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NY Commercial Case Compendium

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

Preliminary Injunction Relating to Buyout Agreement Denied where Board Adequately Remedied Initial Failure to Adequately Disclose All Relevant Information to Shareholders

Posted in Class Action, Fiduciary Duty, Justice Pines, Emily, Shareholder Dispute, Suffolk

In a September 19, 2014 Commercial Division decision by Justice Pines, the court denied the plaintiff’s motion for a preliminary injunction with respect to a buyout agreement, under which the defendant Medical Action Industries, Inc. (“Medical Action”) sought to cash out the shareholders of Medical Action through a sale of its stock to the defendant Owens & Minor, Inc. Continue Reading

Breach of Contract Claim Survives Dismissal Due to Ambiguous Appraisal Condition in Construction Loan Commitment Letter

Posted in Ambiguity, Breach of Contract, CPLR 3211, Industry: banking, Industry: real estate, Justice Demarest, Carolyn E., Kings

In a September 4, 2014, Kings County Commercial Division decision by Justice Demarest, the court denied defendant-lender’s motion to dismiss plaintiff-borrower’s action for breach of contract, alleging that defendant failed to fund a construction loan pursuant to the terms of a commitment letter. Continue Reading

Court Declines to Recuse Itself and Grants Summary Judgment

Posted in Industry: real estate, Justice Bransten, Eileen, New York, Summary Judgment

In an August 27, 2014 Commercial Division decision by Justice Bransten, the court denied a motion seeking its recusal and granted a motion for summary judgment.  The motions were brought in a landlord tenant litigation after the court held a hearing on a motion for a Yellowstone injunction and the court’s granting the injunction. Continue Reading

Court Certifies Class of Home Care Attendants in Unpaid Overtime Case

Posted in Class Action, Industry: healthcare, Justice Demarest, Carolyn E., Kings

In a September 16, 2014 Commercial Division decision by Justice Demarest, the court granted Plaintiffs’ renewed motion for class certification, following its earlier denial of the motion without prejudice to renew following discovery as to whether the requirements for class certification were satisfied. Continue Reading

Singapore Financial Company’s Suit Against Morgan Stanley Permitted to Proceed in New York Forum, Claims Over Failed Credit-Linked Notes Survive Dismissal

Posted in CPLR 3211, CPLR 327, Credit Swap, Documentary Evidence, Forum non Conveniens, Fraud, Industry: financial services, Justice Bransten, Eileen, Motion to Dismiss, New York, Uncategorized

In a September 12, 2014 Commercial Division decision by Justice Bransten, the court granted in part the motion to dismiss of Morgan Stanley, pursuant to CPLR 327, CPLR 3211(a)(1), and CPLR 3016(b).  Plaintiff HLF, a Singapore financial company, asserted six causes of action based on allegations that Morgan Stanley fraudulently induced it to enter into a distributorship agreement to buy and resell credit-linked notes from Morgan Stanley, contending that Morgan Stanley intended the notes to fail and shorted the assets underlying them.  Continue Reading

Subcontractor’s Motion for Summary Judgment Denied Due to Differing Interpretations of Preconditions for Payment Provisions

Posted in CPLR 3211, Documentary Evidence, Industry: construction, Justice Emerson, Elizabeth, Motion to Dismiss, Suffolk, Summary Judgment, Uncategorized

In a September 18, 2014 Commercial Division decision by Justice Emerson, the court denied the plaintiff’s motion for summary judgment and also denied the defendant’s cross motion to dismiss the complaint.  The plaintiff-subcontractor brought this action to recover the final payment allegedly due it by the defendant-general contractor, in connection with renovation work to a laboratory at the VA hospital in Northport, New York, which was to be performed pursuant to a subcontract. Continue Reading

Citigroup’s Motion to Dismiss RMBS-related Claims Held in Abeyance Pending Hearing on Foreign Statute of Limitations

Posted in CPLR 3211, Industry: financial services, Justice Ramos, Charles E., Motion to Dismiss, New York, Statute of Limitations

In a September 8, 2014 Commercial Division decision by Justice Ramos, the court held in abeyance the defendants’ motion to dismiss pending hearing. The case arose from yet another real estate mortgage backed securities (RMBS) transaction gone wrong, in this instance between the plaintiff Deutsche as the purchaser of $362 million of mortgage loan pass through certificates in 17 RMBS securitizations that were sold or marketed by the defendants, multiple Citigroup entities (collectively “Citigroup”). Deutsche brought claims for fraud and misrepresentations of the “credit quality and characteristics” of the securitized loans it purchased, alleging it relied upon Citigroup’s representations in purchasing the various certificates.

