Motion to Amend Answer Granted where Amendments Were Not Palpably Insufficient: Stuart's LLC v Edelman
In a December 27, 2011 decision by Justice Warshawsky, the court granted the motion of defendants Worldwide Sourcing Group and Peter Lister to amend their Answer and Counterclaims to clarify certain counterclaims and to add cross-claims against certain defendants. The parties were engaged in the production, distribution, and sale of clothing, for which they entered into various loans with each other. The proposed counterclaim alleged that the plaintiff Galvin was personally liable on a promissory note of Stuart’s in favor of defendant Worldwide Sourcing Group, but the plaintiffs argued in opposition that the absence of Galivn’s signature on the note precluded his and that the claim failed to state a claim upon which relief could be granted. The non-moving defendants opposed the proposed cross-claims arguing that: 1) they would be prejudiced by them because they discussed the defense of the action with the moving defendants; and 2) with respect to the proposed third cross claim, that it was not based upon any new evidence but upon information that was available to the moving defendants at the time of the original answer. The court explained that on a motion to amend, it need not consider the likelihood of success on the merits but only whether the proposed amendment states a claim. The court further noted that the possibility of a subsequent dismissal of a cause of a cause of action, counterclaim or cross-claim is not determinative of a motion to amend. Finding that the proposed counterclaims and cross-claims were not “palpably insufficient” or “patently devoid of merit,” the court granted the defendants’ motion to amend.
Stuart’s LLC v Edelman, Sup Ct, Nassau County, December 27, 2011, Warshawsky, J., Index No. 012560/2009
Preliminary Injunction Granted, Contracts Voided based on Fraudulent Inducement and Public Policy: Ceppos v Szlendak
In a January 12, 2012 decision by Justice Bucaria, the court granted the plaintiffs’ (“Ceppos’”) motion for a preliminary injunction restraining the defendants (“Szlednaks”) from enforcing three agreements; denied Ceppos’ motion for a preliminary injunction restraining the Szlendaks from using any of Ceppos’ confidential business information; and denied the Szlendak’s cross-motion to dismiss the complaint. The three contracts between Ceppos and Marisuz Szlendak, the CFO of plaintiff company Sarut, were entered after Ceppos discovered that Marisuz embezzled approximately $500,000 from Sarut. The contracts were: 1) a severance agreement in favor of Marisuz, in which Marisuz agreed not to compete with Sarut or to use any of its confidential information; 2) an agreement through which Ceppos pledged Marisuz‘s 30% stock in Sarut back to him to secure the severance agreement payments; and 3) an escrow agreement appointing Blank Rome LLP as escrow agent to hold the stock. Ceppos moved for a preliminary injunction declaring all three agreements void due to allegedly false representation made by the Szlednaks that they would “restore the ‘familial and emotional’ relationship” that Ceppos enjoyed with the Szlendaks’ children. Additionally, Ceppos sought to restrain the Szlednaks from using Ceppos’ confidential business information. The Szlendaks’ cross-moved to dismiss for failure to state a cause of action for fraud in the inducement and based on a general release in the severance agreement.
The court granted Ceppos’ motion with respect to the enforcement of the agreements, finding that there was a danger of irreparable injury if the stock was sold to a third party, and that although a promise to foster a relationship might be too vague for enforcement, Ceppos established a likelihood of success on the merits because the circumstances suggested that the Szlendaks intended to sever any relationship between their children and Ceppos. The court also found that overarching public policy could mandate voiding the agreements to the extent that the purpose of the severance agreement was to avoid criminal prosecution of Mariusz. Because Ceppos established a likelihood of success on the fraud claim, the court denied the Szlendak’s cross-motion to dismiss in its entirety. Finally, the court held that because the severance agreement was void due to fraud, Ceppos surrendered every right under it, including the benefits of the non-compete provision.
Ceppos v. Szlendak, Sup Ct, Nassau County, January 13, 2012, Bucaria, J, Index No. 013788/11
Court's Granting Motion to Amend Renders Summary Judgment Motion Moot: Fusco and Fasulo v. Direct Access Management, LLC et al.
In a December 7, 2011 decision by Justice Driscoll, the court granted a motion to amend and denied a motion for summary judgment based on the original complaint finding that the amendment rendered the original complaint a nullity, and therefore moot. After the completion of a number of depositions, plaintiffs sought to amend their complaint to add additional causes of action and additional parties. Plaintiffs based their amendment on information disclosed during discovery, including party and non-party depositions. Defendants opposed the amendment arguing that the proposed amendment did not state any valid causes of action and that plaintiffs were aware of certain of their new claims when they commenced the action and should not be allowed to amend their pleadings at such late date. Defendants also moved for summary judgment dismissing all of the claims brought in the original complaint. The court granted plaintiffs’ motion to amend finding that the proposed amendment is not palpably insufficient or patently devoid of merit. The court further found that, because the complaint was deemed amended, plaintiffs’ originally complaint was a nullity and defendants’ motion for summary judgment against the original complaint was moot.
Fusco and Fasulo v. Direct Access Management, LLC et al., Sup Ct, Nassau County, December 7, 2011, Driscoll, J, Index No. 4450/09.
Court Denies Motion for Summary Judgment Made Before Discovery as Premature: Padilla Constr. Servs., Inc. v DeMicco Bros., Inc.
In a January 9, 2012, decision by Justice Bucaria, the court denied plaintiff’s motion for summary judgment as pre-mature and granted defendants’ motion for leave to amend its answer to allege the statute of frauds as an affirmative defense. Plaintiff-contractor sued defendant-general contractor and its surety in connection with unpaid balances on three separate construction projects and moved for summary judgment before the parties engaged in discovery. Defendants opposed the motion as pre-mature and cross-moved for leave to assert the statute of frauds as an affirmative defense based on the alleged absence of written agreements with respect to at least two of the three projects. The court agreed with defendants and denied plaintiff’s motion, stating that “discovery may lead to relevant evidence” regarding, among other things, monies paid on the projects and plaintiff’s damages. The court also granted defendants’ motion for leave to amend, finding that the statute-of-frauds defense was “meritorious” and that plaintiff would not be “prejudiced or surprised” by it.
Padilla Constr. Servs., Inc. v DiMicco Bros., Inc., Sup Ct, Nassau County, January 9, 2012, Bucaria, J., Index No. 4391/11
My Brother's Keeper; Court Grants Motion for Temporary Receiver for Properties Co-Owned by Deceased's Brother and Widow: Clark v Clark
In a December 20, 2011 decision by Justice Warshawsky, the court granted in part the plaintiff’s motion, pursuant to CPLR 6401 for the appointment of a temporary receiver. The plaintiff, Winifred Clark, the widow of William Clark, brought the action against William’s brother, James Clark. In the instant motion, Winifred moved for the appointment of a temporary receiver for 32 properties, 28 of which she, through William, and James owned as tenants in common; as to the others, the ownership was disputed. Winifred’s brought the motion in an attempt to protect her rights to 50% of the net rental income from the properties, which James managed. The appointment of a temporary receiver is an extreme remedy; the statute requires the movant to prove, by clear and convincing evidence that “there is a danger that the property will be removed from the state, or lost, materially injured or destroyed.” The court explained that while it is “loathe to appoint a receiver in most cases,” and notwithstanding the significant cost required to do so, it found that all of James’ actions taken together, including: defaulting on tax payments; under reporting income; maintaining double books; failing to pay Winifred her fair share of income; and misuse of joint income for personal needs, provided clear and convincing evidence that the CPLR 6401 standard was met. Therefore, the court granted the motion with respect to the 28 properties for which Winifred and James’ co-ownership was undisputed.
Clark v Clark, Sup Ct, Nassau County, December 20, 2011, Warshawsky, J., Index No. 5514/2008
Insurance Broker Can Be Liable for Not Finding the Most Cost Effective Life Insurance Policy: Finkelstein et al. v. Lincoln Natl. Corp. et al.
In an October 14, 2011 decision by Justice Warshawsky the court granted plaintiffs’ motion to amend to add an additional statutory cause of action and an additional party. Defendants were retained to provide estate planning advice and services, including assisting in the purchase of life insurance policies. Plaintiffs alleged that defendants failed to diligently seek the most cost effective insurance policy. Plaintiffs sought to add a cause of action under Insurance Law §§ 4226 and 2123. Defendants opposed arguing that the claims were palpably insufficient because they were not covered by the statutes and were barred by the applicable statute of limitations. The court granted plaintiffs’ motion regarding Insurance Law § 2123 which holds an insurance broker liable for failing to make a complete comparison when presenting various insurance policies but denied the motion as to Insurance Law § 4226 because there was no allegation that defendants misrepresented the terms and conditions of its own insurance policies. The court also held that the claim was not barred by the statute of limitations because it related back to when plaintiffs filed their original complaint. The court also granted plaintiffs’ motion to add one of the individual brokers as a named party based on his testimony that the entity through which he did business was not a legal entity but a marketing name.
Finkelstein et al. v. Lincoln Natl. Corp. et al., Nassau County, October 14, 2011, Warshawsky, J, Index No. 5372/09.
Defendant Cannot Vacate Default Judgment By Claiming It Never Received Pleadings: C McCormack Inc. v 6 St. Nicholas LLC
In a December 7, 2011 decision by Justice Driscoll, the court denied the defendant’s motion to vacate a default judgment against it. Based on Second Department law, the court found that the plaintiff presumptively established the right to a default judgment by providing a process server’s affidavit of service of the summons and complaint pursuant to NY LLC Law § 303, and the defendant failed to overcome that presumption by merely denying receipt of the pleadings. The motion was also denied because, the court found, the defendant failed to provide any excuse for its failure to answer the complaint or respond to the prior motion for a default judgment, and the defendant alleged only in conclusory fashion that it had a meritorious defense yet failed to present any facts supporting such defense.
C McCormack Inc. v 6 St. Nicholas LLC, Sup Ct Nassau County, December 7, 2011, Driscoll, J, index No. 011841-10
General Electric Capital Corp. v. Ocean Marine Inc.
In a November 28, 2011 decision by Justice Driscoll, the court granted plaintiff lender’s motion for judgment of foreclosure and sale and an order of reference. In 2005, the lender, GE Capital Corp., loaned $1 million to defendant, a marina located in Freeport, NY. The loan was secured by a mortgage on three properties. In addition, the individual defendants each signed a commercial guaranty. The Note required defendants to pay all real estate taxes associated with the property, and contained an acceleration clause in the event of default by the borrower.
Defendants failed to pay the 2009 and 2010 real estate taxes, and ultimately the lender accelerated the payments due under the Note which, by the time of acceleration, amounted to $988,736.
On the motion, the defendants did not contest the signing of the Note or that the they intended to mortgage the three lots, but rather that the mortgage recording was defective because of improper indexing by the office of the County Clerk. As such, foreclosure should be denied.
In granting the judgment of foreclosure, the court held that the lender established a prima facie right to entitlement to a judgment of foreclosure. Such right, held the court, is not defeated by an indexing error by the County Clerk. Accordingly, the court directed entry of judgment of foreclosure, and directed the County Clerk to amend the records to re-index the mortgage as it was intended.
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Hearing Required to Determine If Corporation Should Be Dissolved: Ziffer et al. v. Tapper et al.
In an October 28, 2011 decision by Justice Driscoll the court found that a hearing was necessary to resolve conflicting testimony concerning the status of a company Petitioners sought to dissolve. The operation of the company was controlled by a three person board of directors which, by stipulation in a prior lawsuit, contained a board member from each of the two factions and a non-interested director appointed by the court. Petitioners argued that the company was failing financially and the directors were holding “sham” board meetings and taking ultra vires actions. Petitioners sought, based on these allegation, an injunction barring the board meetings, dissolution of the corporation and the appointment of a receiver pending dissolution. Respondents countered that the Petitioners’ representative refused to attend the board meetings and the actions taken were either part of the company’s traditional business practices or a normal capital expenditure. Respondents also argued that the company was profitable and continued to grow as evidenced by increased sales year over year and the company’s ability to maintain the same net income, despite increased costs. The court found that these conflicting factual statements required a hearing before the court could consider dissolution of the corporation or the appointment of a receiver.
Ziffer et al. v. Tapper et al., Sup Ct, Nassau County, October 28, 2011, Driscoll, J, Index No. 10846-11
Court Decides Motions for Summary Judgment arising from Fraudulent Financial Advice and Resultant Mortgage Default: Mauro v Countrywide Home Loans, Inc.
In an October 17, 2011 decision by Justice Warshawsky, the court: 1) denied in part and granted in part both Kaplan’s and Countrywide’s motion for summary judgment to dismiss the complaint; and 2) denied Mauro’s cross-motion for summary judgment against Countrywide. On the advice of Dawson, who held himself out as an experienced financial manager, Mauro mortgaged two previously unencumbered properties for investment purposes. Mauro alleged that she did not receive complete information about the loans, including how the proceeds would be disbursed, and that nothing was explained to her at the closing, where Kaplan was the attorney for Countrywide. Although the HUD-1 Settlement Statements indicated that the proceeds would be distributed to Mauro, all proceeds were delivered to Dawson or entities he controlled, including the defendant BMG. BMG initially made the mortgage payments on both loans but eventually defaulted and Dawson was arrested for grand larceny.
