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NY Commercial Case Compendium

Your resource for court decisions

Summary Judgment Granted in Part on Subcontractor’s Claim for Breach of Subcontract Labor and Material Bond: Nunez Elec. Inc. v Fidelity and Deposit Co. of MD

By Adam Rafsky on Posted in Attorneys' Fees, Industry: construction, Justice Kitzes, Orin R., Punitive Damages, Queens, State Finance Law 137, Subcontract, Summary Judgment, Surety Bond

In a May 7, 2013 decision by Justice Kitzes, the court granted the plaintiff-subcontractor’s motion for summary judgment in part, as to the claim for breach of a subcontractor’s labor and material payment bond, which arose in connection with a public improvement construction project in Queens. The plaintiff commenced this action against the defendant-surety alleging that non-party contractor Tru-Val Electrical Corp., with whom the plaintiff entered the subcontract/purchase order, breached the purchase order by refusing to remit the outstanding balance despite plaintiff completing all of the work due and demanding payment, and that the defendant breached the payment bond by refusing to honor the plaintiff’s demand for payment, and acted in bad faith by failing to investigate the claim and refusing to make the payment under the surety bond.

The court held that the plaintiff established its prima facie entitlement to summary judgment for breach of contract, having alleged that it completed all of the work due under the subcontract/purchase order, that Tru-Val failed to pay the amount due to it despite due demand, and that Tru-Val never complained about the work the plaintiff performed or the amounts claimed due. The court explained that pursuant to State Finance Law § 137, which requires contractors on public improvement projects of a certain size to obtain a payment bond that guarantees the prompt payment of moneys due for labor or materials provided to the contractor, the defendant was obligated under. 

The court, however, further held that the plaintiff failed to demonstrate its entitlement to recover punitive damages as against the defendant for its failure to perform under the contract, noting that “[u]nder New York law, it is clear that to recover punitive damages in connection  with a breach of contractual obligations, bad faith must be proven to the extent that it demonstrates an extraordinary showing of a disingenuous or dishonest failure to carry out a contract.” The court found that the defendant’s refusal to pay the payment bond, participate in a conference call, or effectuate a settlement did not constitute the “morally culpable conduct” required for punitive damages. Similarly, the court held that the plaintiff was not entitled to attorney’s fees under State Finance Law § 137 because it failed to show that the affirmative defenses asserted by the defendant were without substantial basis in law or fact.

Court Grants Summary Judgment in Lieu of Complaint as to Liability under Personal Guaranty Despite Being Part of a Larger Transaction: SG Equip. Fin. USA Corp. v Moore

By Matthew D. Donovan on Posted in CPLR 3213, Guaranty, Industry: financial services, Justice Sherwood, O. Peter, New York, Promissory Note, Summary Judgment in lieu of Complaint

In a March 27, 2013, decision by Justice Sherwood, the court granted plaintiff’s motion for summary judgment in lieu of complaint.  Plaintiff extended approximately $800,000 to defendant’s freight-service company for the purchase of commercial equipment under a master loan and security agreement and two related promissory notes.  Defendant executed a guaranty in connection with the agreement, whereby he personally guaranteed prompt payment of all his company’s indebtedness to plaintiff under the notes.  Plaintiff sought payment from defendant under the guaranty after defendant’s company failed to make payment under the notes.  When defendant likewise failed to make payment under the guaranty, plaintiff moved for summary judgment in lieu of complaint based on the agreement, the notes, and the guaranty.  Defendant did not oppose the motion.  The court granted plaintiff’s motion, finding that the documents when “[c]onsidered together with plaintiff’s supporting affidavit as to defendant’s default . . . sufficiently establish plaintiff’s prima facie entitlement to summary judgment.”  The court, however, did not find the record sufficient for awarding damages, including attorney’s fees, and referred the matter to a special referee for a hearing and determination.

