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NY Commercial Case Compendium

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

Resolution of Disagreement Over Purchase Price by Accounting Firm Instead of Court Wins the Day in Case Interpreting Competing Contractual Provisions

Posted in Collateral Estoppel, CPLR 7601, Justice Bransten, Eileen, Motion to Compel Valuation, Motion to Dismiss, New York, Res Judicata, Uncategorized, Valuation

In a July 24, 2014, New York County Commercial Division decision by Justice Bransten, the court denied Defendants’ motion to dismiss and granted Plaintiff’s motion to compel a valuation in connection with the purchase of two companies in the automation instrumentation and controls industry (the “Automation Companies”).

Background

Plaintiff’s breach of contract action primarily alleged that Defendants failed to disclose certain pre-closing liabilities of, and failed to jointly retain a particular accounting firm to resolve the parties’ dispute over the final purchase price for, the Automation Companies.

In a previous action brought in Delaware, two related companies owned by Defendants sued the Automation Companies for failure to make commission payments under certain termination agreements with Defendants’ related companies.  The Purchase Agreement at issue in the New York action required the Automation Companies to terminate their prior commission agreements before closing.  Accordingly, the Automation Companies entered into termination agreements with Defendants’ related companies under which the Automation Companies allegedly failed to make approximately $1.5 million in commission payments.  The Delaware court ultimately granted summary judgment in favor of Defendants’ related companies and dismissed with prejudice the Automation Companies’ fraud defense.

The allegations against the Automation Companies in the Delaware action concerning the unpaid commissions served as a basis for Plaintiff’s claims in the New York action that Defendants breached certain representations in the Purchase Agreement concerning the disclosure of pre-closing liabilities carried by the Automation Companies.  Defendants, for their part, pointed to the disposition of the Delaware action as forming the basis of their motion to dismiss Plaintiff’s claim in New York on grounds of res judicata and collateral estoppel.

The Court’s Determination of Defendants’ Motion to Dismiss

Because “New York courts apply the law of the rendering jurisdiction to determine the preclusive effect of the decisions of sister states,” the court applied Delaware law in analyzing Defendants’ motion to dismiss on the basis of res judicata and collateral estoppel.

Defendants primarily argued that Plaintiff’s claim regarding Defendants’ alleged misrepresentations in the Purchase Agreement should be dismissed on the basis of res judicata and collateral estoppel because the Delaware court previously had dismissed with prejudice the Automation Companies’ fraud defense.  In the Delaware action, the Automation Companies claimed in their defense that Defendants fraudulently failed to disclose the alleged commission liabilities in the Purchase Agreement.

The court rejected Defendants’ argument, in large part based on the Delaware court’s emphasis of the distinctions between the Purchase Agreement and the termination agreements.  The Delaware court specifically had rejected the argument that the agreements were “interrelated,” “interchangeable,” and “part and parcel” with each other, particularly as it related to the application of the Purchase Agreement’s New York forum-selection clause.  Because the Automation Companies’ fraud defense in the Delaware action was distinct from Plaintiff’s claim concerning Defendants’ breach of the representation provisions in the Purchase Agreement, which claim was in any event limited to New York under the forum selection clause, the court denied Defendants’ motion based on res judicata.

The court also noted that, despite having dismissed the defense with prejudice, the Delaware court did not make any factual determination concerning the Automation Companies’ allegations of fraud.  Thus, the court found that Defendants’ argument that the false-representation issue already had been litigated was “dubious.”

The Court’s Determination of Plaintiff’s Motion to Compel

In support of its motion to compel a valuation under CPLR 7601, Plaintiff argued that in light of the parties’ overarching disagreement as to price, the Purchase Agreement expressly required the parties to retain a particular accounting firm to resolve their differences.  Defendants countered that Plaintiff’s claim for breach of the representation provisions in the Purchase Agreement necessarily implicated the indemnification provisions in the Agreement, which prescribed judicial resolution in the event of disagreement among the parties.

Engaging in a detailed analysis of the apparently-competing contract provisions, the court ultimately sided with Plaintiff and compelled a valuation by the accounting firm identified in the Purchase Agreement.  The court cited certain other provisions in the Agreement supporting its decision – namely, that “nothing set forth in [the indemnification provisions] shall affect any party’s rights to specific performance or other equitable remedies with respect to the covenants referred to in this Agreement.”

Because the parties’ agreement to retain the accounting firm in the event of an unresolved purchase price constituted a “covenant” as that term is “plainly and ordinarily” understood, and because CPLR 7601 provides for the remedy of specific performance, the court found that “specific performance of the remedy of valuation is available to Plaintiff here.”  The court also noted the underlying policy considerations of CPLR 7601 and the practical implications of the Purchase Agreement in rendering its decision – namely, that the accounting firm’s valuation “in turn would lead to a determination which may resolve certain of the remaining issues in this litigation.”

