Permissive Counterclaims and the “Impairment” Exception: Later Tort Claims from Prior Litigation Survive Unless They Undermine Rights Fixed in the First Action

1. Introduction

Berry v Batash arises from dueling litigation between investor-plaintiff Jon Batash and defendant Anish Berry. In 2020, Batash sued Berry (the “prior action”), alleging Berry participated in a conspiracy that fraudulently induced a $600,000 investment. While the prior action was pending—including motion practice under CPLR 3211—Berry filed a new Nassau County action in 2022 against Batash and Batash’s attorney in the prior action, Eran Regev.

Berry’s new suit asserted tort and litigation-conduct-based claims: abuse of process, defamation, injurious falsehood, intentional infliction of emotional distress, and (against Regev alone) a claim under Judiciary Law § 487. After Berry discontinued defamation only as to Regev by stipulation, the Supreme Court: (a) treated defamation as effectively disposed of as to Batash as well, and (b) dismissed the remaining claims as to both defendants on the ground that Berry should have asserted them as counterclaims in the prior action.

The appeal presented two core issues:

• Defamation/Vicarious liability: Could Batash be vicariously liable for allegedly defamatory statements made by his attorney in the prior action?
• Counterclaim preclusion: Even in New York’s permissive counterclaim system, were Berry’s remaining claims barred because he did not plead them as counterclaims in the prior action?

2. Summary of the Opinion

The Second Department affirmed the dismissal of defamation against Batash, holding the complained-of attorney statements were absolutely privileged because they were pertinent to the prior judicial proceeding; without attorney primary liability for defamation, there can be no vicarious liability against the client.

But the court reversed the dismissal of the remaining causes of action (abuse of process, injurious falsehood, intentional infliction of emotional distress, and Judiciary Law § 487) insofar as the Supreme Court dismissed them solely because they “could have been” counterclaims in the prior action. New York is generally permissive as to counterclaims, and the narrow “impairment” exception did not apply because success on Berry’s claims would not impair rights established (or that could be established) against Berry in the prior action.

The Appellate Division therefore modified the order, reinstated the non-defamation claims (as to the specific ground relied upon below), and remitted for the Supreme Court to consider other grounds raised by Batash and Regev for dismissal and to address Berry’s motion attacking affirmative defenses and the counterclaim.

3. Analysis

3.1 Precedents Cited

A. Absolute privilege for litigation statements (defamation)

• Martirano v Frost (25 NY2d 505, 507-508) (quoted via Weinstock v Sanders): establishes the foundational rule that statements made in judicial proceedings are absolutely privileged if “pertinent” to the issues.
• Weinstock v Sanders (144 AD3d 1019, 1020): restates and applies the absolute-privilege doctrine to communications among parties, witnesses, counsel, and the court at all stages of a proceeding, conditioned on pertinence.
• Front, Inc. v Khalil (24 NY3d 713, 718): reinforces the breadth of litigation privilege in New York and its function as a strong shield for pertinent litigation communications.
• Segall v Sanders (129 AD3d 819, 820): supports the continued, routine application of absolute privilege to pertinent statements within litigation.
• Gill v Dougherty (188 AD3d 1008, 1009): cited for the direct proposition that pertinent litigation statements are protected by absolute privilege, warranting dismissal of defamation claims.

How these cases shaped the result: The court did not treat the stipulation of discontinuance as the decisive mechanism for disposing of defamation against Batash. Instead, it resolved the issue as a matter of law: because the attorney’s statements were pertinent to the prior action, they were absolutely privileged, meaning there was no defamation liability to “pass through” to the client.

B. Vicarious liability requires primary liability

• Hannen v Nici (230 AD3d 1118, 1120): provides the key syllogism used by the court—vicarious liability fails where there is no primary liability.
• Karaduman v Newsday, Inc. (51 NY2d 531, 546): supports the same conceptual prerequisite: derivative theories cannot survive if the underlying tort is not actionable.

How these cases shaped the result: Even if Berry’s theory sought to attribute counsel’s statements to the client, the privilege eliminated the underlying tort; Hannen v Nici and Karaduman v Newsday, Inc. foreclosed a “vicarious” end-run around that immunity.

C. New York’s permissive counterclaim rule and its “impairment” exception

• Sweet Constructors, LLC v Wallkill Med. Dev., LLC (106 AD3d 810): cited for the general principle that defendants are not obliged to assert counterclaims and may bring them in separate litigation.
• 67-25 Dartmouth St. Corp. v Syllman (29 AD3d 888, 889-890): supports both (i) permissive counterclaims generally and (ii) the limited carve-out where a later claim would undermine rights established in the first action.
• Henry Modell & Co. v Minister, Elders & Deacons of Ref. Prot. Dutch Church of City of N.Y. (68 NY2d 456, 462 n 2): the principal authority defining the “impairment” exception—permissive counterclaim rules do not allow a party to “remain silent” and later sue on a preexisting claim if that would impair rights or interests established in the first action.
• Wax v 716 Realty, LLC (151 AD3d 902, 903): a modern application of the impairment concept, used here to confirm that where the later claim does not impair rights fixed by the first action, it is not barred.