SG Equip. Fin. USA Corp. v Moore, Sup Ct, New York County, March 27, 2013, Sherwood, J, Index No. 653941/12

Insurance Broker Potentially Liable for Failing to Place Policy, Insurers Not Liable Because No Policy In Place: The IDW Group, LLC v Levine Insurance Risk Management Services, Inc. et al.

By Aaron Zerykier on Posted in Breach of Contract, Breach of Fiduciary Duty, Industry: insurance, Justice Kornreich, Shirley Werner, Negligence, New York, Summary Judgment

In an April 12, 2013 decision by Justice Kornreich, the Court granted partial summary judgment against an insurance broker on claims for breach of contract and negligence.  The court also granted summary judgment dismissing all claims against an insurer and insurance wholesaler and granted the insurer summary judgment on its cross-claims to recover defense costs it expended to defend plaintiff at trial when plaintiff did not have an insurance policy in place.

The litigation arose from the failure of an insurance broker to properly send in a check for a renewal insurance policy.  Plaintiff, presumptive insured, was later sued and tendered the suit to the insurer for a defense.  The insurer paid for the defense, but later realized that no insurance was in place.  The plaintiff settled the lawsuit and then sued the insurer, the insurance broker and the insurance wholesaler looking to recoup the settlement amount.  The insurer counterclaimed against the presumptive insured for the monies it spent defending the insured at trial.

All of the parties moved for summary judgment, and other relief.  The court partially granted the plaintiff summary judgment against the insurance broker on its breach of contract and negligence claims, finding that the evidence demonstrated that the insurance broker failed to properly send the check.  The court, however, found that an issue of fact remained as to whether or not the settlement (and lawsuit itself) were covered under the policy, which issue would be left for the trier of fact.  The court dismissed plaintiff’s other claims against the insurance broker as either duplicative of the breach of contract and negligence claims or for failing to state a cause of action.  The court also dismissed the claims against both the insurer and the insurance wholesaler finding that there was no contract between them and the plaintiff, and no fiduciary obligations owed one to another.  Because of the lack of an insurance contract (or policy) the court also granted the insurer’s motion for summary judgment against the plaintiff to recoup the monies it spent defending the plaintiff at trial, finding that the declination of coverage was timely and plaintiff’s estoppel and waiver arguments were unavailing because there was no insurance in place during the applicable time period.

The IDW Group, LLC v. Levine Insurance Risk Management Services, Inc., et al., Sup Ct, New York County, April 12, 2013, Kornreich, J, Index No. 603892/2009.

Court Dismisses Claim for Abuse of Process, Allows Claim for Legal Malpractice in Action arising from Mortgage Foreclosure: Ferreira v Citiwide Real Estate & Mgt. Co.

By Adam Rafsky on Posted in Attorneys' Fees, Industry: legal, Industry: real estate, Justice Kitzes, Orin R., Legal Malpractice, Lis Pendens, Queens, Summary Judgment

In a May 8, 2013 decision by Justice Kitzes, the court granted the defendant Deutsche Bank’s motion for summary judgment dismissing the complaint, denied defendant Solda’s motion for summary judgment, and cancelled a notice of pendency against the East Elmhurst property (the “Property”) at issue, which was owned by Ferria. Deutsche Bank was previously awarded a Judgment of Foreclosure and Sale with respect to the Property in a prior foreclosure proceeding commenced against Ferria and subsequently became the owner of the property as the successful bidder at the sale. Thereafter Solda, acting as Ferria’s attorney, entered into a stipulation granting Deutsche bank a judgment of possession, and Ferria vacated the premises. Ferria then commenced this proceeding by way of summons and complaint and by filing a notice of pendency, seeking injunctive and declaratory relief to reinstate his ownership of the Property and to recover damages. Ferria claimed that Deutsche Bank and Solda acted in concert and interfered with his due process rights by filing a fraudulent stipulation and that Solda lacked the authority to enter the stipulation.

