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NY Commercial Case Compendium

A Searchable Database of Court Decisions Issued by New York’s Commercial Division

Debtor Discharged in UK Bankruptcy Proceeding Entitled to Dismissal of Creditor Bank’s Breach of Contract Action, Under Principles of Comity

Posted in Bankruptcy, Industry: banking, Justice Scarpulla, Saliann, New York

In a June 26, 2014 Commercial Division decision by Justice Scarpulla, the court granted Defendant Kemsley’s motion for summary judgment dismissing the complaint on the basis of a bankruptcy discharge granted in his favor in the United Kingdom, and denied Plaintiff Barclays’ motion for summary judgment on its breach of contract claim.

Plaintiff Barclays is a bank organized under the laws of England and Wales.  Defendant is a citizen of the UK.  In a UK bankruptcy proceeding commenced by Defendant, Defendant listed Barclays as an unsecured creditor.  Barclays was aware of the bankruptcy proceeding but decided not to submit a proof of claim.  Kemsley was eventually adjudged bankrupt and entered into an agreement with the trustees of his estate (the “UK Trustees”) under which his income would be garnished over the following three years for the benefit of his creditors, including Barclays.

About a year prior to this agreement, and during the pendency of the UK bankruptcy proceeding, Barclays commenced an action in New York seeking recovery of its debt on causes of action for breach of contract and unjust enrichment.  While this action was stayed, the UK Trustees sought in the US Bankruptcy Court, Southern District of New York, recognition of the UK bankruptcy proceeding as a “foreign main proceeding”; SDNY found that Defendant’s “center of main interests” was not in the UK.  Upon a subsequent hearing, SDNY clarified that nothing in its nonrecognition order prevented Defendant from seeking comity from US courts respecting his UK discharge of debts.  Defendant therefore requested from the UK Bankruptcy Court an injunction preventing Barclays from proceeding with its US lawsuits against him.  It was denied, and the UK Bankruptcy Court deferred to US state courts on the issue.

Defendant moved the Commercial Division to recognize the UK bankruptcy discharge in accordance with common law principles and comity.  Barclays argued that Chapter 15 of the Bankruptcy Code, under which only a “foreign representative” may seek comity, preempted state common law.  Barclays argued that even if it did not, “unusual circumstances” of this case weighed against application of comity.  The court noted that in its order of nonrecognition, SDNY rejected Barclays’ preemption argument, finding that nothing in the Bankruptcy Code prevented a foreign debtor from seeking comity.  Though the court did not find the words of SDNY binding, it found them “highly persuasive,” and rejected Barclays’ preemption argument.

The court also rejected Barclays’ argument that the court should, in is discretion, deny comity to the UK discharge.  The court rejected Barclays argument that it had no practical way of recovering its debt in US proceedings.  The court found that Barclays’ problem was largely of its own making; in other words, “Barclays may have mousetrapped itself.”

Barclays Bank PLC v Kemsley, Sup Ct, New York County, June 26, 2014, Scarpulla, J., Index No. 650611/2012.

Partners Bound by Ownership Representations in Partnership Tax Returns

Posted in CPLR 3211, Industry: real estate, Justice Demarest, Carolyn E., Kings, Motion to Dismiss, Partnership

In a June 9, 2014, Kings County Commercial Division decision by Justice Demarest, the court denied defendant’s motion to dismiss plaintiff’s declaratory judgment action.  Plaintiff, a former 50% owner in a real estate partnership, commenced the action against his co-partner for selling the partnership’s properties without his consent.  Defendant moved to dismiss, arguing that plaintiff previously had transferred half of his interest in the partnership to his ex-wife under a divorce stipulation, whose 25% interest had been listed on the partnership’s tax returns for the prior three years.  Plaintiff opposed the motion, arguing that the transfer of half his interest to his ex-wife was void under both the Partnership Law and the parties’ Partnership Agreement, which require the consent of all partners for the admission of new partners and the transfer of any partnership interest.  Defendant then argued on reply that plaintiff’s act of transferring half of his interest to his ex-wife without consent was a “terminating event” under the Partnership Agreement, rendering defendant the sole owner of the partnership and its underlying assets.  Based on the parties’ prior submissions to the court and because they were “bound by the representations made in the partnership tax returns,” the court found that plaintiff’s ex-wife was in fact a 25% owner in the partnership.  But because there were “issues of fact” concerning whether defendant’s transfer of partnership property constituted a violation under the Partnership Agreement and/or the Partnership Law, the court denied defendant’s motion.