Spectris Inc. v 1997 Milton B. Hollander Family Trust., Sup Ct, New York County, July 24, 2014, Bransten, J, Index No. 653706/13

Dungeons & Dragons Documentary Dispute leads to Preliminary Injunction

Posted in Justice Demarest, Carolyn E., Kings, Order to Show Cause, Preliminary Injunction

In an August 4, 2014 Commercial Division decision by Justice Demarest, the court granted the plaintiff’s motion, brought by order to show cause, for a preliminary injunction restraining the defendants from taking certain actions with respect to a documentary film about the fantasy role-playing game Dungeons & Dragons (“D & D”).

The plaintiff and the individual defendants, who later transferred their interests to their wholly owned LLC (“Iconoscope”), orally formed a partnership in 2011 to produce a documentary film about D & D (the “D & D Production”). Operating pursuant to an oral general agreement, the plaintiff was responsible for the creative aspects of the D &D Production and Iconoscope for financing, including running a Kickstarter campaign that generated substantial funds; marketing; and distribution. Ultimately, the partnership fizzled and the parties entered into a settlement agreement. During the settlement negotiations, the defendants began to develop and raise funds for their own D & D documentary, titled “The Great Kingdom,” and created and were using a competing website. The plaintiff’s motion was based, inter alia, upon the “chilling effect” of the defendants’ competitive activities in seeking to produce The Great Kingdom.

The court found that the “economic and artistic success of the D&D Production film” was being placed at risk by the defendants’ competitive activities, and that such risk was actual and imminent, and could be irreparable if the defendants were allowed to continue. The court also found that the equities “unquestionably” favored the plaintiff, explaining that it was the defendants “who embarked upon their project in competition with the interests of their partnership with the plaintiff.” Therefore, the court granted the preliminary injunction to the extent that the defendants were enjoined from having any contact with any of the parties or persons involved in the D & D Production, and from advertising for The Great Kingdom in any manner, or making efforts to solicit funding for The Great Kingdom or any other D & D-related film.

Westpaw Films Inc. v Sprattley, Sup Ct, Kings County, Aug 4, 2014, Demarest, J, Index No. 505665/2014

Plaintiff’s Defamation Claim Based on New York Post Article Tossed on Motion to Dismiss

Posted in CPLR 3211, Defamation, Justice Ramos, Charles E., New York

In a May 13, 2014 Commercial Division decision by Justice Ramos, the court granted the motions to dismiss pursuant to CPLR 3211 (a)(1) and (7) by Defendant New York Observer and Defendant Korangy Publishing in a related action, consolidated for disposition.  Plaintiff Gans sued both defendants for defamation, after an article was published by the New York Post stating that Gans was being sued by a condominium board for allegedly allowing an escort service to be operated out of the condominium by one of Gans’s employees.  The court dismissed Gans’s lone cause of action for defamation, and held that Gans could not establish defamation per se because no statements in the article could be construed to imply that Gans was being charged with the commission of a serious crime.  Finding no defamation per se, Gans needed to sufficiently allege special damages to maintain his cause of action.  The court determined he did not provide sufficient evidence to support his allegations of special damages, beyond vague and conclusory allegations, and dismissed his complaint.

Gans v New York Observer, Sup Ct, New York County, May 13, 2014, Ramos, J., Index No. 155254/2013.

Plaintiff Lacks Standing to assert RMBS-related Fraud and Negligent Misrepresentation Claims

Posted in CPLR 3211, Fraud, Industry: financial services, Justice Ramos, Charles E., Misrepresentation, Motion to Dismiss, New York

In a July 9, 2014 Commercial Division decision by Justice Ramos, the court granted the defendants’ motion to dismiss the complaint. The plaintiff asserted six cause of actions sounding in fraud and negligent misrepresentation, alleging  the defendants made certain misstatements and omissions in connection with approximately $158 million worth of certificates (“Certificates” ) purchased from three residential mortgage backed securitizations (“RMBS”). Specifically, the plaintiff alleged that the defendants made misrepresentations regarding the credit quality and characteristics of the loan pools that backed the Certificates, and that the offering materials falsely represented the credit ratings of the Certificates. The defendants moved to dismiss the complaint arguing, inter alia, that the plaintiff lacked standing. The court agreed, explaining that the plaintiff failed to adequately demonstrate that the tort claims at issue were transferred to the plaintiff from their prior owner – special purpose vehicles (“SPVs”) created under the laws of the Cayman Islands who had purchased the Certificates from their original owner (four Irish SPVs established to receive, hold and manage toxic RMBS). The plaintiff acquired the Certificates from the Cayman SPVs by way a series of sale and purchase agreements (“SPAs”). The court held that the tort claims were not included within the SPAs, which directed that the Cayman SPVs were transferring to the plaintiff certain “Assets.” The court explained that the SPAs: (1) failed to expressly include the tort claims as part of the definition of the “Assets;” (2) the plaintiff failed to prove an equitable assignment of the claims; and (3) it was foreseeable that the plaintiff might desire want the tort claims such that if the parties intended to assign them, “it would be expected that they would have done so with some express reference to those claims.”