Deutsche Bank and Solda each moved for summary judgment to dismiss the complaint on the grounds that it failed to state a cause of action. The court found that the complaint, as originally filed, at which time Ferria represented himself, failed to state a cognizable cause of action. Ferria’s subsequently-obtained counsel agreed and therefore cross-moved for leave to serve an amended complaint. The court found that the proposed amended complaint failed to state a cause of action for abuse of process against Deutsche Bank, explaining that its “commencement and prosecution of the mortgage foreclosure action [could not] be the basis of an abuse of process claim, as it held the mortgage that was in default and said action was the proper legal means to litigate such a matter.”

With respect to Solda, the court held that the proposed complaint adequately alleged a cause of action for legal malpractice with respect to Solda’s alleged failure to review the mortgage foreclosure file, and his failure to move to vacate the judgment of default, foreclosure and sale, and the referee’s deed. Therefore, the court denied Solda’s motion, but further held that Ferria’s allegations regarding Solda’s lack of authority to enter the stipulation were without merit and could not form the basis of a legal malpractice claim since “[i]t is well settled that a stipulation made by the attorney may bind a client even where it exceeds the attorney’s actual authority if the attorney had apparent authority to enter into the stipulation.”

Ferreira v Citiwide Real Esdtate & Mgt. Co., Sup Ct, Queens County, May 8, 2013, Kitzes, J, Index No. 3699/2010

Nomura Asset Acceptance Corp. Alternative Loan Trust, Series 2005-S4 v Nomura Credit & Capital, Inc.

By Matthew D. Donovan on Posted in CPLR 3211, Industry: banking, Industry: financial services, Justice Sherwood, O. Peter, Motion to Dismiss, New York, Relation-Back Doctrine, Statute of Limitations

In a May 10, 2013, decision by Justice Sherwood, the court granted defendant’s motion to dismiss plaintiff’s complaint on statute of limitations grounds.  The underlying mortgage-backed securities litigation first was commenced in December 2011 by certain individual investor certificate holders.  The original plaintiffs later were deemed on appeal to lack standing to sue defendant who, in December 2005, had purchased thousands of residential mortgage loans and securitized them for sale to individual investors through the issuance of hundreds of millions of dollars in certificates.  Counsel for the plaintiffs then amended the complaint in August 2012 to substitute the proper plaintiff, alleging breach of contract and seeking equitable relief in the repurchase of the defective mortgage loans by defendant or rescission of the sale of the loans.  Because the original plaintiffs did not have standing to sue and therefore had no valid claim when they commenced the action in December 2011, the court found that the relation-back doctrine did not apply and that the date of the amended complaint was the “controlling date.”  The court therefore dismissed plaintiff’s action in its entirety:  “Because Plaintiff’s causes of action, if any, accrued no later than December 21, 2005 . . . and the plaintiff with standing to sue appeared and filed its Amended Complaint on August 24, 2012, more than six years after Plaintiff’s claims for breach of contract accrued, the complaint must be dismissed pursuant to CPLR 3211(a)(5).”     

Nomura Asset Acceptance Corp. Alternative Loan Trust, Series 2005-S4 v Nomura Credit & Capital, Inc., Sup Ct, New York County, May 10, 2013, Sherwood, J, Index No. 653541/11

Battling Brothers – Motion to Enforce Stipulation of Settlement Granted in Judicial Dissolution of Business Co-owned by Brothers: Diel v Diel

By Adam Rafsky on Posted in BCL 1104, Dissolution, Justice Schmidt, David I., Kings, Motion to Enforce, Stipulation of Settlement

In an April 18, 2013 decision by Justice Schmidt, in a dispute between brother co-owners of a Brooklyn-based corporation (“Corporation”) that owned property that was used as a parking lot, the court granted the petitioner’s (“Adam“) motion to enforce a previously entered so-ordered stipulation of settlement (“Stipulation”), and denied the respondent’s (“Shlomo”) cross motion, pursuant to BCL § 1104, seeking reimbursement for payments allegedly made for on-going expenses of the Corporation. The parties had previously agreed, in open court, to the terms of the Stipulation. Shlomo subsequently refused to effectuate the Stipulation, leading to this motion. In opposition to the motion, Shlomo argued: 1) that the Stipulation was subject to execution of the final settlement documents, and that there were provisions in the proposed settlement that were not in the Stipulation; and 2) that there were environmental issues on the property that necessitated an environmental study, which precluded his execution of the Settlement documents. Adam argued that the Stipulation was enforceable, and that Shlomo had been aware of the environmental issues for multiple years.