Camuso v Brooklyn Portfolio LLC, Sup Ct, Kings County, June 9, 2014, Demarest, J, Index No. 19269/13

Motion to Change Venue Denied in Action Seeking Judicial Dissolution as BCL § 1112 is Controlling

Posted in BCL 1104-a, Dissolution, Industry: real estate, Justice Demarest, Carolyn E., Kings

In a July 21, 2014 Commercial Division decision by Justice Demarest, the court denied the Defendants’ motion to change venue from Kings County to Nassau County. The plaintiffs were minority owners of a domestic real estate holding company (“Company”), which had sold a parcel of real property located in Brooklyn (“Property”) that was secured by a mortgage (“Mortgage”). The plaintiffs asserted three causes of action relating, in part, to the Property and the Mortgage, including a claim seeking judicial dissolution of the Company pursuant to BCL § 1104-a. Plaintiffs commenced the action in Kings County pursuant to CPLR § 507, on the basis that the Property is located in Kings County and that the relief sought would “affect the title to, or the possession, use or enjoyment of real property.” On their motion, the defendants argued that because the Company owned only the Mortgage, and not the Property itself, a change of venue to Nassau County was appropriate pursuant to CPLR §§ 503(a), 510 and 511, because none of the parties were residents of Kings County and all of the defendants were residents of Nassau County. The court explained, however, that BCL § 1112 was controlling for determining venue in an action seeking judicial dissolution, and the statute provides that the action “shall be brought in the supreme court in the judicial district in which the office of the corporation is located at the time of the service on the corporation of a summons.” Here, the Company’s office, as stated in its certificate of incorporation, was Kings County. Further, the court explained that notwithstanding the application of BCL § 1112, and assuming the defendants moved pursuant to CPLR § 510(3), the defendants failed to meet their burden of demonstrating that the convenience of material witnesses would be better served by the change. The court therefore held that defendants were not entitled to a discretionary change of venue.

Sicignano v Hymowitz, Sup Ct, Kings County, July 21, 2014, Demarest, J, Index No. 500442/14

Derivative Complaint Dismissed for Failure to Make Demand on Board of Directors or to Show Demand Futility

Posted in CPLR 3211, Demand Futility Doctrine, Derivative Actions, Industry: pharmaceutical, Justice Emerson, Elizabeth, Suffolk

In a June 17, 2014 Commercial Division decision by Justice Emerson, the court dismissed an amended complaint bringing derivative claims for failure to make a demand on the board of directors before commencing the action or showing that such a demand would be futile.  Applying Delaware law, the court found that the allegations in the complaint at best demonstrated that only two of the directors may be interested in the litigation, and the facts as alleged failed to demonstrate that seeking consent from the remaining directors to bring the action would have been futile.

Morrison v Santana, 2014 NY Slip Op 51006(U) [Sup Ct, Suffolk County, June 17, 2014, Emerson, J]).

Commercial Division Upholds Claim for Damages that Paperless Tickets Offered for Performance of “The Temper Trap” at Bowery Ballroom May Violate Arts and Cultural Affairs Law

Posted in Class Action, Industry: entertainment, Justice Scarpulla, Saliann, Motion to Amend, Motion to Dismiss, New York, Stay Arbitration

In a June 30, 2014 decision by Justice Scarpulla, the Commercial Division granted in part a defendant’s motion to dismiss, and denied the motion to stay the action pending arbitration.  The putative class action arose out of the purchase of a ticket, through Ticketmaster, to attend The Temper Trap at the Bowery Ballroom in March 2012.  When plaintiff bought the ticket, the Ticketmaster website made clear the ticket was “nontransferable”, and could only be picked up on the night of the performance.  A day before the show, plaintiff contacted Ticketmaster to inquire about transferring the ticket to a friend.  Ticketmaster declined her request, and advised her that only she could attend.  Plaintiff thereafter commenced a putative class action on behalf of herself and others similarly situated, claiming violations of New York’s Arts and Cultural Affairs Law (“ACAL”) sec. 25.30(1)(c), which requires that performances utilizing a paperless ticket system must give the purchaser an option to buy paperless and allow the ticket to be independently transferable.  Plaintiff sought damages and a permanent injunction.

Defendant moved to dismiss, claiming plaintiff lacked standing since she suffered no injury, but rather it was her friend who was injured.  Defendant also claimed plaintiff failed to make a showing justifying permanent injunctive relief, particularly since the performance at issue had already occurred.  Finally, defendant claimed plaintiff did not have the right to waive the minimum statutory penalties under the ACAL to maintain a class action.  Plaintiff in turn requested permission in her opposition brief for leave to amend the complaint.