Sealink Funding Ltd. v UBS AG, Sup Ct, New York County, July 9, 2014 Ramos, J., Index No. 653102/12

Issues of Fact and Ongoing Bankruptcy Proceeding Preclude Summary Judgment Dismissing Claims of Oral Partnership Agreement

Posted in Industry: Transportation, Justice Demarest, Carolyn E., Kings, Motion to Dismiss, Partnership, Summary Judgment

In an August 6, 2014 Commercial Division decision by Justice Demarest, the court partially granted a motion to dismiss and denied a motion for summary judgment dismissing other claims.  The litigation arose from the operation of a vehicle maintenance business.  Plaintiff alleged that he entered into an oral partnership with one of the defendants for the operation of the business, which was operated through the corporate defendant (which was wholly owned by the putative partner).  The corporate defendant had filed for bankruptcy, staying the claims against it.  A prior court order severed the remaining claims.  Discovery was conducted, which brought forth issues of fact as to the existence of the oral contract to create a partnership, precluding summary judgment dismissing that claim.  The court also found that it was improper to dismiss the claim prior to resolution of certain claims raised in an adversary proceeding within the bankruptcy.

The court, nevertheless, dismissed certain of the claims, without prejudice, because the complaint commingled claims for damages to real property, stolen property, dissolution and an accounting.  The court also dismissed claims against an individual defendant because his actions were allegedly undertaken as an employee of the bankrupt corporate defendant, and therefore should have been brought against his employer.

Ricatto v Almona, et al., 2014 NY Slip Op 51195(U) (Sup Ct, Kings County, Aug. 6, 2014, Demarest, J.)

Buyer of Nursing Home Not Entitled to Offset Payments Admittedly Owed to Plaintiff Creditor Against Alleged Closing Adjustments

Posted in Albany, Bankruptcy, Debtor-Creditor, Industry: healthcare, Justice Platkin, Richard, Summary Judgment

In a June 27 Commercial Division decision by Justice Platkin, the court granted the motion of Plaintiff, a senior lender, for summary judgment on its complaint and dismissing the counterclaims of Defendant purchaser of the debtor.  Prior to the closing of the sale, Defendant executed a release in favor of Plaintiff.  Defendant alleged that Plaintiff failed to leave sufficient funds at the closing for the debtor to pay outstanding obligations to its employees.  In response, Defendant withheld monies due to Plaintiff under an Asset Purchase Agreement.  Plaintiff sued for the withheld payments, and Defendant counterclaimed for the amount of the alleged shortfall, minus the withheld payments.  The court held that the release foreclosed Defendant’s counterclaims, and that Plaintiff was entitled to summary judgment on its complaint because Defendant admitted in its answer it was obligated to make the agreed-to payments.

General Elec. Capital Corp. v Guilderland Ctr. Rehabilitation & Extended Care Facility Operating Co., LLC, Sup Ct, Albany County, June 27, 2014, Platkin, J., Index No. A381-13.

Lien Holder Fails to Demonstrate Borrower Default Through Affidavit of Person With Personal Knowledge, Summary Judgment Denied

Posted in Foreclosure, Industry: banking, Industry: financial services, Justice Demarest, Carolyn E., Kings, Mortgage Foreclosure, Mortgages, Summary Judgment

In a July 23, 2014 Commercial Division decision by Justice Demarest, the court denied plaintiff’s motion for summary judgment and to appoint a referee to compute damages owed in a mortgage foreclosure action.  The affidavit provided by the plaintiff was from an “authorized representative” of the lien holder.  The court found that the affiant did not have sufficient personal knowledge to support the motion, and that plaintiff must submit an affidavit from either an officer of Plaintiff Corporation or someone holding a power of attorney from the plaintiff.  The court further found that the affiant could not have had personal knowledge as to the defendants’ alleged default, because the default occurred prior to the assignment of the loan to plaintiff.  For these reasons the court found that the plaintiff failed to satisfy its burden of proof through an affidavit of a person with personal knowledge of the facts supporting the summary judgment motion.