The court denied parts of Kaplan’s motion for summary judgment holding that material issues of fact existed as to: 1) the elements of fraud with respect to whether and for what purpose Kaplan made the representation that the loan funds were to be directed to Mauro alone; 2) breach of fiduciary duty, because while it was unlikely that Kaplan entered into an attorney-client relationship with Mauro by drafting two deeds, it was still a factual possibility; and 3) Countrywide’s cross-claims for professional negligence, breach of contract and indemnity. Kaplan’s motion to dismiss the claim for intentional tort was granted because the actions giving rise to the claim occurred beyond the one-year statute of limitations period.
On Countrywide’s motion, the court held that: 1) there were factual issues precluding the dismissal of the claims for breach of contract and fraud, and Countrywide’s cross-claims against Kaplan that it could be only be liable due to its agent’s (i.e., Kaplan’s) negligence and breach of contract; 2) because Mauro could not establish a likelihood of success on the merits and was seeking economic damages, the claim for injunctive relief was inappropriate and therefore dismissed; 3) the claims seeking a declaration that loans were void because obtained under false pretenses were dismissed because Mauro’s cooperation in their placement established their validity; and 5) because there were no factual issues with respect to Dawson’s criminal wrongdoing through BMG, summary judgment was granted on Countrywide’s cross-claim for indemnification against Dawson and BMG.
Finally, the court denied each part of Mauro’s motion for summary judgment against Countrywide finding that: 1) issues of material fact with respect to the direction of proceeds to BMG precluded the claims for breach of contract, fraud, and declaratory relief; and 2) Mauro had not established a likelihood of success on the merits, precluding injunctive relief.
Mauro v Countrywide Home Loans, Inc., Sup Ct, Nassau County, October 17, 2011, Warshawsky, J., Index No. 000191/2011.
Nothing New to Say; Motion for Leave to Amend Complaint Denied: Verdeber v Commander Enters. Centerreach, LLC
In an October 18, 2011 decision by Justice Warshawsky, the court denied the plaintiffs’ motion to amend the complaint pursuant to CPLR 3025(b) to include claims for breach of contract and waiver with respect to defendant Benco LLC’s (“Benco”) alleged failure to consummate a closing to purchase the plaintiffs’ interest in the defendant Commander Enterprises Centereach, LLC (“CEC”). The defendants opposed the motion asserting that the new claims were without merit, and were based on transactions that were previously resolved by the court and affirmed by the Second Department. The individual plaintiffs were holders of a 20% interest in CEC; Benco owned the remaining 80%. The underlying dispute arose from the individual plaintiffs’ sale of their interests in CEC to the plaintiff company Verbenco, LLC (“Verbenco”). In a prior proceeding, the court held and the Second Department affirmed that an operating agreement from the year 2000 was controlling. Pursuant to the operating agreement, Benco alone was entitled to purchase the interests. Therefore, the court held that the plaintiffs’ attempted transfer to Verbenco terminated their membership in CEC and was an offer to sell their interest, which Benco accepted. In denying the current motion, the court held: 1) that the proposed amended complaint did not raise any “‘additional or subsequent transactions or occurrences’ as mandated by § 3025(b)”; and 2) that it was bound by the prior decision of the Second Department.
Verdeber v Commander Enters. Centereach, LLC, Sup Ct, Nassau County, October 18, 2011, Warshawsky, J, Index No. 00769/09.
Arbitration Provision in Shareholders Agreement Applies to Parties' Disputes Under Related Goods & Services Agreement: Russo v Time Moving & Stor., Inc.
In a November 30, 2011, decision by Justice Driscoll, the court denied defendants’ motion to dismiss and directed the parties to arbitration on all issues raised in plaintiffs’ complaint. Plaintiffs sued defendants alleging various breaches and fraudulent acts in connection with parties’ contractual relationship under a goods-and-services agreement and a shareholders agreement. The shareholders agreement contained a broad arbitration provision. Defendants moved to dismiss the complaint except as to claims arising out of out of the shareholders agreement, on which the parties should be compelled to arbitration. Plaintiffs opposed, arguing that their claims did not concern the actions of the shareholders. The court found that “the allegations regarding Defendants’ breach of, and fraud regarding, the Goods & Services Agreement bears a reasonable relationship to the subject matter of the Stockholders Agreement, which contains a broad arbitration provision.” Accordingly, the court denied defendants’ motion, stayed the entire action, and directed the parties to arbitration on all of plaintiffs’ claims.
Russo v Time Moving & Stor., Inc., Sup Ct, Nassau County, November 30, 2011, Driscoll, J., Index No. 10035/2011
Motion to Dismiss Granted Based on Findings of no Course of Conduct or Justifiable Reliance: Treeline 990 Steward Partners LLC v. Rait Atria, LLC
In a November 10, 2011 decision by Justice Bucaria, the court granted the defendants’ (the “RAIT” defendants) motion pursuant to CPLR 3211(a)(1), (a)(5), and (a)(7) to dismiss the amended complaint and the answer and interpleader complaint of the defendant/interpleader plaintiff 990 Stewart Avenue Investors, LLC (“SAI”), and because of that disposition, the court denied as moot SAI’s motion pursuant to CPLR 1006 for permission to pay certain monies into the court. SAI was formed by Plaintiff Treeline 990 Stewart Partners LLC (“Treeline”) and RAIT Atria, LLC (“RAIT”) to acquire certain property in Garden City. The Operating Agreement required all modifications thereto to be in writing. The property allegedly experienced revenue flow problems due to downturn in the economy, leading Treeline and the RAIT defendants to discuss a discounted buyout or some other modification of what Treeline claimed, and the RAIT defendants disputed, was a “loan”. Treeline alleged that the parties orally agreed that RAIT would accept a discounted payoff of the “loan,” which led Treeline to invest, to its detriment, further money into the property.
In granting the RAIT defendants’ motion to dismiss, the court found that: 1) the claim for breach of contract was precluded by General Obligations Law § 15-301(1) (written agreements expressly prohibiting oral modifications cannot be changed by oral executory agreements) because the memorandum offered by Treeline as written proof of the modification was insufficient because it made clear that all of the material terms were not then agreed to, and the requirement that modifications be in writing was not waived by an alleged course of conduct; and 2) Treeline’s claims for fraud and negligent misrepresentation could not be maintained because it “fail[ed] to allege a single fraudulent statement or negligent misrepresentation made by defendants on which [it] justifiably relied….” and, moreover, because all of the parties knew of the written modifications requirement, Treeline’s alleged detrimental reliance on oral representations could not have been justified.
Treeline 990 Stewart Partners LLC v Rait Atria, LLC, Sup Ct, Nassau County, November 10, 2011, Bucaria, J., Index No. 18904/2010
Issue of Fact Exist, Complaint Sufficiently Supports Claim, Motion For Summary Judgment and to Dismiss Cause of Action Denied: Long Is. Med. v Lligam Assoc., Inc.
In a November 1, 2011 decision by Justice Driscoll, the court denied defendant TeamPositions Inc.’s motion for summary judgment dismissing the plaintiff’s complaint and to dismiss the second cause of action sounding in gross negligence. TeamPositions argued that it was neither a party to, nor an intended beneficiary of the contract (“Contract”), which lays at the heart of the action, because it was between the plaintiffs and Magill Associates, Inc. (“Magill”), the former identity of named-defendant Lligam Associates, Inc., so TeamPositions could not be held liable under it. At issue was a transaction that was labeled as an asset purchase agreement, through which the plaintiffs asserted TeamPositions acquired Magill’s business, including the Contract. While the purchaser of a corporation’s assets ordinarily does not become liable for the debts of its predecessor, an exception exists for de facto mergers, including where a transaction structured as a purchase of assets is deemed an attempt to fraudulently escape debt obligations. The court denied TeamPositions’ motion for summary judgment, finding that issues of fact existed regarding the application of the de facto merger doctrine, and therefore whether TeamPositions should be held liable under the Contract. On the gross negligence cause of action, TeamPositions argued that a breach of contract cannot be considered a tort unless a legal duty, existing independent of the contract, has been violated. TeamPositions asserted the plaintiffs failed to allege such a duty, but the court held that allegations in the complaint sufficiently supported such a conclusion. Therefore, the court denied the motion to dismiss this cause of action.
Long Is. Med. v. Lligam Assoc., Inc., Sup Ct, Nassau County, November 1, 2011, Driscoll, J, Index No. 005500 /10.
Progress of Related Action and Jurisdictional Issues Bar Consolidation in Nassau County: Varkonyi v TS Multi-Strategy Fund, LP
In a September 30, 2011, decision by Justice Driscoll, the court denied plaintiffs’ motion for an order consolidating the instant action and a related New York County action in Nassau County and directed them to make the motion in New York County instead. Plaintiffs and the receiver for the defendant-partnership agreed that the two actions should be consolidated based on common questions of law and fact but disagreed about the venue for consolidation. Because the related action pending in New York County “had progressed further than the instant action,” as well as certain jurisdictional limitations under the NY Revised Limited Partnership Act raised by the receiver in opposition to plaintiffs’ motion, the court concluded “that any such consolidation should nevertheless occur in New York.”
Varkonyi v TS Multi-Strategy Fund, LP, Sup Ct, Nassau County, September 30, 2011, Driscoll, J., Index No. 3817/2011
Motion to Quash Subponea Granted: Guss v. Aronson
In a September 27, 2011 decision by Justice Warshawsky, the court granted the non-party’s motion to quash a subpoena duces tecum served on it by plaintiffs. Plaintiffs sought discovery of non-privileged information from The Weinstein Group, P.C., a law firm that had previously represented defendant Aronson in unrelated matters. Specifically, plaintiffs sought documents from litigations, which amounted to six identified cases, in which the Weinstein Group “appeared as counsel for Aronson or the Aaronson Companies, or for which. . . the [Weinstein Group] otherwise ha[d] knowledge.” The court found that although compliance with the subpoena “may involve significant time and effort,” as it would require review of all the case files for privilege, this did not make the demand overly broad or unduly burdensome. The court, however, followed Second Department precedent and granted the motion to quash the subpoena because the plaintiffs failed to demonstrate that the materials sought by the subpoena were not available through sources other than the Weinstein Group. The court explained that the subpoena excluded privileged materials, leaving “very little besides the pleadings in the action, which are filed in the Count Clerk’s office in each County in which the proceedings were conducted.” The court noted that it would allow the plaintiffs to re-file the subpoena in the future if they could show that the requested documents were unavailable through other means.
Guss v. Aronson, Sup Ct, Nassau County, September 27, 2011, Warshawsky, J, Index No. 015752/2009.
Law Firm Representation of Same Party as Plaintiff and Defendant in Separate Lawsuits Involving the Same Companies and Businesses Not Enough to Disqualify: Kalish v Fernandez
In an October 14, 2011, decision by Justice Driscoll, the court denied plaintiffs’ motion to disqualify defendants’ counsel. Plaintiffs and defendants, owners of significant membership interests in an LLC that provided MRI diagnostic services, were involved in two lawsuits – one commenced in July 2005 and the other in April 2011 – involving allegedly improper removal and/or termination of members from the business. Plaintiffs contended on their motion that the law firm representing defendants in the 2011 lawsuit should be disqualified because of its representation of plaintiffs in the 2005 lawsuit, which plaintiffs claimed was a related action. Defendants contended that the claims in each of the lawsuits were entirely unrelated and that plaintiffs failed to show that the law firm was in possession of privileged information. The court denied plaintiffs’ motion, finding that they failed to establish that the two lawsuits were substantially related, especially in light of the chronology of key events underlying, and parties named in, the two lawsuits. The court also found that plaintiffs failed to show that the law firm, in its previous representation, had access to any confidential material related to the 2011 lawsuit.
Kalish v Fernandez, Sup Ct, Nassau County, October 14, 2011, Driscoll, J., Index No. 6179/2011
LLC Member not Entitled to File Notice of Pendency against Property Owned by LLC: Born To Build, LLC v Saleh
In a September 20, 2011, decision by Justice Warshawsky, the court denied plaintiff-contractor’s motion for an order directing the clerk of court to accept and file a notice of pendency and granted defendant-owners’ corresponding motion to preclude the filing of the notice. The court also denied plaintiff’s request for injunctive relief but otherwise denied defendants’ motion to dismiss the complaint under CPLR 3211 [a] [1] based on documentary evidence. Plaintiff performed $2.5 million of construction services for which it was not paid, obtained a judgment, and sought recovery in connection with certain real property owned by defendants. Plaintiff claimed to have acquired an interest in the limited liability company that owned the property and attempted to file a notice of pendency against the property. The court held, however, that under LLCL § 601 membership interest in an LLC “is personal property and does not give a member interest in specific property of the limited liability company” and decided the parties’ lis pendens motions accordingly. The court then denied defendants’ motion to dismiss based on a sworn statement from the LLC member from whom plaintiff allegedly acquired his interest, finding that “the documentary evidence is convincing, but not conclusive on the subject of relationship between [the owners of the property].”