Citigroup moved to dismiss arguing that the complaint failed to state a claim and that the claims were time barred. The court’s decision, however, addressed only the timeliness of Deutsche’s claims, and Citigroup’s argument that Deutsche’s claims were barred by the German statute of limitations (SOL). The court explained that it first had to determine whether the German SOL relied upon by Citigroup was appropriate, noting that when the plaintiff’s alleged injury is purely economic, the place of injury is generally where the plaintiff resides and suffers the impact of the economic loss. The court held that the German SOL was appropriate as the impact of Deutsche’s losses were sustained in Germany where Deustche is incorporated, keeps its consolidated financials, and reported its losses from the subject transactions. The court then noted that pursuant to New York’s borrowing statute – CPLR 202 – it was required to determine whether Deutsche’s claims were time barred under both New York and the German SOL. Because neither party argued that the claims were barred by New York law, the court focused on the German SOL.

Deutsche and Citigroup submitted reports of experts on German law to opine on whether the German statute of limitations for claims sounding fraud applied as a bar to Deutsche’s claims. The experts agreed that under German law, a claim for securities fraud arises at the time the security was purchased, and has a three year statute of limitations. The statute, however, is not triggered until the creditor “has sufficient knowledge of the claim” such that it is “aware of the actionable statement, its own reliance on the actionable statement, and the fact that it may have suffered damage from such reliance.”

Here, Deutsche’s claim accrued, at the latest, on June 25, 2007 when the last security at issue was purchased, and filed its summons and complaint on December 28, 2012. Thus, Deutsche’s claims would be barred if Citigroup established Deutsche knew about the alleged fraud or could have discovered absent gross negligence, prior to the end of 2009. The court found compelling that included in the offering materials reviewed and relied upon by Deutsche was a 2008 report by the Office of the Comptroller (OCC Report), which identified the sub-prime mortgage originators with the highest foreclosure rates for loans originated between 2005 to 2007, including many of the originators for the RMBS at issue in this action. The court explained that it was unclear how Deutsche could “argue it did not have sufficient knowledge after the release of the OCC Report in 2008.”  Notwithstanding, the various disagreements as between the expert reports prevented the court from granting the motion, and instead the court found that “a hearing with expert testimony is required on the appropriate application of German law in these circumstances to resolve the issues underlying the claims alleged in the complaint.”

Deutsche Zentral-Genossenschaftsbank AG v Citigroup, Inc., Sup Ct, New York County, September 8, 2014, Ramos, J, Index No. 654566/12

Defendants’ Failure to Address Release in Opposition to Summary Judgment Cannot Support Motion to Reargue or Renew

Posted in Industry: healthcare, Justice Whelan, Thomas, Motion to Reargue, Motion to Renew, Suffolk

In an August 15, 2014 Commercial Division decision by Justice Whelan, the court denied defendants’  motion for leave to reargue or for renewal of plaintiff’s prior motion for partial summary judgment.  Plaintiff alleged that the individual Defendant physicians, former employees of Plaintiff, established a pediatric medical practice that competed with plaintiff’s practice in violation of a Settlement Agreement and Release between Plaintiff and one of the individual defendants.  Plaintiff further alleged that the individual defendants breached their fiduciary duties while employed by Plaintiff, unfairly competed with plaintiff, and interfered with Plaintiff’s contractual relations.  The court awarded partial summary judgment to Plaintiff on its causes of action for breach of fiduciary duty and unfair competition.  The court denied Defendants’ motion for reargument, rejecting Defendants’ argument that the court overlooked the Release.  The court denied Defendants’ application for renewal, rejecting Defendants’ argument that its failure to address the release in its opposition papers constituted new facts not offered on the prior motion.

Freed, Kleinberg, Nussbaum, Festa & Kronberg, MD., LLP v Nastasi, Sup Ct, Suffolk County, August 15, 2014, Whelan, J., Index No. 9166/2010.

Court Discerns the “Economic Reality” of Loan Distribution, Looks at “Substance” over “Form” on Summary Judgment

Posted in Breach of Contract, Industry: banking, Justice Sherwood, O. Peter, New York, Summary Judgment, Uncategorized

In an August 20, 2014 Commercial Division decision by Justice Sherwood, the court granted defendant and counterclaim plaintiff Credit Suisse’s motion for summary judgment, dismissing the claim against it.  Credit Suisse sold plaintiff Sumitomo Mitsui Banking Corporation (“Sumitomo”) an interest in a syndicated bridge loan in 2006.  It was restructured in May 2009.  At the “heart” of the dispute in this case is the May 2009 transaction, and whether a distribution received by Credit Suisse was “secured debt” or “cash.”

In March 2006, various banks, including Credit Suisse and Sumitomo, provided nonparty Capmark with a $5.5 billion unsecured term loan and revolving credit, set to mature in March 2011, and a $5.25 billion bridge loan, set to mature in March 2009.  Sumitomo did not originally participate in the bridge loan, but in March 2006 purchased from Credit Suisse a $200 million participation in the loan pursuant to a Participation Agreement.  Under the Participation Agreement, Credit Suisse was to pay Sumitomo its pro rata share of any distribution it received under the bridge loan.  These distributions would consist of “cash” and “non-cash” proceeds, and the Agreement provided for two different procedures for the two different distributions: Credit Suisse was obligated to distribute any “cash” distribution to Sumitomo within two business days of its receipt; it was obligated to distribute the “beneficial and record ownership of” any “non-cash” distribution “as soon as practicable.”