How these cases shaped the result: The Supreme Court effectively treated Berry’s later claims as barred simply because they could have been counterclaims. The Appellate Division corrected that by anchoring the analysis in Henry Modell & Co. v Minister, Elders & Deacons of Ref. Prot. Dutch Church of City of N.Y. and its progeny: only later claims that would impair rights established in the earlier action are precluded by omission as counterclaims. On this record, the court concluded Berry’s tort and statutory claims—though related to the litigation—would not impair any rights established against Berry in the prior action (especially given that the complaint against Berry in the prior action had been dismissed).

3.2 Legal Reasoning

A. Defamation: absolute privilege is dispositive, and it blocks vicarious liability

The court applied a two-step approach:

1. Pertinence triggers absolute privilege. Because Regev’s alleged statements were made in the course of the prior litigation and were “pertinent to issues in the prior action,” they were absolutely privileged. Under the cited doctrine, once statements clear the low “pertinence” threshold, privilege is absolute—not merely qualified—and defeats defamation as a matter of law.
2. No primary liability means no vicarious liability. With no viable defamation claim against Regev due to privilege, Berry could not impose vicarious liability on Batash for those statements. The court treated vicarious liability as structurally dependent on an actionable underlying tort.

This reasoning insulates clients from defamation exposure predicated solely on counsel’s privileged litigation advocacy, preventing defamation claims from being repackaged as agency claims.

B. Counterclaims: permissive regime, narrow exception

The court then addressed the broader procedural error below: dismissal of non-defamation causes because they “could have been” counterclaims. It reiterated that New York is a permissive counterclaim jurisdiction under CPLR 3011 and 3019, meaning omission of a counterclaim does not, by itself, bar later litigation.

The opinion then invoked the limiting principle: a later suit is disallowed where it is based on a preexisting claim that would “impair the rights or interests established in the first action.” The court held that Berry’s remaining claims did not do so. In practical terms, the Second Department treated “impairment” as a functional inquiry: would a plaintiff victory in the second action undermine, negate, or destabilize the rights determined (or determinable) in the first action as between the parties?

Because impairment was absent, the Supreme Court’s counterclaim-based dismissal was error. Importantly, the Appellate Division did not decide whether the remaining claims are meritorious; it held only that they were not dismissible on that ground. The matter was remitted so the Supreme Court can address other dismissal arguments (including those raised by Regev under CPLR 3211(a) and by Batash via summary judgment) and then adjudicate Berry’s motions against affirmative defenses and the counterclaim.

3.3 Impact

A. Clarifying the operational boundary of permissive counterclaims

The decision reinforces a litigation-significant boundary: courts may not convert “permissive counterclaims” into an implicit compulsory-counterclaim rule by dismissing later claims solely because they could have been counterclaims. Dismissal requires the specific Henry Modell & Co. v Minister, Elders & Deacons of Ref. Prot. Dutch Church of City of N.Y. “impairment” showing.

B. Litigation-conduct torts and related claims may proceed separately—subject to other defenses

Berry’s remaining causes of action (abuse of process, injurious falsehood, intentional infliction of emotional distress, Judiciary Law § 487) are often asserted as “litigation misconduct” claims. Berry v Batash suggests that, at least as to counterclaim preclusion, plaintiffs are not automatically confined to asserting them in the original litigation. However, the remittal underscores that these claims remain vulnerable to substantive defenses and pleading standards (e.g., privilege doctrines, elements of abuse of process, heightened standards under Judiciary Law § 487, and other CPLR 3211 or summary judgment grounds).

C. Strong reaffirmation of absolute privilege in defamation, with downstream insulation for clients

The opinion consolidates two doctrines into a practical shield: absolute privilege for pertinent litigation statements plus the “no primary liability, no vicarious liability” rule. Together, they reduce the likelihood that defamation liability will attach to a party based on counsel’s in-court or litigation-related statements.

4. Complex Concepts Simplified

• Absolute privilege (litigation privilege): A complete immunity from defamation liability for statements made in the course of a judicial proceeding, so long as the statements are “pertinent” to the issues. “Absolute” means that even malice typically does not defeat the privilege once it applies.
• Pertinent: Not “necessary” or “correct,” but related enough to the subject of the litigation that it could bear on the issues being litigated.
• Vicarious liability: A doctrine that can make one person (e.g., a client) liable for the torts of another (e.g., an attorney) under certain relationships. But it generally requires that the underlying actor committed an actionable tort in the first place.
• Permissive counterclaims (New York): A defendant generally may—but is not required to—assert counterclaims in the same case; they can often be brought later in a separate suit.
• The “impairment” exception: Even with permissive counterclaims, you cannot hold back a preexisting claim and bring it later if winning the second case would undermine or negate the rights established in the first case. This is a targeted constraint designed to protect finality and prevent inconsistent outcomes.
• Remittal: The appellate court sends the matter back to the trial court to decide unresolved issues (here, other grounds for dismissal and the plaintiff’s motion against defenses/counterclaim).

5. Conclusion

Berry v Batash delivers two key takeaways. First, it reaffirms that pertinent litigation statements are absolutely privileged, defeating defamation and foreclosing vicarious liability against the client where the lawyer has no primary liability. Second, and more broadly procedural, it underscores that New York’s permissive counterclaim system cannot be circumvented by dismissing later claims merely because they could have been counterclaims; only the narrow Henry Modell & Co. v Minister, Elders & Deacons of Ref. Prot. Dutch Church of City of N.Y. “impairment” exception justifies such preclusion. The remittal leaves open whether Berry’s remaining claims survive on other substantive or procedural grounds, but the opinion firmly resets the counterclaim-preclusion analysis to its proper, limited scope.