Born To Build v Saleh, Sup Ct, Nassau County, September 20, 2011, Warshawsky, J., Index No. 9558/2011
No Duplication of Claims, Reasonable Reliance Determination Benefitted by Discovery, Jury Waiver Provision Valid: Ambac Assur. Corp. v. DLJ Mtge. Capital, Inc.
In an October 7, 2011 decision by Justice Kornreich, the court granted plaintiffs’ motion for leave to reargue; denied defendants’ motion to dismiss plaintiff’s fraudulent inducement claim; and granted defendants’ motion to strike plaintiff’s demand for a jury trial. Plaintiff’s motion to reargue followed an order dismissing its fraudulent inducement claim and striking its demand for jury trial. The action arose out of the securitization of a pool of over two thousand second lien, residential mortgage loans, which had been transferred to a trust. Plaintiff entered a contract with DLJ Mortgage Capital, Inc, the sponsor of the transaction, whereby it issued a policy guaranteeing certain payments of the securities. Defendant Credit Suisse Securities (USA), LLC served as the underwriter.
The court held that the First Department’s recent decision in MBIA Ins. Corp. v. Countrywide required the granting of plaintiffs’ motion to reargue. There, the First Department established that a fraudulent inducement claim is not duplicative of a breach of contract claim solely because “some of the allegedly false representations are also contained in the agreements as warranties and form the basis of the breach of contract claim.”
The court denied defendant’s motion to dismiss the fraudulent inducement claim, holding that although plaintiffs’ reliance on Credit Suisse’s allegedly fraudulent misrepresentations was most likely unreasonable as a matter of law, determining reasonable reliance requires a fact-intensive inquiry that “would benefit from a complete record created after the parties’ discovery.” As to plaintiffs’ demand for a jury trial, the court found that jury wavier provision in the Insurance and Indemnity agreement between plaintiffs and DLJ was controlling. The court held that the provision was broad enough to cover the fraudulent inducement claim and plaintiffs did not expressly challenge it. Further, because their fraudulent inducement claim depended, in part, on the warranties contained in the agreement, the court held that plaintiffs had effectively affirmed its validity.
Ambac Assur. Corp. v DLJ Mtge. Capital, Inc., Sup Ct, New York County, October 7, 2011,Kornreich, J, Index No. 600070/10.
"Piercing the Corporate Veil" Is Not An Independent Cause of Action; Ersail v. Pour et al.
In an August 3, 2011 decision by Justice Driscoll the court granted a motion to dismiss claims against an entity seeking to pierce the corporate veil and against that entity’s purported “controlling officer.” The litigation arose from a mortgage transaction which was the subject of a companion foreclosure suit. This litigation – brought by the mortgagee – brought claims against various individuals and entities sounding in breach of fiduciary duty, negligence, fraud and unjust enrichment. The complaint only stated a cause of action for “breach of the corporate veil” against one of the defendant entities and then stated a claim against that entity’s “controlling officer” by “imputing” to that person the entity’s purported wrongful conduct. The court dismissed both claims holding that there was no independent claim for “piercing the corporate veil” and that there were no allegations of wrongful conduct by the entity (or its principle) supporting liability against the purported “controlling officer.”
Ersail v. Pour et al., Sup Ct, Nassau County, August 3, 2011, Driscoll, J, Index No.20835/10.
Too Late To Amend For Actual Partial Eviction: Todd Rotwein, D.P.M., P.C., v Nader Enterprises
In a September 22, 2011 decision by Judge Driscoll, the court denied plaintiff’s motion to amend its complain to add a cause of action for actual partial eviction. Plaintiff, a tenant in the defendant LLC’s property located in Hempstead, initiated the action for a breach of lease based on, inter alia, failing to provide heat and elevator service. Plaintiff filed its Amended Verified Complaint, containing six causes of action on March 7, 2008. Discovery ensued, including the deposition of Plaintiff, and Plaintiff filed its Note of Issue with a trial of the action scheduled for November 1, 2011.
On July 8, 2011, after plaintiff moved its business from defendant’s property, Plaintiff filed its motion for leave to amend its complaint. Through the motion, plaintiff sought to replace the sixth cause of action seeking a permanent injunction and requiring specific performance under the lease with a new cause of action for actual partial eviction based on the defendant’s alleged failure to provide sufficient elevator service at the property.
In denying plaintiff’s motion, the court rejected plaintiff’s argument that because the condition of the elevator had been raised in prior motions, the proposed amendment would not cause prejudice to defendant. The court held that defendant would be prejudiced by the amendment given the posture of the case: it was trial-ready; defendant had already conducted discovery, including taking the deposition of plaintiff based on the causes of action in the Amended Verified Complaint; and plaintiff failed to make a reasonable explanation for its delay in seeking the amendment.
Todd Rotwein, D.P.M., P.C., v. Nader Enterprises, LLC, Sup Ct, Nassau County, September 22, 2011, Driscoll, J, Index No. 454/08
Specific Provision in an Integrated Agreement Not an Instrument for the Payment of Money Only for Purposes of CPLR 3213: Lawrence v Kennedy
In a September 22, 2011, decision by Justice Bucaria, the court denied plaintiff’s motion for summary judgment in lieu of complaint under CPLR 3213, as well as granted in part and denied in part defendants’ motion to dismiss. Plaintiff, the founding member and later “of counsel” employee of a law firm, sued the firm and its managing member for both a fixed- and salary-based performance amount under a related employment agreement.
Defendants moved to dismiss contending that plaintiff, a recent stroke victim, lacked capacity to maintain the action and that an exculpation clause in the employment agreement precluded enforcement of the agreement as against the individual managing member of the firm. Defendants also argued that the agreement did not constitute an “instrument for the payment of money only” for purposes of summary judgment under CPLR 3213.
The court denied defendants’ motion on the issue of capacity, finding that mere “allegations in the complaint and/or inconclusive statements made by opposing counsel do not establish that plaintiff is lacking in mental capacity and competence as a matter of law.” The court, however, granted defendants’ motion on the issue of individual liability under the employment agreement and dismissed the claims against the managing member, finding that a plain reading of the agreement and the accompanying stock purchase agreement exhibited a clear intention on the part of the parties to exclude liability as against individual firm members. Because neither of the agreements provided for the continuation of a fiduciary relationship after plaintiff resigned his partnership in the firm and became an employee, the court also dismissed plaintiff’s cause of action for an accounting.
As to plaintiff’s “motion action” under CPLR 3213, the court found that the salary provision in the employment agreement comprised only one component of an integrated agreement, which expressly preserved potential defenses and claims of the firm against plaintiff regarding salary. As such, the provision did not constitute an instrument for the payment of money only.
Lawrence v Kennedy, Sup Ct, Nassau County, September 22, 2011, Bucaria, J., Index No. 008125/2011
Claims to Recover from Bank for Checks Deposited Into the Wrong Bank Account Untimely: Golden First Mtge. Corp. v Smith et al.
In a September 15, 2011 decision by Justice Driscoll the court granted a motion to dismiss various claims brought against a bank sounding in conversion (both common law and under the UCC), fraud and breach of fiduciary duties. Plaintiff is a mortgage brokerage company. One of its employees deposited over 200 checks into a bank account in the name of another entity which the employee controlled. The mortgage company sued the bank because it accepted and deposited the checks. The banks moved to dismiss. The court reviewed the pleading requirements for causes of action sounding in fraud, conversion, and breach of fiduciary duties as well as the statute of limitations for each type of action. The court found that plaintiff failed to allege its fraud claim with sufficient particularity as required by CPLR 3016(b) and failed to demonstrate that an independent cause of action exists based on a violation of UCC 3-306. The court further found that a three year statute of limitations applied to the other claims addressed in the motion which were untimely, but that plaintiff had a remaining claim against the bank for “monies had and received.”
Golden First Mtge. Corp. v Smith et al. Sup Ct, Nassau County, Sept. 15, 2011, Driscoll, J, Index No. 3426-11
Defendants Not Preliminarily Enjoined from Using Partnership Assets to Pay Litigation Costs: Katz v Beil
In an August 15, 2011 decision by Justice Driscoll, the court denied the plaintiff’s motion for a preliminary injunction to preclude the defendants from using the assets belonging to a general partnership, of which the parties were all partners, to pay the legal fees the defendants incurred in the litigation. The partnership owned a gold club. The plaintiffs alleged that the defendants gave out free “special memberships” to the golf club for his personal benefit, and allowed members of another club to use the partnership’s golf club without paying any costs or expenses, which caused the club to lose significant revenue. The court denied the preliminary injunction upon concluding that the plaintiff could not establish a likelihood of success on the merits of it breach of fiduciary duty claim. Specifically, the court found that the partnership agreement authorized the defendant, as the managing general partner of the partnership, to control the partnership and the plaintiff failed to demonstrated that the defendant lacked authority to issue the special memberships. The court also found that there was a factual dispute as to whether the defendants personally benefitted from awarding the special memberships, which required denial of the preliminary injunction. The court further found that a preliminary injunction was not warranted because the harm the plaintiffs suffered was compensable by monetary damages, which did not constitute irreparable harm necessary to obtain a preliminary injunction.
Katz v Biel, Sup Ct, Nassau County, August 15, 2011, Driscoll, J, Index No. 600510-11
Allegedly Defamatory Statements Fail to Support Tortious Interference Claim: Amaranth LLC et al. v. J.P. Morgan Chase & Co. et al
In an August 3, 2011 decision by Justice Sherwood the court granted defendants summary judgment dismissing a tortious interference with a potential contract claim, the final cause of action remaining in the case. The litigation stemmed from a number of last minutes deals attempting to save a failing hedge fund. Plaintiffs alleged that comments made by defendants’ officers killed one of those deals. The court reviewed the elements of a tortious interference with potential contract relations claim, including the elements required when the claim is based upon an allegedly defamatory statement. The court found that the defendants demonstrated that a number of the elements of the claim were missing, including evidence that the statement was actually made and evidence of “but for” causation. The court further found that even if the statements were made, they were likely true and therefore not defamatory.
Amaranth LLC et al. v. J.P. Morgan Chase & Co. et al, Sup Ct, New York County, August 3, 2011, Sherwood, J, Index No. 603756/2007
No Sanctions for Sending Tenant Three Day Notice to Cure After Court Issues Yellowstone Injunction: Fucile v. L.C.R. Development, Ltd.
In an August 12, 2011 decision by Justice Bucaria the court partially granted a motion to dismiss and denied a cross motion for sanctions. The litigation stems from a commercial lease which was assigned to the current tenant. The landlord served the tenant with a notice to cure for failure to pay rent. The tenant then brought a declaratory judgment action and sought (and was granted) a Yellowstone injunction. The landlord then moved to dismiss the entire litigation.
The landlord argued that the statute of limitations had run on the tenant’s breach of contract and reformation claims. The court held that where a tenant challenges the calculation of a rent escalation the cause of action accrues on the date the tenant received constructive knowledge of the landlord’s method of computation. And because the tenant’s claim was brought within six-years of gaining that knowledge, its claim was timely. The court also ruled that a reformation claim must be brought within six-years of the date of the mistake in the contract, and dismissed that claim as untimely.
In addition, months after the commencement of the action the landlord served the tenant with an additional three day notice to cure, seeking the same rent it sought in a prior rent demand. The court found that “since no other action to terminate plaintiffs’ tenancy was taken” the court would not construe the notice as a violation of the Yellowstone injunction and denied plaintiffs’ cross motion for sanctions.
Fucile v. L.C.R. Development, Ltd., Sup Ct, Nassau County, August 12, 2011, Bucaria, J, Index No. 525/11.
Small Business Must Litigate Computer Software Dispute in California, Computer Career Center, Inc. v Diamond D, Inc.
In a May 24, 2011 decision by Justice Warshawsky the court granted a motion to dismiss based on a forum selection clause in the parties’ contract which required that the action be brought in California. The dispute arose out of the purchase of computer software by a New York computer training school. After the software was installed it became clear that it was not useable for the purpose for which it was purchased.
The license agreement for the software provided that any litigation must be brought in California. The plaintiff argued that the license agreement was not operative because it timely rejected the software under UCC § 2-206 or in the alternative it would be unreasonable to require it to mount a litigation in California. The court rejected both arguments, finding that the forum selection clause was prima facie valid and the suit was required to proceed in California. The court, nevertheless, declined to award defendant its attorneys fees for the motion finding that the court’s determination on the motion was not a determination that defendant was the prevailing party under the underlying dispute.
Computer Career Center, Inc. v Diamond D, Inc., Sup Ct, Nassau County, May 24, 2011, Warshawsky, J, Index No. 21216/10.
LLC Managing Member Liable for Transferring Company's Sole Asset Without the Knowledge or Consent of the 50% Member: Gitlin v Chirinkin
In a June 29, 2011 decision by Justice Bucaria, the court granted the plaintiff’s motion for summary judgment on the causes of action for violating NY LLC Law § 402, breach of fiduciary duty, breach of contract, fraud, unjust enrichment, and violation of the Debtor Credit Law . The court determined that the plaintiff established that he was a 50% member of the LLC, the sole assets of which were two real properties in Nevada, and that the defendants, one of whom was the LLC’s managing member, transferred those properties to a third party without the plaintiff’s knowledge or consent, without the statutorily required vote of the majority interest of the members, and without paying any consideration to the plaintiff. The court found that the managing member’s representations to the plaintiff that he would manage the LLC’s day-to-day operations to the benefit of the company and its members were false and that after transferring the properties, he continued to counsel the plaintiff on those investments without divulging the transfers.
