New York Court Holds Creditor Law Firm Can Pursue Guarantor Without First Pursuing Primary Debtor

The New York Supreme Court, New York County, recently held that the law firm could pursue the guarantor of payments due under its retainer agreement with a client without first pursuing the client herself, but that there were issues of fact on the amounts due to the firm.  See Aronson Mayefsky & Sloan, LLP v. Toboroff., 151038/2018 (N.Y. Sup. Ct. Jan. 6, 2020).  In the case, the plaintiff law firm represented the defendant’s daughter in a litigation.  The defendant signed a guaranty for his daughter’s debts to the firm, and plaintiff brought this action seeking to enforce the guaranty.  Defendant moved to dismiss the action, arguing that plaintiff could not seek to enforce the guaranty until it first sought to recover from and obtained a judgment against his daughter.  Defendant also argued that plaintiff was collaterally estopped from seeking more fees than it had been awarded in the underlying litigation.  Plaintiff cross-moved for summary judgment.

The Court denied both parties’ motions.  First, the Court acknowledged that a guaranty of collection requires a creditor to first attempt to collect against the principal debtor, and only after those means fail could the creditor pursue the guarantor.  A guaranty of payment, on the other hand, does not require a creditor to pursue the principal debtor first.  In this case, the Court found that the guaranty was one of payment based on the guaranty’s language that it guaranteed “timely payment and timely performance of all obligations . . .”  Further, the guaranty did not contain any language that required plaintiff to pursue the daughter first.  Second, the Court found that plaintiff was not bound by the amount of fees awarded in the underlying litigation, and was allowed to seek all reasonable fees under its retainer with the daughter.  Accordingly, the Court denied the motion to dismiss.  Finally, the Court denied plaintiff’s cross-motion for summary judgment, finding that there were issues of fact as to the amount of fees that were reasonable here.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Michael Crowley at mcrowley@riker.com, or Anthony Lombardo at alombardo@riker.com.