Capmark, the borrower, was “severely negatively impacted” by the 2008-2009 financial crisis, and negotiated with its lenders to restructure its bridge loan, which was due March 2009.  Capmark threatened to file bankruptcy if the lenders did not agree to restructure the debt.  The bridge loan lenders agreed, but only if Capmark gave them collateral to secure a “substantial portion” of the existing unsecured exposure.  Capmark and the lenders eventually agreed that: (i) Capmark would make a “Cash Repayment” of $75 million; (ii) Capmark allowed the lenders to swap most of the outstanding bridge loan exposure (70%) for a new secured term loan; and (iii) the maturity of the bridge loan would be extended to March 2011.  To obtain the securitization, the lenders advanced Capmark cash, secured by Capmark’s assets, to be used “solely” to make contemporaneous repayments of the existing bridge loan.

After the deal was reached and the transactions occurred, Credit Suisse transferred to Sumitomo its pro rata share of the Cash Repayment, and offered to transfer to Sumitomo its pro rata share of the new secured debt that was substituted for the unsecured bridge loan debt.  Sumitomo refused to accept the latter, claiming that it was entitled to repayment in cash.  Sumitomo brought this action and alleged that Credit Suisse breached the Participation Agreement.  Credit Suisse counterclaimed for declaratory judgment that it fully performed under the agreement.  Sumitomo’s principal argument was that the bridge loan was repaid in cash.  Credit Suisse argued that the distribution was not a true “cash” payment—rather, it was secured debt—and that Sumitomo “was improperly seeking to elevate the form of the 2009 transaction over its economic substance.”  Sumitomo argued that if the Court gave any credence to Credit Suisse’s argument, that it was entitled to discovery.

The parties cross-moved for summary judgment.  Justice Yates denied both motions.  The First Department affirmed, held it was the “the economic substance of a transaction that should determine the rights and obligations of the interested parties,” and remanded so that discovery could commence.  Following discovery, the parties again cross-moved for summary judgment.

Justice Sherwood determined that “evidence of ‘economic substance’” consisted of “objective evidence of the parties’ intentions, as shown by their statements and conduct contemporaneous with the negotiation and execution of the May 2009 refinancing agreements, as well as industry custom and usage.”  The court held discovery “yielded undisputed evidence that the economic substance” of the “May, 2009 restructuring was a substitution of secured debt for an equal amount of unsecured debt held by the very same lender parties.”  The record showed:

  • Capmark was in “dire financial      situation” in 2009 and therefore refused to repay the bridge loan;
  • Capmark threatened the lenders it      would file for bankruptcy if they did not agree to restructure the loan;
  • the lenders desired to improve      their position by obtaining security for the bridge loan;
  • no “new money” was loaned to Capmark;
  • the debt was “shifted      dollar-for-dollar” from unsecured to secured debt.

The court discussed how the relevant testimony and documentary evidence confirmed the “economic reality” that the distribution at issue was secured debt, not “cash,” as argued by Sumitomo.

Sumitomo Mitsui Banking Corp. v Credit Suisse, Sup Ct, New York County, August 20, 2014, Sherwood, J., Index No. 600898/2010.

Failure to File Undertaking with Kings County Clerk Precludes Automatic Stay Pursuant to CPLR 5519(a)(2)

Posted in Industry: construction, Justice Demarest, Carolyn E., Kings

In a September 5, 2014 Commercial Division decision by Justice Demarest, the court denied the respondent’s order to show cause seeking an order, pursuant to CPLR 5519, recognizing a purported automatic stay of the enforcement of a judgment. This action arose from the construction of a Best Buy store, for which the respondent (“DCM”) served as the general contractor and entered into a subcontract with, among others, the petitioner (“Vintage”). After the court granted Vintage’s motion to confirm an arbitration award in its favor against DCM, and a judgment (“Judgment”) was entered against DCM, DCM filed a notice of appeal. Thereafter, Best Buy Stores LP served an undertaking (“Undertaking”) upon Vintage, to which Vintage served a written notice of objection. DCM filed the present order to show cause arguing the Undertaking was timely under CPLR 5519(a)(2) and that it automatically stayed the enforcement of the Judgment pending DCM’s appeal. The court denied the order to show cause explaining that it took judicial notice of the fact that the Undertaking was not filed with the Kings County Clerk under the present case’s index number, and that DCM failed to provide proof to the contrary. The court held, therefore, that the Undertaking was never effective and that there was no automatic stay pursuant to CPLR 5519(a)(2).

Vintage Flooring and Tile, Inc. v DCM of NY LLC, Sup Ct, Kings County, September 5, 2014, Demarest, J, Index No. 19094/12.