The court cancelled a notice of pendency which the plaintiff filed on one of the defendant’s personal home on the grounds that the defendant transferred the proceeds of the real property sales to his wife who used those funds to purchase their home. The court dismissed the notice of pendency upon finding that the complaint failed to establish an action for a constructive trust, necessary to file a notice of pendency, because the action was for money damages that would not affect the title to or the possession of the defendant’s home.
For a more in depth discussion of this decision, please go to Peter A. Mahler’s blog at www.nybusinessdivorce.com.
Gitlin v Chirinkin, Sup Ct, Nassau County, June 29, 2011, Bucaria, J, Index No. 12131/07
Suit Among Minnesota Companies Brought Under Operating Agreement Governed by Minnesota Law Should Be Litigated in Minnesota: Noah's Ark Processors, LLC v Parente
In a May 6, 2011, decision by Justice Driscoll, the court granted defendants’ motion to dismiss based on forum non conveniens. Plaintiff meat processors/distributers sued various other processors/distributers under an LLC operating agreement and in connection with other allegations of unfair competition, misappropriation, and interference with contractual relations. Virtually every party in the lawsuit was a business entity from the fine State of Minnesota, and the operating agreement under which the plaintiffs were suing was governed by Minnesota law. Defendants moved to dismiss for lack of personal jurisdiction and forum non conveniens. Because most of the parties lacked contacts with New York, including property ownership and business affiliations, and/or were Minnesota entities, the court granted defendants’ motion under CPLR 327. Specifically, the court found that because plaintiffs’ principal place of business and books and records were in Minnesota, and because their suit primarily was based on an agreement that was to be governed exclusively by Minnesota’s Limited Liability Company Act, the court concluded that the matter should be litigated in Minnesota.
Noah’s Ark Processors, LLC v Parente., Sup Ct, Nassau County, May 6, 2011, Driscoll, J., Index No. 12835/2010
Fraudulent Conveyance Claims Brought Under Debtor and Creditor Law Satisfied the Statutory Requirements and Survived Motion to Dismiss: K.B.K. Huntington Corp. v James Anthony Cleaners
In a May 16, 2011 decision by Justice Warshawsky, the court denied the defendants’ motion to dismiss the complaint pursuant to CPLR § 3211(a)(7), upon finding that the plaintiff adequately pled causes of action pursuant to the Debtor and Creditor Law. The crux of the plaintiff’s complaint, which sought to recover monies from a previously awarded judgment for unpaid rent against the defendant corporation, was that during the pendency of the action, the wife of the corporation’s principal formed a new entity and transferred the corporations’ assets thereto, rendering the defendant corporation incapable of paying the judgment. In denying the motion, the court determined that the plaintiff properly pled the causes of action for fraudulent conveyances under sections 276, 273-a, 273, and 275 of the Debtor-Creditor law, because the complaint alleged that the defendants transferred the funds in order to hinder or delay the plaintiff from collecting on its judgment and rendered the defendant unable to satisfy the judgment, and were not subject to the heightened pleading requirements of CPLR §3016(b). The court also found that, while there is no separate cause of action for piercing the corporate veil, it held that dismissal of the allegations regarding veil-piercing—that the defendants abused the corporate form in order to perpetrate a fraud upon the plaintiff—was not required because those facts were sufficient to entitle the plaintiff to the relief sought on its other claims.
K.B.K. Huntington Corp. v James Anthony Cleaners, Inc., Sup Ct, Nassau County, May 16, 2011, Warshawsky, J, Index No. 005150/08
Venue of Action Transferred to New York County - Location of Real Property At Issue in the Litigation: Alpert v Alpert, et al.
In a May 3, 2011 decision by Justice Driscoll the court granted defendants’ motion to transfer the action to New York County. The litigation concerned the ownership of a significant number of real properties. A number of family members purchased the various interests in real property beginning in about 1930. The original investors agreed that upon their deaths the real property would be offered for sale to the other original investors at “book value.” This agreement was memorialized in various documents. Over the years one of the original investors transferred his interests in some of the properties (or the entities that owned the properties) to his wife and daughters. Upon his death his wife and daughters refused to offer the real estate interest to the surviving original investors at “book value.”
The remaining two original investors brought suit against the wife and daughter seeking various relief, including requiring the transfer of the investments at book value. The suit was brought in Nassau County based on the residence of one of the original investors. The defendants moved to transfer the action to New York County based on CPLR § 507 arguing that the action affected the title to real property located in New York County. The plaintiffs objected arguing that the litigation was over various interests in corporations that owned real property, not the real property itself. The court disagreed and granted defendants’ motion, finding that at least one actual parcel of real property was at issue in the ligation which was located in New York County and the litigation should have been venued there.
Alpert v Alpert, et al., Sup Ct, Nassau County, May 3, 2011, Driscoll, J, Index No. 26735/09
Court Revisits Foreclosure Action and Grants Summary Judgment for Unlicensed Foreign Bank: Greystone Bank v 15 Hoover St., LLC
In a June 22, 2011, decision by Justice Driscoll, the court granted plaintiff-mortgagee’s motion for summary judgment for foreclosure on and possession of the property in question, as well as for foreclosure on plaintiff’s security interests in personal property and recovery of rental proceeds as provided by the mortgage documents. Finding that the mortgage documents and proof of default submitted by plaintiff on the motion were sufficient to establish a prima facie foreclosure case, in opposition to which defendant-mortgagor failed to raise a triable issue of fact, the court granted plaintiff’s motion and its related application for the appointment of a referee to compute sums due upon the foreclosure sale. Continuing the relief granted in an earlier decision staying the plaintiff’s prosecution of a deficiency judgment under the related promissory note, the court denied plaintiff’s motion for summary judgment as to its causes of action for a deficiency judgment and for a money judgment against the guarantor on the note.
Greystone Bank v 15 Hoover St., LLC, Sup Ct, Nassau County, June 22, 2011, Driscoll, J., Index No. 7223/2010
Website Showing Unlicensed Products Cannot Support Common Law Unfair Competition Claim: Versadial Inc. Donaldson
In a June 24, 2011 decision by Justice Bucaria the court partially granted a motion to dismiss. The lawsuit involved the licensing of patents for dispensing items such as lipstick, sunscreen and certain pharmaceutical products. Plaintiff sublicensed the patents but ran out of money and didn’t pay the royalty fees. Defendants’ position was that the non-payment of the royalties terminated the sublicense agreement.
Plaintiff brought claims against the individuals from whom it sublicensed the patents as well as other interested parties. Defendants brought a number of counterclaims including a claim for unfair competition based on plaintiffs’ maintaining a website advertising the products for which they no longer held a license. Plaintiffs’ motion to dismiss those claims was granted because defendants failed to state the elements of an unfair competition claim to satisfy either palming off or misappropriation, the two theories of a common law unfair competition claim.
Versadial Inc. Donaldson, Sup Ct, Nassau County, June 24, 2011, Bucaria, J, Index No. 11974/10
Action Against Swimming Pool Installer For Defective Installation is Dismissed: Rush v. Swimming Pools by Jack Anthony, Inc.
In an April 25, 2011 decision by Justice Warshawsky, the Court granted defendant’s motion to dismiss all six claims asserted, thus dismissing the action. Plaintiffs had contracted with defendant to install a vinyl swimming pool at plaintiffs’ Water Mill home. Ultimately, the pool was constructed, and plaintiffs complained of various defects. Specifically, plaintiffs complained that the pool depth was too shallow, the dimensions of the “low end” were incorrect, the adjacent spa did not spill over correctly, and chipping of the bricks and concrete. Unable to resolve the dispute, plaintiffs sued defendant, asserting six causes of action based upon breach of contract, warranty, negligence, “unlicensed contractor”, and attorneys’ fees under General Obligations Law sec. 5-327.
In considering the parties’ cross motions, the Court found that plaintiffs did not establish that defendant did not substantially perform it obligations under the contract. The Court noted, at the outset, that the depth of the pool was never a term contained in the contract itself, and that the other defects complained of “could certainly have been easily remedied.” As to the unlicensed contractor status, that allegation was contradicted by da copy of the license produced by defendant in response to the motions.
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Preliminary Injunction Barring Incarcerated Man's Free Speech Denied Because of Failure to Show Likelihood of Success on the Merits: MPG Assoc. Inc. v. Randone
In an April 18, 2011 decision by Justice Driscoll the court vacated a temporary restraining order and denied a preliminary injunction enjoining and restraining the defendant from making statements about plaintiff’s allegedly improper business practices. The defendant did not submit any opposition to the motion, in part because he was incarcerated in jail in California. The court, nevertheless, denied the motion finding that the plaintiff failed to show a likelihood of success on the merits of its claims for trade libel, tortuous interference with business and prima facie tort.
Plaintiff’s application was supported by its verified complaint. While the defendant did not submit any opposition, the court noted that the defendant “expressed his intent to contest the allegations when he is released from jail.” The court found that given the prior business relationship between the parties, plaintiff’s termination of defendant’s employment and “the scienter that is required to prove the causes of action alleged” it could not “conclude at this juncture that plaintiff has demonstrated a likelihood of success on the merits” and, therefore, denied the motion.
MPG Assoc. Inc. v. Randone, Sup Ct, Nassau County, April 16, 2011, Driscoll, J, Index No. 8057-10.
Court Holds Class Action Challenging Bank's Practices Regarding Gift Card Fees Was Not Preempted by Federal Law: Sheinkin v Simon Prop. Group, Inc.
In a June 28, 2011 decision by Justice Warshawsky, the court denied the defendants’ motion to dismiss a class action which alleged that the defendants engaged in deception and wrongful business practices when it charged monthly “dormancy fees” and an “account closure fee” for purchased gift cards. The defendants specifically asserted that the causes of action for breach of contract, breach of the implied covenant of good faith and fair dealing, indebtedness, unjust enrichment, and violation of GBL § 349 were preempted by federal regulation of banks chartered under the National Bank Act. The court disagreed, noting that several federal courts already addressed that very issue and held that nothing in the federal law preempted general statutes prohibiting deceptive practices. Finding that the National Bank Act does not exclusively regulate national banks and that federal law only preempts those state laws that specifically conflict with the National Bank Act, the court held that the class action complaint alleged claims predicated on state law of general applicability and there was no reason to conclude that GBL § 349 would interfere with the Office of the Comptroller of Currency’s regulation of banking operations.
Sheinkin v Simon Prop. Group, Inc. Sup Ct, Nassau County, June 28, 2011, Warshawsky, J, Index No. 022038/10
Court Finds Operating Agreement Ambiguous as to Plaintiff's Membership in LLC and Denies Access to Company's Books and Records: Matter of Tornambene v Wu
In an April 19, 2011, decision by Justice Driscoll, the court denied plaintiff’s order to show cause in connection with his demand for the production of books and records of a limited liability company under LLCL § 1102. Defendant-majority member opposed plaintiff’s motion, arguing that plaintiff lacked standing to bring the action because he was not a member of the company. Under the company’s operating agreement, plaintiff’s membership in the company appeared to be contingent upon an initial capital contribution. The agreement, however, also appeared to allow for a “working membership” based on a member’s “full time and efforts in the company.” Plaintiff conceded that he never made his capital contribution, and there were conflicting affidavits regarding the extent of his involvement in the company. The court determined that the agreement was ambiguous as to the precise conditions precedent to plaintiff’s membership and that there were questions of fact as to his involvement in the company. The court therefore denied plaintiff’s order to show cause without prejudice. In light of the ambiguity in the operating agreement, as well as the fact that plaintiff’s injury, if any, was compensable by money damages, the court also denied plaintiff’s request for injunctive relief.
Matter of Tornambene v Wu, Sup Ct, Nassau County, April 19, 2011, Driscoll, J., Index No. 3402/11
Deadlocked Shareholders Lose Bid for Dissolution and Appointment of Temporary Receiver: Babaew v Shteyman
In a May 18, 2011 decision by Justice Bucaria, the court considered various motions brought by shareholders a nurse staffing company in a derivative action who claimed that the defendants breached fiduciary duties and misappropriated trade secrets by starting a competing business and diverting the corporation’s business. The court found that the corporation’s shareholders were deadlocked and dissolution would be beneficial to the shareholders, but denied the motion brought by order to show cause for dissolution pursuant to BCL § 1104(a) because the plaintiffs did not comply with the publication requirement of BCL § 1106(c). The court also denied the plaintiffs’ motion to impose a constructive trust on all of the defendants’ assets upon determining that where a shareholder of a close corporation breaches his fiduciary duties, the other shareholders are injured only to the extent they are entitled to share in the profits earned by the corporation. The court denied the plaintiffs’ motion for the appointment of a temporary receiver, an extreme remedy which results in the taking and withholding of personal property before there has been an adjudication on the merits, because the previously imposed temporary restraining order preventing the defendants from disposing of the corporation’s records or transferring assets except in the ordinary course would provide adequate relief. Finally, the court denied the plaintiffs’ motion for an order restraining defendants from utilizing the corporation’s list of nurses as trade secrets on the grounds that the plaintiffs failed to establish that the nurse list was entitled to trade secret protection.