The Court initially found that plaintiff in fact had standing to sue.  As a purchaser of the ticket, she sustained injury necessary to establish her standing.  The Court dismissed, however, the claims for permanent injunction.  Not only did the performance at issue already pass, but plaintiff’s allegations that the harm is continuing and ongoing are vague and conclusory.  The Court noted that plaintiff’s request for leave to amend the complaint to rectify that allegation was contained only in the memorandum of law, and not the subject of a cross motion.  Accordingly, the Court denied the request for leave to amend, without prejudice to renew.

The question of whether a plaintiff in an action brought under ACAL could waive the minimum statutory penalties to maintain a class action was novel in New York.  Reviewing the case law in other class action contexts (Labor Law, Rent Stabilization), the Court concluded that plaintiff in an action brought under ACAL may indeed waive the minimum statutory penalties in order to bring a class action.

Finally, the Court denied the defendant’s motion for a stay pending a consolidated arbitration involving other parties.  The Court found that the issues presented in the litigation were not inextricably interwoven with those in the arbitration.

Pires v. Bowery Presents, LLC, Sup Ct, New York County, June 30, 2014, Scarpulla, J, Index No. 652312/2013

Condo Board Lacks Capacity to bring Construction Defect Action for Failure to Follow Bylaws

Posted in CPLR 3211, Industry: real estate, Justice Demarest, Carolyn E., Kings, Motion to Dismiss

In a July 2, 2014 Commercial Division decision by Justice Demarest, the court granted the defendant’s motion to dismiss the complaint. The plaintiff board of managers of a Brooklyn condominium, commenced the action alleging significant construction defects against the condo’s sponsor. Among the arguments raised in the defendant’s motion was that the plaintiff lacked capacity to sue at the time the action was filed by failing, in violation of the condo’s bylaws, to authorize the lawsuit at an appropriately noticed meeting of the condo’s board of managers. The court agreed, explaining that “the legal effectiveness of the actions of the Board depends upon the Board acting as a body within the constraints of the by-laws.” The court held that while the plaintiff undoubtedly had standing pursuant to Real Property Law § 339-dd (the Condominium Act), its failure to demonstrate that it acted as a board by voting to authorize commencement of the action necessitated a finding that it lacked capacity, and required dismissal pursuant to CPLR § 3213(a).

Board of Mgrs. Of the Clermont Greene Condominium v. Vanderbuilt Mansions, LLC, Sup Ct, Kings County, July 2, 2014, Demarest, J, Index No. 504278/2013

Plaintiff Awarded Summary Judgment on Legal Malpractice Claim Against Cadwalader

Posted in Justice Schweitzer, Melvin L., Legal Malpractice, New York, Statute of Limitations, Summary Judgment

In an August 27, 2013 Commercial Division decision by Justice Schweitzer, the court granted Plaintiff Red Zone’s motion for summary judgment on claims for legal malpractice, and denied Defendant Cadwalader’s cross-motion for summary judgment on the same claim.  Cadwalader advised Red Zone concerning Red Zone’s dealings with investment bank UBS regarding a potential acquisition of Six Flags, Inc.  Red Zone eventually sued UBS over a disagreement in the fee owed by Red Zone to UBS and lost partly due to the court’s holding that a “side agreement” drafted by Cadwalader failed to limit the fee owed by Red Zone to UBS.  The court granted Red Zone’s motion for summary judgment, holding that: (i) Cadwalader was negligent in drafting the side agreement; (ii) Cadwalader’s negligence was a proximate cause of Red Zone’s injury, and that Red Zone’s subsequent counsel had little opportunity to limit Red Zone’s liability in its litigation with UBS; (iii) the statute of limitations was tolled under the continuous representation doctrine; and (iv) no further discovery was necessary, and Cadwalader failed to establish what additional depositions might reveal.

Red Zone LLC v Cadwalader, Wickersham & Taft LLP, Sup Ct, New York County, August 27, 2014, Schweitzer, J., Index No. 650318/2011.

Prior Action Dismissed For Failure To Appear At Motion Return Date Bars Subsequent Action Based on Res Judicata

Posted in CPLR 3211, Industry: real estate, Justice Demarest, Carolyn E., Kings, Motion to Dismiss, Res Judicata

In a July 9, 2014 Commercial Division decision by Justice Demarest, the court dismissed plaintiff’s claims based on the dismissal of a prior action brought by the plaintiff seeking similar relief, because the plaintiff failed to appear at the return date on motions in that action.  The litigation arose from a purportedly improperly placed mortgage on an apartment building in Brooklyn, New York.

The building was owned originally by corporation called “Big J Development Co. Inc.” which was incorporated in 1978 (“Big J 1978).  Big J 1978 was dissolved by proclamation in 1991.  In 2004, another corporation with the same name “Big J Development Co. Inc.” was formed by relatives of the sole shareholder of Big J 1978 (we will call that entity “Big J 2004”).  In 2010, the shareholders of Big J 2004 purported to execute a mortgage on the property and received the proceeds of the loan.  In December 2010, Big J 1978 brought a lawsuit against Big J 2004’s shareholders, the mortgagee and the title company to that transaction seeking, among other things, to quiet title to the property based on the allegations of fraud, and conversion.