The court held that since the Stipulation was “entered into in open court, was reduced to writing, signed by the parties’ attorneys, so-ordered” by the court and filed with the County Clerk, the Stipulation was unquestionably enforceable. The court further explained that the parties intended the Stipulation to settle the dispute between them, and was “simple in its terms and enforceable as written.” The court also charged Shlomo, as a “director dealing with his own corporation” with “such knowledge…which in the discharge of his duties he should have had”, and thus afforded no merit to Shlomo’s claims about the property’s environmental issues. In denying Shlomo’s cross motion, the court explained that the owners of a corporation are generally not liable for corporate debts, and Shlomo offered no basis upon which to pierce the corporate veil in order to hold Adam personally liable for any of the corporate debts.

Diel v Diel, Sup Ct, Kings County, April 18, 2013, Schmidt, J, Index No. 500819/12

Business Divorce Cases in the Suffolk County Commercial Division

By Kevin Sweeney on Posted in Uncategorized

On May 28, 2013, the New York Business Divorce blog update featured the Suffolk County Commercial Division.  Author Peter Mahler, a Farrell Fritz commercial litigation partner, discussed three recent decisions involving shareholder disputes.  The decisions were rendered by Suffolk County Supreme Court Justices Emerson  (Carvella v. Giuliano), Pines (Abrams v. Allways Electric Corp.), and Whelan (Gulmi v. Gardner).  Mr. Mahler notes in his blog post that as Suffolk County continues to grow its population and economy, so too, grows the volume and complexity of business litigation in the courts of Suffolk County Supreme Court.  Read his brief summaries of these decisions here.

Court Finds No Private Right of Action for Insurance Advisory Association and Dismisses Complaint: ELANY v Waldorf & Assoc.

By Matthew D. Donovan on Posted in Uncategorized

In a May 3, 2013, decision by Justice Emerson, the court granted defendants’ motion to dismiss plaintiff’s complaint in its entirety.  Plaintiff, a not-for-profit excess-line insurance industry advisory association, sued defendants for damages related to their alleged failure to report the placement of certain excess insurance policies and to pay premium taxes and stamping fees on policies they placed over a 22-year period.  Defendants moved to dismiss, primarily contending that plaintiff lacked the capacity to maintain the action under CPLR 3211 (a) (3).  The court granted the motion and dismissed plaintiff’s complaint in its entirety, finding that the provisions of the Insurance Law creating the plaintiff-association in the first place expressly limited all enforcement power to the Superintendent of Insurance.  The court also found that a private right of action could not be implied because plaintiff, as an advisory association, was not a member of the class of people the excess-line provisions of the Insurance Law were meant to benefit, and because such a result would not promote and would be inconsistent with those provisions of the law, “which directs [plaintiff] merely to notify the Superintendent of misconduct or non-compliance.”

ELANY v Waldorf & Assoc., Sup Ct, Suffolk County, May 3, 2013, Emerson, J, Index No. 35107/11

Condo’s Claims Against Architect and Sponsor Fail: Board of Managers of NV 101 N 5th Street Condo. V. Morton et al.

By Aaron Zerykier on Posted in Fraudulent Inducement, Industry: construction, Justice Schmidt, David I., Kings, Malpractice, Motion to Dismiss, Release

In an April 12, 2013 decision by Justice Schmidt, the court granted an architect’s and a sponsor’s separate motions to dismiss claims brought against them by a condominium (the “Condo”) arising from alleged construction defects in the construction of a new luxury residential condominium building. 