Babaew v Shteyman, Sup Ct, Nassau County, May 18, 2011, Bucaria, J, Index No. 003691/11
Legal Malpractice Claims for Failing to Enter Default Judgment Survive Motion to Dismiss: Smith v. Kaplan Belsky Ross Bartell, LLP
In a May18, 2011 decision by Justice Bucaria, the Court considered various motions and cross-motions in a legal malpractice action. The case arose out of an earlier case plaintiffs brought against an accounting firm for negligent misrepresentation. Defendant accounting firm defaulted, but plaintiffs’ law firm (defendants in the current action) failed to enter a default judgment for over three years. Ultimately, the Appellate Division reversed the order of the trial court judge, and dismissed the complaint as abandoned pursuant to CPLR 3215(c). Plaintiffs thereafter brought the instant action for legal malpractice. Defendants moved to dismiss.
Considering the allegations as true for purposes of the motion, the court granted the motion to dismiss of one of the individual attorneys, on the ground that one could not infer that he was involved in the failure to move for a default judgment. The court denied the motion to dismiss as to the remaining defendants.
The court denied plaintiffs’ cross-motion for summary judgment on the legal malpractice claim, concluding that plaintiffs failed to sustain their burden to show the merits of their underlying claim. However, the court did grant plaintiffs leave to replead to add more detail of plaintiffs’ reliance on the financial statements.
Finally, the court denied plaintiffs’ motion to compel production of documents relating to other complaints or disputes he law firm had with other clients. The court reasoned that, “[i]n view of the relatively routine nature of an application for a default judgment, it is unclear how evidence of other derelictions on Jacobs’ part is material or necessary to the prosecution of the malpractice action.”
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Oral Promise of Personal Liability Insufficient to Warrant Default Judgment on Breach of Contract Claim By General Contractor: Born to Build, LLC v Saleh
In a May 18, 2011 decision by Justice Warshawsky, the court granted the plaintiff’s motion to enter a default judgment against a defendant on two construction contracts which the defendant breached by failing to pay general contracting fees. However, the court denied the motion as to a third contract on the grounds that the contract was between the plaintiff and a limited liability company, not the defendant. The court held that it could not pierce the corporate veil to hold the defendant liable. Because the plaintiff failed to establish that the defendant entered into a written agreement to be personally liable for the LLC’s contractual obligations, the court further denied the motion because the defendant’s oral promise to be personally liable was unenforceable under § 5-701(a)(2) of the General Obligations Law and was barred by the statute of frauds.
Born to Build, LLC v Saleh, Sup Ct, Nassau County, May 18, 2011, Warshawsky, J, Index No. 002345/11
Lawyer Who Spent 3.8 Hours Editing a Brief in Support of a Motion to Dismiss Cross-Claims on Behalf of One Defendant Disqualified from Representing Another Defendant in the Same Case: Rodeo Family Enters., LLC v Matte
In a May, 6, 2011, decision by Justice Warshawsky, the court granted one defendant’s motion to disqualify counsel for another defendant among whom cross-claims were pending. The lawyer in question, who worked on a motion to dismiss some of the cross-claims on behalf of the former defendant, later joined a firm who sought to represent the latter defendant in the same case. The court disqualified the lawyer and his new firm, finding that “the information [the lawyer] may have learned during his time on the case to be confidential, inclusive of case strategy and merits to particular claims, defenses, or other allegations.” Because there was a risk that the lawyer had acquired client confidences, the court found that the moving defendant had raised the rebuttable presumption of disqualification, which the lawyer and his new firm failed to rebut.
Rodeo Family Enters., LLC v Matte, Sup Ct, Nassau County, May 6, 2011, Warshawsky, J., Index No. 600378/10
Court Grants Motion to Strike Phrase "Sham Small Group Companies" from Pleading as Gratuitous and Designed to Inflame: AJS Agency, Inc. v Empire HealthChoice, HMO, Inc.
In a March 29, 2011, decision by Justice Driscoll, the court granted in part and denied in part plaintiffs’ motion to dismiss defendant’s third-party summons and counterclaims. Plaintiffs-insurance brokers sued defendant-insurer for wrongful termination under insurance producer agreements between them. Defendant counterclaimed and impleaded a number of additional third-party defendants by way of summons, alleging that plaintiffs and the impleaded parties conspired fraudulently to obtain commissions under the agreements. Plaintiffs argued that defendant’s pleading was improper because the impleaded parties were not directly liable to defendant for the damages plaintiffs were seeking to recover, and because New York law does not recognize a claim for civil conspiracy. The court denied plaintiffs’ motion to dismiss the third-party summons and counterclaims in their entirety because the claims against the impleaded parties alleging an improper insurance scheme sufficiently involved plaintiffs to be asserted against all of them. The court also denied plaintiffs’ motion to dismiss defendant’s counterclaim for conspiracy to commit fraud because it was based on alleged misrepresentations that defendant allegedly relied upon in procuring the insurance policies, and because defendant’s allegations of conspiracy sufficiently connected plaintiffs to the overall scheme. The court, however, granted plaintiffs’ motion to strike the phrase “Sham Small Group Companies” under CPLR 3024 [b] because the word “Sham” was used “gratuitous[ly]” and was “solely designed to inflame the reader or listener.”
AJS Agency, Inc. v Empire HealthChoice, HMO, Inc., Sup Ct, Nassau County, March 29, 2011, Driscoll, J., Index No. 11440/10
Court Grants Preliminary Injunction and Declares the Enforceability of a Restrictive Covenant to be an Arbitrable Issue: National Arbitration and Medication, Inc. v Olsen
In an April 5, 2011 decision by Justice Driscoll, the court granted the petitioner’s motion brought by order to show cause for a preliminary injunction, extended a TRO previously entered which enjoined the respondent from, inter alia, providing ADR services within 50 square miles of petitioner’s NY office, and ordered the parties to arbitrate the key disputed issue as to whether the parties’ retainer agreement’s restrictive covenant was enforceable. Recognizing New York’s public policies favoring arbitration and enforcing broad arbitration provisions, and that it was required to make the initial determination as to whether a particular dispute is arbitrable, the court determined that the petitioner’s arbitration demand concerning the enforceability of the restrictive covenant fell within the agreement’s broad arbitration provision requiring the parties to arbitrate “any dispute or controversy arising out of or in connection with the Agreement or any alleged breach thereof.” The respondent sought dismissal of the motion on the grounds that the petitioner was required to bring the order to show cause in New York County, where the respondent had commenced an action seeking a declaratory judgment that the restrictive covenant was unenforceable. The court rejected that argument on the grounds that the respondent had never served the petitioner with the complaint in the New York County plenary action and did not object to venue in Nassau County during the hearing on the TRO.
National Arbitration & Mediation, Inc. v Olsen, Sup Ct, Nassau County, April 5, 2011, Driscoll, J, Index No. 003957-11
Motion to Quash Third Party Subpoenas Denied: Gilani v Kumar
In a March 29, 2011 decision by Justice Driscoll, the court denied the defendants’ motion to quash amended subpoenas duces tecum served by the plaintiff on non-party HSBC Bank seeking the disclosure of personal and corporate bank records for the defendant corporation, of which the plaintiff was a minority shareholder, and the individual defendant, who was the corporation’s majority shareholder and whom the plaintiff alleged wasted and diverted the corporations’ assets. In denying the motion, the court found that the amended subpoenas complied with CPLR § 3101(a)(4) because they: (a) corrected procedural deficiencies contained in previously issued subpoenas in that they stated the specific reason why disclosure was sought from the non-party; (b) provided adequate notice to HSBC; and (c) sought documents that could be relevant to the issue of whether the individual defendant misappropriated the corporation’s funds. The court also permitted the subpoenas to stand upon finding that the plaintiff need not establish that special circumstances warrant disclosure from the non-party, in light of the Second Department’s decision in Kooper v Kooper, disapproving of the need to show special circumstances when issuing a subpoena duces tecum to non-parties other than expert witnesses.
Gilani v Kumar, Sup Ct Nassau County, March 29, 2011, Driscoll, J, Index No. 19098-10
Court Interprets Agreement as One to Pay Finder's Fee Rather than Assignment Fee and Rejects Argument Based on Lack of Assignable Interest: Blatt v Ashkenazi
In a December 2, 2010, decision by Justice Bucaria, the court decided the parties’ cross-motions for summary judgment in connection with a commercial real estate deal. Plaintiff-real estate broker sued defendant-buyers for breach of an agreement to pay a finder’s fee. Arguing that he agreed to pay an assignment fee rather than a finder’s fee, the individual defendant moved for summary judgment dismissing the complaint on the basis of the seller’s operating agreement, which indicated that plaintiff had no assignable interest in the underlying property. The LLC defendant separately moved for the same relief on the ground that it was not a party to the agreement. The court denied the individual defendant’s motion, finding that the agreement “may reasonably be construed as providing for a finder’s fee” because plaintiff had introduced him to the seller and brought the parties together. The court, however, also denied plaintiff’s motion finding triable issues of fact regarding the precise nature of the parties’ intentions. Finally, because oral finder’s agreements are barred by the statute of frauds, the court rejected plaintiff’s assertion that the individual defendant had represented himself as a member of the LLC defendant and granted the LLC defendant’s motion based on lack of privity.
Blatt v Ashkenazi, Sup Ct, Nassau County, December 2, 2010, Bucaria, J., Index No. 9556/07
Court Denies Default Motion On Fraud Claim But Suggests Piercing Claim As Alternative: Kin & Ann Realty Inc. v Renzulli
In a March 16, 2010, decision by Justice Warshawsky, the court granted in part and denied in part plaintiff-owner’s motion for default after defendant-contractor failed to answer the complaint. Plaintiff’s action arose out of a contract to construct a building on its property, under which defendant allegedly failed to perform its obligations. Because plaintiff had submitted a signed contract in support of its properly-pleaded allegations of non-performance, the court granted the motion as to plaintiff’s first cause of action for breach of contract. The court, however, denied the motion as to plaintiff’s causes of action for breach of fiduciary duty, conversion, misrepresentation/fraud, and restitution/unjust enrichment as duplicative of the breach of contract claim. Notably, while finding that plaintiff’s fraud claim was insufficiently pleaded, the court nonetheless suggested that the allegations “may provide the grounds for piercing the corporate veil, an avenue that the plaintiff may wish to investigate.” The court also denied the motion as to plaintiff’s consumer protection claim under GBL § 349 for failure to allege any broader impact on consumers at large.
Kin & Ann Realty Inc. v Renzulli., Sup Ct, Nassau County, March 16, 2011, Warshawsky, J., Index no. 601704/2009
Religious Corporation Law May Bar Action to Foreclose on Promissory Note, Daniel Perla Assoc., LP v Cathedral Church of St. Lucy
In a March 21, 2011 decision by Justice Driscoll the Court denied plaintiff’s motion for summary judgment in lieu of complaint and granted defendant’s cross motion to transfer the litigation from Nassau County to Kings County. The action arose out of a mortgage and promissory note encumbering church property. The church failed to make payments. Plaintiff (and his assignors) previously brought an action in Kings County to foreclose on the loan. That litigation was dismissed because the church failed to obtain court approval prior to encumbering its property, as required by the Religious Corporations Law.
Plaintiff brought another action in Nassau County and sought summary judgment in lieu of complaint, arguing that this action arose from the “note” and not the “mortgage” so the action was not barred by the Religious Corporations Law. Defendant moved to dismiss or in the alternative to have the action transferred to Kings County before the judge who dismissed the prior action based on the Religious Corporations Law. The Court granted defendants motion to transfer venue and provided that the Kings County justice would rule on the other motions.
Daniel Perla Assoc., LP v Cathedral Church of St. Lucy, Sup Ct, Nassau County, March 21, 2011, Driscoll, J., Index No. 016453.
Out of State Depositions Not Necessary for Prosecution of Derivative Action Not Permitted and Complaint Dismissed: Lubel v Shiloach
In a March 2, 2011 decision by Justice Bucaria, the court denied the plaintiff’s motion pursuant to CPLR § 3108 to conduct an out of state deposition of a Maryland limited liability company which, the plaintiff alleged, had entered into an agreement with the defendants to compete against the company which the plaintiff and defendants owned. The court denied the application, finding that the discovery was not necessary to the plaintiff’s prosecution of her action because the gravamen of the complaint was that the defendants refused to cooperate with the plaintiff and provide her with store merchandise, not that they engaged in a competitive business. The court also denied the plaintiff’s motion for a preliminary injunction on the grounds that the plaintiff sought a mandatory injunction to compel the defendants to provide merchandise to a store in Plainview, NY which the plaintiff had not yet demonstrated was opened with the requisite authorization from the defendants.
The court then granted the defendants’ cross-motion to dismiss the complaint for failure to state a cause of action. Although the court rejected the defendants’ arguments that the complaint should be dismissed because there was another action pending in Kings County in which the defendants alleged that the plaintiff opened a New Jersey store without their consent, it found that, giving the plaintiff every possible favorable inference, it was clear that without the defendants’ consent to open the Plainview store, the defendants were not required to provide the plaintiff with merchandise for that very store.