In the 2010 lawsuit Big J 1978 moved for a default judgment against Big J 2004’s corporate shareholders.  The shareholders cross-moved to dismiss the complaint.  Big J 1978 failed to appear at the return date of the motion and cross-motion, and the cross-motion to dismiss was granted upon default.  In 2013 Big J 2004 sold the property, and the mortgage was paid-off.

Big J 1978 did nothing for a year and a half after the dismissal of its 2010 lawsuit, when it brought a new lawsuit, against Big J 2004, its shareholders, the former mortgage holder and the new owner of the building.  Big J 1978 again sought to quiet title to the building, and related relief, based on allegations of fraud.  The new property owner moved to dismiss based on a number of defenses, including res judicata predicated on dismissal of the 2010 lawsuit and Big J 1978′s lack of capacity to bring a lawsuit because it was a dissolved corporation.

The court reviewed the history of the litigations between the parties and found that the dismissal of Big J 1978’s 2010 lawsuit precluded its current lawsuit because of res judicata.  This was the case even though the dismissal was for failure to appear at a return date on a motion.  The court rejected Big J 1978’s argument that the claims in the current suit were different from the 2010 lawsuit, because they were all predicated on the same facts and arguments.  The court found that an alternative basis to grant dismissal was Big J 1978’s lack of capacity to sue, because it was a dissolved company.  Based on these findings, the court searched the record and dismissed the individual claims against Big J 2004’s shareholders and against the former mortgage holder, who hadn’t even appeared in the new lawsuit.

Big J Dev. Co., Inc. v.  Big J Dev. Co., Inc. et al, 2014 NY Slip Op 51052(U) [Sup Ct, Kings County, July 9, 2014, Demarest, J].

Court Vacates Arbitrator’s Award to Full-Time Employees of Erie Community College arising from Leap Year-related Pay Dispute

Posted in Arbitration Award, CPLR 7511, Erie, Industry: schools, Justice Walker Timothy J., Motion to Vacate

In a June 6, 2014 Commercial Division decision by Justice Walker, the court granted the petitioners’ motion pursuant to CPLR § 7511 to vacate an arbitration award. The arbitration, which was mandated by the collective bargaining agreement (“CBA”) between the parties, arose from the respondent Federation’s assertion of grievances against the Erie Community College (“ECC”) related to the manner in which some of the College’s full-time employees (those working at the college for 10 months out of the year) were issued their paychecks for 2011-2012 academic year as a result of the 2011-2012 school year including a leap year, and thus 27 pay periods instead of usual 26 for full-time employees. The court held that the petitioner sustained its burden of establishing that there was “no proof whatever to justify the award,” which, the court explained, resulted in “an approximate 4% gratuitous and unearned windfall to the Employees, that would collectively cost Plaintiffs (and the taxpayers) $685,854.27.” The court further explained that on the record before it, the award was “patently irrational, and bears no relation to the contractual violation found by the Arbitrator, assuming the college even violated the CBA.” The court therefore vacated the arbitration award and declared a rehearing unnecessary.

Matter of County of Erie v Faculty Federation of Erie Community College, Sup Ct, Erie County, June 6, 2014, Walker, J., Index No. 804649/2013.


Court Confirms Arbitration Award: No Basis to Vacate Award Demonstrated

Posted in Arbitration, Industry: financial services, Justice Bransten, Eileen, New York

In a June 9, 2014 Commercial Division decision by Justice Bransten the court granted an application to confirm an arbitration award and denied a motion to vacate the award, providing over $100 million in damages to the Petitioners.  The dispute arose from a $75 million investment the Petitioners made in Respondents’ company.  Under the terms of the agreements only one individual was to receive cash from that transaction.

Petitioners contended that Respondents defrauded them by funneling the bulk of the cash to themselves in violation of the agreements.  The arbitrator agreed with Petitioners and issued an award which included recessionary damages.  Only one of the Respondents appeared in the proceeding, opposed confirmation and asked the court to vacate the award.  The appearing Respondent argued that the arbitrator exceeded her powers by issuing recessionary damages, engaged in misconduct by refusing to issue a subpoena and disregarded the applicable law.  The court analyzed each of Respondent’s arguments, found them without merit and affirmed the arbitration award.

TA Assoc., L.P. v. Gandy, Sup Ct, New York County, June 9, 2014, Bransten, J, Index No. 654360/2013.