Colfin FCSB Funding A, LLC v Congregation Chasidei Radomsk of Boro Park, 2014 NY Slip Op 51110(U) (Sup Ct Kings County, July 23, 2014, Demarest J).

Seller of Commercial Real Property Entitled to Full Deposit for Wrongful Termination by Buyer, Triggering Award of Attorney’s Fees as “Prevailing Party”

Posted in Albany, Attorneys' Fees, Contract Damages, Contract Interpretation, Industry: real estate, Justice Platkin, Richard, Summary Judgment

In a May 14, 2014 decision by Justice Platkin, the Commercial Division, Albany County, denied defendant contract vendee’s motion for summary judgment, and granted summary judgment to plaintiff seller of commercial real estate.   Defendant made a down payment in the form of an “Initial Deposit” of $10,000, placed in escrow upon execution of the Agreement, for real estate for a CVS location.  Defendant was then required to make an “Additional Deposit” of $190,000 following a 45-day “Contingency Period”.  However, after making the “Initial Deposit”, defendant attempted to terminate the Agreement and requested return of the Initial Deposit, after learning that Wal-Mart was expected to open a store containing a pharmacy near the subject property.

Plaintiff sued to retain the Initial Deposit, but also for damages in the amount of the Additional Deposit of $190,000 which was still owed.  Defendant counterclaimed seeking a declaration of non-liability under the contract.  On the cross-motions for  summary judgment, the Court concluded that plaintiff demonstrated prima facie entitlement to the full $200,000 Deposit, plus attorney’s fees as the “prevailing party” under the contract.  The Court determined that defendant wrongfully terminated the contract.

Schenectady State St. Assoc., LLC v Horn Capital Realty, Inc., Sup Ct, Albany County, May 14, 2014,  Platkin, J., index No. 4480-13.

Motion for Class Certification Denied in Server’s Case Alleging Restaurants Retained for Themselves Mandatory 20% Service Personnel Charge, Reasonably Believed by Customers to be Gratuity

Posted in Albany, Class Certification, Industry: hospitality, Justice Platkin, Richard

In a June 24, 2014 Commercial Division decision by Justice Platkin, the court denied the plaintiff’s motion for class certification. The plaintiff, a banquet server while employed by the defendants, alleged that the defendants charged banquet customers a mandatory twenty percent “service charge” of “service personnel charge” in addition to their catering bill, which, according to the plaintiff, the banquet customers would reasonably have believed to be a gratuity. The complaint further alleged that in violation of  New York Labor Law § 196-d, the defendants did not distribute the funds to the servers, who were paid a flat hourly rate, but retained them for themselves. The plaintiff’s motion sought to certify a putative class of all persons employed by the defendants as banquet/catering servers. In evaluating the five factors for class certification under CPLR 901, the court held: (1) with respect to numerousity, the plaintiff failed to offer a sufficient foundation for his belief as to the number of putative class members; (2) the plaintiff established the commonality of issues and predominance requirement; (3) the plaintiff satisfied the typicality requirement only with respect to a certain sub-class of servers; (4) the adequacy of representation requirement was established; and (5) that the plaintiff made an adequate showing of the superiority of a class action to other available methods. Because, however, the plaintiff failed to satisfy each the CPLR 901 factors, the court found unnecessary an analysis of the CPLR 902 factors, and denied the plaintiff’s motion.

Picard v Bigsbee Enters., Inc., Sup Ct, Albany County, June 24, 2014, Platkin, J., Index No. 1984/2013

Plaintiffs Unable to Overcome Lack of Consideration Defense with Attorney Affidavit on Motion for Summary Judgment in Lieu of Complaint

Posted in CPLR 3213, Industry: real estate, Justice Demarest, Carolyn E., Kings, Mortgages, Summary Judgment in lieu of Complaint

In an April 1, 2014, Kings County Commercial Division decision by Justice Demarest, the court denied plaintiffs’ motion for summary judgment in lieu of complaint in connection with a promissory note secured by a mortgage.  Although plaintiffs successfully “made out a prima facie case for recovery by submitting the subject note and proof of non-payment,” the court denied the motion because defendant raised issues of fact for trial concerning the defense of lack of consideration.  Specifically, defendant claimed in opposition that plaintiffs never transferred any monies in consideration of the note, and plaintiffs failed to provide any documentation supporting the transfer.

Guzzone v Masluf Realty Corp., Sup Ct, Kings County, April 1, 2014, Demarest, J, Index No. 501951/13