Lubel v Shiloach, Sup Ct, Nassau County, March 2, 2011, Bucaria, J, Index No. 020501/10
Default Judgment Granted and Corporate Veil Pierced: Washington Title Ins. Co. v. Sand Lane Title Agency, LLC
In a February 15, 2011 decision by Justice Warshawsky, the Court granted the motion of plaintiff for a default judgment against two of the defendants. Plaintiff and defendant Sand Lane Title Agency (“Sand Lane”) entered into an agreement in 2005, by which Sand Lane agreed to issue title insurance policies on behalf of plaintiff. Defendant Aleksandr Polyakov was the manager and officer of Sand Lane. Years later, plaintiff sued Sand Lane for breaching the parties’ agreement, namely, by failing to record numerous deeds, mortgages and other instruments, and failing to account for trust funds. Plaintiff alleges that Polyakov exercised complete dominion and control over Sand Lane, and is thus entitled to pierce the corporate veil. Justice Warshawsky found that plaintiff established proper service on defendants, and therefore was entitled to a default. Since plaintiff sought entry of a default judgment on the various claims, i.e., breach of contract, breach of fiduciary duty, conversion, negligence, fraud, indemnification, equitable accounting, constructive trust, injunction, piercing the corporate veil, account stated and attorney’s fees, the court considered each.
After considering the allegations as to each of the claims, the court granted a default on all except for conversion, fraud, indemnity, constructive trust and account stated, and directed the filing of a Note of Issue for an inquest on damages and fees. As to the conversion and constructive trust claims, the court denied the motion since they appeared duplicative of the breach of contract claim. Turning to the fraud claim, the court dismissed that cause of action for lack of particularity required by CPLR 3016. The court next dismissed the indemnity claim on the basis that the parties’ agreement did not provide for the express indemnity sought. Finally, the court dismissed the account stated claim on the ground that there was no evidence of the rendering of accounts with balances due.
Washington Title Insurance Co. v. Sand Lane Title Agency, Sup Ct, Nassau County, February 15, 2011, Warshawsky, J, Index No. 021167/2009.
Potentially Embarrassing Medical Information Not Enough to Warrant Sealing of Complaint: Cronin v Harris
In a March 1, 2011, decision by Justice Driscoll, the court granted plaintiff’s motion to file his complaint under seal. Plaintiff-partner in a law practice with his father and sister brought an action for judicial dissolution of the firm and sought leave to file the complaint under seal in order to protect his father’s medical condition and history, as well as the welfare of the firm, the legal and financial interests of its clients and their confidence in the firm. Defendant-partners consented to plaintiff’s application. In balancing the interests of the public in accessing court documents with the interests of the parties in preserving confidentiality, the court concluded that “good cause exists to permit plaintiff to file the complaint under seal, in light of the parties’ shared concerns that public access to the complaint would potentially undermine and adversely affect the legal and financial interests of [the firm’s] clients.” The court noted, however, that potentially embarrassing medical information “does not, in and of itself, warrant the requested sealing” and emphasized that its decision on plaintiff’s motion was specific to the complaint. Any subsequent application to file documents under seal would require the court to “conduct an independent review of the documents or records at issue, prior to issuing its ruling.”
Cronin v Harris, Sup Ct, Nassau County, March 1, 2011, Driscoll, J., Index No. 22697/10
*For a more detailed analysis of this decision and its impact, see our colleague Peter A. Mahler’s post at New York Business Divorce.
Purchase Price for Interests in Company Subject to Valuation Is Sufficiently Certain to Form Enforceable Contract: Nigro v Owen Logistics LLC
In a February 14, 2011, decision by Justice Bucaria, the court granted in part and denied in part defendants’ motion to dismiss. Plaintiff-buyer sued defendant-LLC members for breach of contract and specific performance in connection with the purchase of their interests in two logistics companies. Defendants moved to dismiss based on documentary evidence and failure to state a cause of action. The court rejected defendants’ argument that the parties’ agreement was insufficiently certain as to a material price term, finding that a purchase price of approximately a half million dollars subject to adjustment based on valuation by an accountant was reasonably certain, “particularly if the parties have agreed that fair market value is to be determined by appraisal.” The court also rejected defendants’ argument that plaintiff’s claim for unjust enrichment was duplicative of his breach of contract claim because plaintiff had yet to establish the existence of the alleged oral agreement. The court otherwise granted defendants’ motion as to plaintiff’s causes of action for 1) fraud because it was duplicative of plaintiff’s breach of contract claim; 2) negligent misrepresentation because plaintiff failed to allege the requisite “special or privity-like relationship”; and 3) conversion because plaintiff failed to allege the existence of a “specific identifiable fund.”
Nigro v Owen Logistics LLC, Sup Ct, Nassau County, February 14, 2011, Bucaria, J., Index No. 13054/10
*For a more detailed analysis of this decision and its impact, see our colleague Peter A. Mahler’s post at New York Business Divorce.
LLC Dissolved Pursuant to Service of 60 Days Written Notice: Matter of Fassa
In a February 1, 2011 decision by Justice Bucaria, the court held that the limited liability company of which the plaintiff was a 1/3 member was dissolved on September 18, 2010, which was 60 days after the plaintiff served the other members with a 60 days written notice terminating the LLC’s operating agreement and dissolving the company. Although the respondents argued that dissolution could only proceed by way of a petition for judicial dissolution under LLC Law § 702, the court disagreed. Given LLC Law §§ 417(a) and 702, the court found that the parties could not have intended for the company to continue without the operating agreement, and therefore interpreted the 60 days written notice as providing for dissolution of the company. The court also found dissolution appropriate given that the conflict among the members made it unfeasible for the company to carry on its business.
Matter of Fassa, Sup Ct, Nassau County, February 1, 2011, Bucaria, J, Index No. 18824/10
Default Judgment Denied and Complaint Dismissed Based on Defective Service of Process and Res Judicata: Goldman v Rio
In a February 14, 2011 decision by Justice Warshawsky, the court denied the plaintiff’s motion for a default judgment on the grounds that service of process was defective. The affidavit of service showed that service of process did not comply with CPLR § 308(2), which provides that service may be effectuated by leaving the summons and complaint with a person of suitable age at the actual place of business or dwelling and then mailing the summons and complaint to the person to be served within 20 days thereafter. The court also granted the defendant’s cross-motion to dismiss the complaint based on res judicata. The court found that the complaint contained identical parties and claims for relief as a previously asserted state court action that was dismissed following, and in light of, the plaintiff’s filing of a bankruptcy petition.
Goldman v Rio, Sup Ct Nassau County, February 14, 2011, Warshawsky, J, Index No. 9284/10
Court Declines Issuing Injunction Barring Doctor from Opening Office 50 Feet from His Former Employer's Office: Atul Chokshi Physician P.C. v Patel
In a August 27, 2010 decision by Justice Driscoll the Court declined to grant injunctive relief which, among other things, would have barred a doctor from (i) operating a medical office within feet of his former employer’s medical practice, (ii) coming within 3000 feet of his former medical practice and (iii) soliciting patients from that former practice. The plaintiff-doctor claimed that his former employees had stolen confidential patient lists and other information and were soliciting patients away from his practice. Plaintiff also claimed that a restrictive covenant in an employment agreement barred the defendant-doctor from practicing medicine within five-miles of his former employer.
During the pendency of the motion the parties agreed that the defendants would not solicit their former employer’s patients. The Court declined to grant the plaintiff any additional relief finding that the plaintiff did not demonstrate any of the elements necessary to obtain a preliminary injunction (i) likelihood of success on the merits, (ii) irreparable harm or (iii) a balancing of the equities in plaintiffs’ favor.
Atul Chokshi Physician P.C. v Patel, Sup Ct, Nassau County, August 27, 2010, Driscoll, J, Index No. 013343-10
Court Refrains from Entering Judgment Against Defaulting Defendants Due to Plaintiff's Failure to Establish Viable Cause of Action: Cook v Kim
In a December 22, 2010, decision by Justice Driscoll, the court denied plaintiff’s motion for a default judgment. Plaintiff invested nearly $600,000 in various real estate business ventures under three separate agreements with defendants. Plaintiff later commenced a foreclosure action and separately alleged multiple causes of action in law and equity against the individual defendants, including breach of contract, breach of fiduciary duty, accounting, and constructive trust. When defendants failed to answer, move, or otherwise appear in the action, plaintiff moved for a default judgment under CPLR 3215. The court determined that it had “an insufficient basis on which to award plaintiff judgment against the defendants, notwithstanding defendants’ failure to appear or answer.” Specifically, the court found that plaintiff provided insufficient documentation regarding the terms of and parties to the agreements; that plaintiff failed to provide her own affidavit “amplifying the allegations in the complaint” regarding her business relationship with defendants; failed to provide an affidavit from her husband who was intimately involved in the provision of investment funds under the agreements; and failed to provide sufficient documentation regarding the business relationship as between the defendants. Because plaintiff’s motion was not supported with enough facts to enable the court to determine whether plaintiff’s causes of action were viable, the court denied the motion without prejudice.
Cook v Kim, Sup Ct, Nassau County, December 22, 2010, Driscoll, J., Index No. 026362/09
Appointment of Receiver at Beginning of Case Unwarranted Upon Insufficient Showing of Necessity to Conserve Funds: Kerin v Premium Pursuit Consulting Corp., LLC
In a December 10, 2010 decision by Justice Driscoll the court vacated a temporary restraining order and denied a preliminary injunction seeking the appointment of a receiver. The litigation stemmed from a joint venture between the parties for a business that assisted in lowering employers’ workman’s compensation premiums. Plaintiff accused his partners of secretly transferring all of the entities assets to a bank account exclusively under the defendants’ control. Plaintiff further accused his partners of various business torts based on accusations that the partners also engaged in actions in competition to the joint venture.
The court initially granted a temporary restraining order preventing the defendants from transferring any monies from the bank accounts of the business venture, and also barring the transfer of monies from the bank accounts of certain unknown entities through which it was alleged defendants were engaging in their improper activity.
The court declined to grant a permanent injunction finding that there were issues of fact which made the appointment of a receiver too onerous. Nevertheless, the court required the defendants to provide plaintiff with bank statements and other information concerning the bank account into which they transferred the joint venture’s monies.
Kerin v Premium Pursuit Consulting Corp., LLC, Sup Ct, Nassau County, December 10, 2010, Driscoll, J, index No. 010302-10
Evidence of Corporate Informalities and Fraudulent Transfer Bars Summary Judgment on Shareholder's Entitlement to Stock Certificate and Transferability of Shares: Tulino v Tulino
In a December 2, 2010, decision by Justice Bucaria, the court denied defendant-50% shareholder’s motion to dismiss but granted his motion to compel discovery. The court also denied plaintiff-50% shareholder’s motion for summary judgment but granted him leave to amend the complaint. Plaintiff entered into an agreement with a third party to sell his interest in defendant-corporation, and defendant refused to consent to the sale as required under the agreement. Plaintiff sought relief with respect to his entitlement to a stock certificate and the alienability of his shares, and defendant moved to dismiss. Notwithstanding the individual nature of plaintiff’s claims against the corporation, the court denied defendant’s motion to dismiss based on standing because the complaint did not confuse plaintiff’s derivative and individual rights. And notwithstanding the lack of any stock certificates, the court also denied defendant’s motion based on failure to state a claim because the corporation’s by-laws provided that its shares would be represented by certificates, justifying plaintiff’s proceeding to compel the corporation to issue certificates. The court, however, denied plaintiff’s motion for summary judgment based on evidence that the shareholders agreed informally that the corporation’s shares would be uncertified and that plaintiff’s sale of his interest to the third party would constitute a fraudulent transfer. Finally, the court granted defendant’s motion to compel discovery related to informal meetings of the directors or shareholders and granted plaintiff’s motion for leave to amend the complaint in his individual capacity.
Tulino v Tulino, Sup Ct, Nassau County, December 2, 2010, Bucaria, J., Index No. 007081/09
Claims By Insured Against Insurance Broker for Late Notice to Carrier Survive Summary Judgment: Sorbara Constr. Corp. v. Romeo
In a December 8, 2010 decision by Justice Warshawsky, the Court considered the parties’ motions for summary judgment in an action brought by a contractor against its retail insurance broker. The action was brought against the broker based upon an excess carrier’s disclaimer of coverage because of late notice. Although defendants did not dispute they had the responsibility to notify the excess carrier, the facts surrounding the communications between the parties was in sharp dispute. The Court first dismissed the claims based on the breach of implied covenant of good faith and fair dealing as duplicative of the contract claims. Next, the Court considered the statute of limitations defense, and whether the doctrine of equitable estoppel tolled the running of the statute. After reviewing the parties’ submissions, the Court held issues of fact indeed existed, and denied defendants’ motion for summary judgment on several claims. Finally, the Court considered the motion for summary judgment to dismiss the Third-Party Complaint, granting the motion in its entirety, concluding that neither claims for indemnity nor contribution existed.
Sorbara Constr. Corp. v. Romeo, Sup Ct, Nassau County, Dec. 8, 2010, Warshawsky, J, Index No. 001238/2008.