The court declined to dismiss the Condo’s claims against the architect as time barred, finding that the potential claims against the architect were subject to a three-year statute of limitations that accrued when the final certificate of occupancy was issued, and therefore the claim was timely.  The court however, dismissed the breach of contract claims finding that the Condo did not have a contract with the architect (and was not a third-party beneficiary to the sponsor’s contract with the architect).  The court also dismissed the breach of contract claim finding that it was barred by the Martin Act and in reality was a professional malpractice claim (which is also dismissed because the Condo failed to allege any specific acts of malpractice).  The court also rejected the Condo’s negligent misrepresentation claim finding, among other things, that it was redundant of the malpractice claim and that this claim failed too, because there was no privity between the architect and Condo. 

The court also dismissed all the claims against sponsor based on a settlement agreement and release entered into subsequent to the completion of the project.  The court found that the sponsor did not breach his fiduciary duty to the Condo, even though he was a board member, because once the parties’ relationship became adversarial the sponsor’s fiduciary duties came to an end.  The court further found that the Condo failed to allege facts supporting its claim that it was fraudulently induced into entering into the release with the sponsor. 

Board of Managers of NV 101 N 5th Street Condo. V. Morton et al., Sup Ct, Kings County, April 12, 2012, Schmidt, J, Index No. 501306/12.

Motion to Dismiss Based on Statute of Limitations Denied in Case Involving Mortgage Backed Securities: ACE Sec. Corp. v DB Structured Prods., Inc.

By Adam Rafsky on Posted in Accrual, Breach of Contract, CPLR 3211, Industry: financial services, Justice Kornreich, Shirley Werner, Motion to Disqualify, New York, Statute of Limitations, Uncategorized

In a May 13, 2013 decision by Justice Kornreich, the court denied the defendant DB Structured Products’s (“DBSP”) motion to dismiss. The case arose from DBSP’s alleged breach of its contractual duty to repurchase certain non-conforming loans (“Loans”) that were pooled, deposited into a trust (“Trust”), securitized, and sold to investors. After purchasing the loans, DBSP sold them to the plaintiff (“ACE”) pursuant to a Mortgage Loan Purchase Agreement (“MLPA”), who then deposited them into the Trust. The Loans were then securitized through the issuance of certificates, pursuant to a Pooling and Servicing Agreement (“PSA”), under which DBSP was required to cure any breach of representation in the MLPA within 60 days, and if it could not be cured, DBSP was required to repurchase the affected loans within 90 days. The action was filed by the Trust’s Trustee – due to the Trust’s “no-action clause – on behalf of ACE, a certificate holder who alleged DBSP breached its repurchase obligations under the PSA.

 

DBSP moved to dismiss the complaint arguing that ACE’s claim for breach of the PSA was barred by the six year statute of limitations. DBSP argued that the claim accrued upon execution of the contract in 2006, because if the representations at issue were false, they were false at that time as the mortgage loans had already been made. ACE’s position was that the claim did not accrue until DBSP breached the repurchase obligations, which necessarily occurred within the six year limitations period. The Court explained that simply because the representations were false did not mean that DBSP had breached the PSA, noting that under the PSA, DBSP had no duty to ensure the representations were true. The court also analogized the demand and repurchase obligations in this case with those that arise with reinsurance, noting a decision of the Second Circuit wherein the reinsurer was held not to be in breach of its contract to indemnify until it rejected the insurer’s demand. Finding that the breach at issue in the case was DBSP’s failure to comply with the Trustee’s repurchase demand, the court held that the statute of limitations did not begin to run until the rejection, and therefore the claims were timely.

 

Ace Sec. Corp. v. DB Structured Prods., Inc., Sup Ct, New York County, May 13, 2013, Kornreich, J, Index No. 650980/12