become clearer.

[1] Soto v. CBS Corp. , 157 A.D.3d 740, 741 (2d Dep’t 2018) (citing Gomez v. City of New York , 78 A.D.3d 482, 483–84, 911 N.Y.S.2d 45 (1st Dep’t 2010)).

[2] See Rothstein v. Milleridge Inn , 251 A.D.2d 154, 155, 674 N.Y.S.2d 346 (1st Dept 1998).