Jersey Shore's JWoww Gets Injunction Barring Use of Photos and Videos Taken of Her: Lippolis v. Farley
Although not venued in the Commercial Division, in a decision by Justice Brown, the Court granted defendant Jennie “JWoww” Farley’s motion for a preliminary injunction. Plaintiff brought an action against JWoww for breach of contract, claiming he took photographs of her throughout their relationship for both personal pleasure and professional use. Plaintiff took nude and partially nude photos of JWoww in February 2010. JWoww counterclaimed, asserting claims for violation of New York’s Civil Rights Law sections 50 and 51. Although she does not object to plaintiff’s ownership of the photos, she does not consent to their use or distribution. The Court granted JWoww’s application for a preliminary injunction, barring the use or distribution of the photos pending the duration of the lawsuit. The Court reasoned that absent JWoww’s consent, Civil Rights Law sec. 50 and 51 prohibited commercial use of the photos. Finally, the Court also submitted the claims to arbitration, since plaintiff did not oppose that branch of JWoww’s motion.
Lippolis v. Farley, Sup Ct, Nassau County, Jan. 18, 2011, Brown, J., Index No. 022287/10.
Special Referee's Report Concluding Documents Not Privileged or Work Product Upheld: Archstone v. Tocci Bldg.Corp. of N.J., Inc.
In a December 20, 2010 decision by Justice Warshawsky, the Court reviewed the decision of Special Referee, Michael Cardello III, in a construction litigation. Special Referee Cardello concluded that two documents, inadvertently produced by plaintiffs, were not protected either by attorney client or work product doctrine. The documents at issue are the handwritten notes of an employee of one of the defendants. In particular, the employee, an architect, had taken notes at a meeting. A portion of the notes contain, according to the defendant, protocols that were developed with and at the direction of counsel for defendant, and that the meeting was held at the direction of defendant’s counsel. In reviewing the Special Referee’s 19-page decision, as well as the documents at issue, the Court concluded that Mr. Cardello’s determination that the "communication" found within the employee’s notes did not amount to the rendering of legal advice or services. According, the Court, upon, de novo review, affirmed the findings and conclusions of Mr. Cardello and incorporated by reference his decision of November 1, 2010.
Archstone v. Tocci Bldg.Corp. of N.J., Inc., Sup Ct, Nassau County, Dec. 20, 2010, Warshawsky, J., Index No. 001018/08
Unlicensed Foreign Bank Authorized to Pursue Foreclosure Action in New York Court: Greystone Bank v 15 Hoover Street, LLC
In a September 28, 2010, decision by Justice Driscoll in connection with a foreclosure action by plaintiff-mortgagee, a North Carolina bank, against defendant-mortgagor, a New York limited liability company, and on defendant’s motion to dismiss on grounds that plaintiff was a foreign corporation not licensed to do business in New York and failed properly to elect its remedy either at law or in equity, the court denied the motion as to plaintiff’s right to sue and granted the motion as to election of remedies. Specifically, the court held that § 200 of the Banking Law authorizes banks to maintain actions to enforce obligations arising out of mortgages given to secure loans made in New York. Concluding further that RPAPL § 1301 “preclude[s] a mortgagee who has elected foreclosure from commencing an action on the mortgage debt without leave of the court,” the court stayed plaintiff’s prosecution of a deficiency judgment based on a promissory note pending the outcome of the foreclosure action.
Greystone Bank v 15 Hoover Street, LLC, Sup Ct, Nassau County, September 28, 2010, Driscoll, J, Index No. 007223-10
Piercing the Corporate Veil Claims Survive Summary Judgment: Utility Audit Group v. Flanagan
In a December 17, 2010 decision by Justice Bucaria, the Court granted in part and denied in part cross-motions for summary judgment. Plaintiff Utility Audit Group (“UAG”) is in the business of consulting with commercial tenants with regard to alleged overcharges by their landlords. Individual defendants were owners of Apple Mac & R Corp., later dissolved by proclamation of the State in 1994. Notwithstanding the dissolved status, in 2003 Apple Mac entered into an agreement with UAG to review rent charges and negotiate with the landlord. A settlement was reached with the landlord in 2004. Ultimately, UAG tendered a bill for $367,612 to Apple Mac, and later brought an action to collect on amounts owed. Judgment on liability was ultimately granted. UAG then commenced the instant action against the individuals on the theory they were personally liable for the fee.
In support of their motion for dismissal, Defendants argue that the nunc pro tunc reinstatement of Apple Mac by the Department of State shields them from personal liability or piercing the corporate veil. The Court considered whether the implied warranty of authority had been breached by the defendants. To avoid a claim of breach, the Court concluded that defendants had the burden to establish that they had no knowledge of Apple Mac’s dissolution or that their actions in entering into the contract with UAG were done so in good faith. Having failed to meet that burden, the court denied defendants’ motions for summary judgment for personal liability on the contracts. However, as to the claims for quantum meruit, the Court granted the motion of defendants, dismissing those claims. The Court also denied UAG’s motion for summary judgment on the ground that UAG did not establish that it conferred benefits on defendants personally.
Utility Audit Group v.Flanagan, Sup Ct, Nassau County, December 17, 2010, Bucaria, J, Index No. 016605-09.
Yellowstone Injunction Not Available Where Party Served with Statutory Prerequisite to Summary Nonpayment Proceeding Rather Than Notice to Cure: Gerald Gardner Wright, P.C.. & Assoc. v Champion Prop. Mgt., LLC
In a November 23, 2010 decision by Justice Driscoll the Court denied plaintiff’s motion for a Yellowstone Injunction and motion for a default judgment. The Court also granted Plaintiff’s motion for civil contempt, to the extent of holding a hearing on the issue and granted Plaintiff’s motion to amend to add a necessary party. The parties dispute arose from a law firm’s lease. The law firm and the prior owner of the property had engaged in prior litigation which was resolved by so-ordered stipulation.
The prior owner and new owner failed to abide by their obligations under the stipulation and the new owner brought a non-payment action in District Court. The law firm tenant commenced the Supreme Court action initially seeking a Yellowstone Injunction and latter seeking to a default judgment and to hold the defendant in contempt for violating the So-Ordered Stipulation. The law firm also sought to amend the complaint to add the true owner of the property, once it became clear that the listed defendant was the managing agent and not the owner.
The Court denied the Yellowstone Injunction finding that the non-payment petition in the District Court action was not a notice of default that triggers relief in the form of a Yellowstone Injunction. On the contempt application for violating the So-Ordered stipulation from the prior litigation the Court concludes that there were issues that needed to be determined at a hearing including (1) whether the managing agent was aware of the stipulation and (2) whether it willfully violated the stipulation. The Court denied a default judgment for failure to appear at conferences before the Court following the relieving of the managing agent’s counsel, in part because of the numerous issues of fact in the litigation. Last, the Court allowed the joinder of the alleged owner of the property as a necessary party to the litigation.
Gerald Gardner Wright, P.C.. & Assoc. v Champion Prop. Mgt., LLC, Sup Ct, Nassay County, November 23, 2010, Driscoll, J, Index No. 004354-08
Failure to Oppose Summary Judgment With Evidence Dooms Reargument Motion: Archstone v Tocci Bldg. Corp. of N.J., Inc.
In at September 23, 2010 decision by Justice Warshawsky the Court granted leave to reargue and adhered to its prior determination granting one of the third-party defendants dismissal of the claims against it. The litigation was brought because water infiltration discovered after the completion of a large apartment complex. The general contractor brought third party claims against of the number of suppliers to the project, including the supplied of prefabricated wood panels.
The wood panel manufacturer moved for summary judgment based on its employee’s affidavits that the panels as fabricated and delivered met all specifications and were fit for their purpose. The affidavit further explained that after delivery the panels were cut and altered by whoever erected the panels at the site. Through this affidavit the third-party defendant submitted admissible evidence that there were no defects in the wall panels.
The Court adhered to its prior finding dismissing the wood panel manufacturer from the suit because (i) the third-party plaintiff general contractor did not claim that there was an actual defect in the wall panels (rather the general contractor only brought a claim-over in the event the general contractor was found liable to the plaintiff) so there was no triable issue of fact on that claim and (ii) the plaintiff failed to adduce any admissible evidence that the wall panels were defective.
Archstone v Tocci Bldg. Corp. of N.J., Inc., Sup Ct, Nassau County, Sept. 23, 2010, Warshawsky, J, Index No. 001018/2008
Affiant's Health Issues at the Time of Original Dismissal Motion Justify Submission of Evidence of Lack of Standing on Later Renewal Motion: Koenig v Koenig
In a September 17, 2010, decision by Justice Driscoll in connection with a post-dissolution derivative action on behalf of a microscope-servicing company, and on defendant’s motion for leave to renew his motion to dismiss for lack of standing based on an affidavit from the company’s receiver affirming that plaintiff failed to make a demand on the receiver, the court granted the motion and dismissed the complaint. The court found that health issues experienced by the receiver at the time the underlying motion to dismiss was made “constitute[d] a reasonable justification for the failure to submit his affidavit on the original motion.” Based on the receiver’s affidavit, the court concluded that the plaintiff lacked standing to bring a derivative action because he failed first to make a demand on the receiver and that such a demand would not have been futile because the receiver would have, among other things, provided an analysis of the plaintiff’s claims and attempted to mediate the dispute in order to preserve corporate assets.
Koenig v Koenig, Sup Ct, Nassau County, September 17, 2010, Driscoll, J., Index No. 021401/09
*For a more detailed analysis of this decision and its impact, see our colleague Peter A. Mahler’s post at New York Business Divorce.
Attorney's Knowledge of Relevant Facts Does Not Justify Disqualification: Carltun on the Park, Ltd. v Weitzman
In a November 29, 2010 decision by Justice Warshawsky, the court denied the defendants’ motion to disqualify the plaintiff’s counsel. Although it was uncontroverted that the plaintiff’s attorney, who had represented the plaintiff for 15 years, would likely be called as a witness at trial and possessed relevant information concerning the underlying transaction at issue, the court found the attorney’s testimony would be cumulative. Relying on the Court of Appeals’ pronouncement that the mere possession of relevant knowledge alone is insufficient to render the attorney’s testimony necessary, the court concluded that disqualification was not appropriate at that stage of the litigation.
Carlton on the Park, Ltd. v Weitzman, Sup Ct Nassau County, November 29, 2010 Warshawksy, J, Index No. 8035/10
Claim Over Employment Contract Proceeds Based On Possible Modification And Waiver: Gates v Long Is. Women's Health Care Assoc., P.C.
In an October 8, 2010 decision by Justice Driscoll the Court denied a motion to dismiss and granted a motion to amend. Plaintiff, a medical doctor, was a former employee of Defendants. Pursuant to Plaintiff’s employment contract during the term of her employment she was to maintain “occurrence” medical malpractice insurance, and Defendants were to pay for that insurance. It came to light that Plaintiff only had “claims made” medical malpractice insurance as opposed to “occurrence” medical malpractice insurance during the term of her employment. Plaintiff claimed that Defendants arranged for her malpractice insurance and that they breached the contract by not providing the “occurrence” coverage. Defendants argued that it was Plaintiff’s obligation to “maintain” the insurance coverage, and she breached the contract by not obtaining the proper insurance coverage.
Plaintiff brought suit for breaches of the employment contract, breach of the implied covenant of good faith and fair dealing, to hold the individual Defendants liable for this breach under BCL 603(a) (because she argued the malpractice insurance was part of her compensation) and to equitably estopp Defendants from denying that they were obligated to pay for occurrence insurance during the employment term. Plaintiff’s original complaint only alleged the breach of contract and BCL claims, she sought to amend her complaint to add the other claims.
Reviewing the Amended Complaint the Court found that Plaintiff stated viable causes of action, which should not be dismissed. The court held that the employment contract was not ambiguous as to Plaintiff’s obligation to “maintain” occurrence medical malpractice insurance; but the Amended Complaint alleged sufficient facts to sustain a dispute that the parties may have agreed to a modification, waived certain of the contract’s requirements, the parties are estopped from asserting their rights under the contract and/or the parties breached their duties of good faith and fair dealing with one another. The Court also found that Plaintiff’s BCL 603(a) cause of action was properly pled.
Gates v Long Is. Women’s Health Care Assoc., P.C., Sup Ct, Nassau County, October 8, 2010, Driscoll, J., Index No. 8617/10
Non-signatories to Arbitration Agreement Bound to Arbitrate: BP Air Conditioning Corp. v. Lasorsa
In an October 27, 2010 decision by Justice Driscoll, petitioners moved for an Order, pursuant to CPLR Art. 75, to dismiss or, in the alternative, to stay, the underlying arbitration brought by respondent before AAA. Respondent was employed by one of the petitioners, pursuant to which the parties entered into a Deferred Compensation Plan. The Plan contained various restrictive covenants, as well as a dispute resolution clause mandating arbitration. Petitioner was later reorganized, and respondent was then employed by one of the other related organizations. Petitioner was ultimately terminated from his employment, after which he commenced arbitration with AAA. His petition sought the following relief:
“Claimant seeks a declaration that he is not bound by restrictive covenants in a Deferred Compensation Plan and may compete against Respondents and solicit Respondents' clients. Claimant also seeks an amount to be determined, but believed to be between $500,000- 1,000,000 for Respondents' breach of contract and all expenses in connection with this arbitration, including attorneys' fees.”
Petitioners sought dismissal or a stay of the arbitration on the grounds that the petition in arbitration was procedurally defective, and that not all petitioners were parties to the Deferred Compensation Plan and therefore did not agree to arbitrate. The Court denied Petitioners’ application, concluding that the doctrine of estoppel precluded the nonsignatories to the arbitration agreement from disavowing arbitration. The Court reasoned that under the estoppel theory, a company knowingly exploiting an agreement containing an arbitration clause can be estopped from avoiding arbitration, despite not having signed the agreement.
BP Air Conditioning Corp. v. Lasorsa, Sup Ct, Nassau County, Oct. 27, 2010, Driscoll, J, Index No. 016032-10
Summary Judgment on a Corporate Guaranty Granted, But Denied as to Personal Guaranty: Colarossi v. Daly
In an August 3, 2010 decision by Justice Warshawsky the Court granted a motion for summary judgment on a corporate guaranty, but denied summary judgment as to a personal guaranty, stemming from the purchase of a truck with a cesspool vacuum tank.
In 2003, both the corporation and its principal guaranteed the monthly payments for the truck; under an agreement that contained an acceleration clause (i.e. if there was a default all of the remaining payments were immediately due). In 2005, the principal lost control over the business and all of its equipment, including the truck. The new business advised the financing company that it had purchase the assets of the old company and began making the monthly payments on the truck. After three years the new business stopped making the monthly payments for the truck and it was repossessed. The financing company then sued the old company and its principal, seeking the difference between the sale price on the repossession and the amount due on the loan (as well as its costs and attorneys’ fees).
The financing company moved for summary judgment on its claims against both the old company and its principal. The Court granted summary judgment against the old company, but denied summary judgment against its principal finding there was an issue of fact whether the transaction whereby the new company took possession of the truck and began making payment on the loan released the principal from his obligations under the guaranty.
Colarossi v. Daly, Sup Ct, Nassau County, August 3, 2010, Warshawsky, J, Index No. 3334/2008
Failure to Show Viable Cause of Action Bars Default Judgment: Long Is. Med. & Gastroenterology Assoc., P.C. v Lligam Assoc., Inc.
In an October 26, 2010, decision by Justice Driscoll in connection with plaintiff-medical services provider’s action against defendant-staffing agency for breach of contract and gross negligence, and on plaintiff’s motion for a default judgment under CPLR 3215, the court denied the motion without prejudice, finding that plaintiff’s failure to provide the court with the underlying contract rendered the court unable to determine that there existed viable causes of action to recover damages for breach of contract or gross negligence.
Long Is. Med. & Gastroenterology Assoc., P.C. v Lligam Assoc., Inc., Sup Ct, Nassau County, October 26, 2010, Driscoll, J., index No. 005500/10
Givati v Air Techniques, Inc., Sup Ct, Nassau County, Oct. 27, 2010, Driscoll, J, Index No. 000234/09
In an October 27, 2010, decision by Justice Driscoll in connection with plaintiff-consultant’s action against defendant-manufacturer for breach of contract, and on defendant’s motion to dismiss brought on by order to show cause on the ground that the court lacked jurisdiction to decide the case, the court denied defendant’s order to show cause, finding that the federal courts did not have exclusive jurisdiction to determine whether plaintiff was contractually entitled to certain patent royalties because plaintiff’s breach-of-contract action did not “arise under” the federal patent laws even though the validity of a patent was an issue in the case. The court concluded that because plaintiff’s action primarily involved interpretation of a contract, “and only peripherally involved questions concerning patents,” it merely raised “questions” arising under the patent laws and did not constitute a “case” arising under those laws.
Klenosky v. David Lerner Assoc., Inc., Sup Ct, Nassau County, October 28, 2010, Bucaria, J., Index No. 007367/08
In an October 28, 2010 decision by Justice Bucaria, the Court considered motions to dismiss the complaint for failure to state a claim and statute of limitations. The case arises out of plaintiff’s exchange of a whole life insurance policy issued by United States Life Insurance Company for a Flexible Premium Variable Universal Life insurance policy issued by Nationwide Insurance on November 29, 2001. While the death benefit under the United States Life policy was fixed at $125 000, the death benefit for the Nationwide policy varies with the investment experience of the policy. The exchange of the policies was handled by defendant Moss, who was at the time an insurance agent with defendant David Lerner Associates. Plaintiff claims he requested a whole life policy from defendants with a $125 000 death benefit equivalent to the one he then had with United States Life, namely, that he wanted a similar replacement whole life policy with a different company. He alleges that defendants made the change to a variable premium life insurance policy without his knowledge or consent and he did not learn of the change until March 18, 2009.
The Court granted defendants David Lerner Associates and Martin Lerner’s motion to dismiss the breach of contract and conversion causes of action based on statute of limitations, but denied the motion as to the fraud and misrepresentation claims. As to defendants’ motion to dismiss for failure to state a claim, the Court granted the motion as to claims for forgery, collusion and violation of Insurance Department regulations, but denied that branch as to the fraud and misrepresentation claims. The Court also denied plaintiff’s cross-motion for summary judgment.
Matter of Cusimano v Strianese Family Ltd. Partnership, Sup Ct Nassau County, October 5, 2010, Warshawsky, J, Index No. 8522/2010
In an October 5, 2010 decision by Justice Warshawsky, the court granted the petitioner’s motion pursuant to CPLR § 3102(c) to compel the depositions of intervening parties in an ongoing arbitration. The court had previously granted the petitioner’s parents, who claimed a 50% ownership in subject partnership, to intervene in dissolution proceedings and arbitrate the entire proceeding. The petitioner contests the intervenors’ ownership rights and sought to depose them in aid of arbitration. In granting the application, the court found that extraordinary circumstances existed to invoke its power to order disclosure in arbitration, which is normally used sparingly because: (1) there were serious conflicting facts concerning the intervenors’ ownership of the partnership, (2) the intervenors were 90 years old and the arbitration had not yet begun, and (3) the test of whether the petitioner had adequate knowledge to frame a claim or defense was satisfied.
Freifeld v Native Am. Energy Group, Inc., Sup Ct Nassau County, September 13, 2010, Bucaria, J, Index No. 005503/10
In a September 13, 2010 decision by Justice Bucaria, the court declined the defendant’s motion to transfer the venue of the action from Nassau to New York County based on a forum selection clause contained in the parties’ memorandum of understand. While a forum selection clause providing for the location of a trial is prima facie valid, a party is not bound by such clause where it disaffirms the agreement and asserts that it is permeated with fraud. The court found that, through allegations that the defendant was a “corporate shell game and a matter of theft by means of deceit,” the plaintiffs were disaffirming the memorandum of understanding and, thus, were not bound by the forum selection clause.
However, in light of the plaintiffs’ characterization of the defendant, the court denied the plaintiffs’ motion to compel a meeting of the shareholders pursuant to BCL § 602, and to compel an accounting upon finding that: (1) it was unclear what purpose the shareholder meeting would serve, and (2) it was neither appropriate nor practical for the directors to render an accounting at a shareholders meeting. The court granted the plaintiffs’ motion for an order granting permission to inspect the defendant’s books and records, pursuant to BCL § 624(e), concluding that, although the plaintiffs’ discovery was beyond the specific documents permitted under the BCL, the plaintiffs established a proper purpose for the need for the inspection.
Star Indus., Inc. v Innovative Beverages, Inc., Sup Ct Nassau County, September 28, 2010, Driscoll, J., Index No. 013306/03
In a September 28, 2010 decision by Justice Driscoll, the court imposed a fine of $25,000 on non-party respondents for their contumacious conduct in violation of the court’s prior contempt order. In the prior contempt order, Special Referee Thomas Dana found respondents liable for numerous counts of contempt of court based on their failure to answer Information Subpoenas and their issuance of funds to third parties in violation of restraining orders. Plaintiff moved, pursuant to Judiciary Law § 753(A), before Justice Driscoll to have respondents incarcerated for their alleged willful violations of the contempt order. In turn, respondents cross-moved to vacate the contempt order issued by Referee Dana. The court denied plaintiff’s motion for incarceration, but imposed a fine on respondents. The court denied respondents’ cross-motion to vacate the contempt order.
Bruno v. Gerber, Sup Ct, Nassau County, Sept. 20, 2010, Warshawsky, J., Index No. 024915/2009
In a September 20, 2010 decision by Justice Warshawsky, the Court granted plaintiffs’ motion, pursuant to CPLR 3217, to discontinue the action, without prejudice, in favor of allowing plaintiffs to litigate the issues in an action pending in the federal district court in the District of New Jersey. The court also granted defendants leave to apply to the Court for an order fixing terms as to statutory costs, disbursements, legal fees and additional expenses incured from the inception of the action to the date of the Order. The case arose out of a failed effort to form a corporation under a Shareholders’ Agreement for the purpose of consolidating the parties' individual companies into a single entity involved in the home mortgage business. Defendants objected to the discontinuance, claiming undue prejudice, which the court rejected.
Yoon-Schwartz v Keller, Sup Ct Nassau County, September 20, 2010, Bucaria, J. Index No. 11749/10
In a September 20, 2010 decision, Justice Bucaria granted in part and denied in part the plaintiff’s motion for a preliminary injunction to prevent enforcement of a restrictive covenant. The defendant was an established plastic surgeon in Nassau County who built up a significant practice over a 20 year period. The plaintiff and defendant entered into a working agreement, whereby the plaintiff was employed by the defendant’s professional corporation but anticipated a future partnership therein. The agreement contained a restrictive covenant, which provided that if the parties’ relationship terminated, the plaintiff was prohibited from practicing medicine at any hospital within a 10 mile radius of the defendant’s office for a three year period.
The plaintiff terminated the employment relationship and subsequently commenced the action against the defendant for sexual harassment. Concurrently, the plaintiff moved to enjoin enforcement of the restrictive covenant. The court partially upheld the restrictive covenant; enforcing it only as to two hospitals, one located less than one mile from the defendant’s office, and the other located less than 3 miles from the office and from where the defendant received most of his referrals. The court found that while reasonable restrictive covenants in employment agreements are generally enforced, the 10 mile radius restriction was not reasonable in densely populated Nassau County which contained several major hospitals. The court further found that the overreaching restrictive covenant should be partially upheld because the defendant‘s practice was a legitimate interest he sought to protect, and the plaintiff’s allegation of sexual harassment had no bearing on whether seeking to protect that interest was made in good faith.
Matter of Kaufman v LI Yellow Cab Corp., Sup Ct, Nassau County, Sept. 15, 2010, Driscoll, J, index No. 001486/09
In a September 15, 2010, decision by Justice Driscoll in connection with a special proceeding for corporate dissolution under section 1104-a of the Business Corporation Law and related buyout election under BCL section 1118, and on respondents’ motion to vacate and set aside a notice of deposition served by petitioner, the court granted respondents’ motion concluding that petitioner did not demonstrate the requisite “ample need” for the proposed deposition because 1) discovery generally is disfavored in special proceedings; 2) the parties had already exchanged valuation reports; and 3) the parties ultimately would have the opportunity to present and cross-examine witnesses regarding fair value of petitioner’s interests in the corporations at trial.
* For a more in-depth analysis of this decision and its impact, see our colleague Peter A. Mahler’s recent post at New York Business Divorce.
New York Packaging II, LLC v Peace Prod. Co., Sup Ct, Nassau County, Sept. 10, 2010, Warshawsky, J, index No. 006300/10
In a September 10, 2010, decision by Justice Warshawsky in connection with an action by plaintiff-manufacturer alleging various business torts against defendant-employee, and on defendant’s motion to dismiss under CPLR 3211 [a] [1] and [a] [2], the court 1) denied defendant’s motion based on documentary evidence, finding that the order slips reflecting a pre-existing relationship with plaintiff’s customers submitted by defendant “[did] not even remotely conclusively dispose of plaintiff’s claim”; 2) denied defendant’s motion regarding plaintiff’s claims for breach of fiduciary duty and aiding and abetting a breach of fiduciary duty, finding that the pleading was adequate despite the fact that “specifics [were] not included in the complaint” and that certain supporting allegations were “to say the least, minimal”; 3) denied defendant’s motion regarding plaintiff’s claim for unfair competition, finding that the pleading was sufficient “despite the apparent lack of an employment agreement with a non-compete clause”; 4) denied defendant’s motion regarding plaintiff’s claim for unjust enrichment; 5) granted defendant’s motion regarding plaintiff’s claim for fraud, finding that plaintiff failed to allege the various elements of a fraud claim under the heightened requirements of CPLR 3016; and 6) granted defendant’s motion regarding plaintiff’s claim for injunctive relief, finding that “[w]hen money damages can make the plaintiff whole, injunctive relief is not appropriate.” The court also struck plaintiff’s claim for punitive damages, finding that “[t]he allegations of the complaint fall far short of the high degree of moral culpability, or willful or wanton negligence indicating a conscious disregard for the rights of others.” Finally, the court struck plaintiff’s claim for attorney’s fees, finding that claims for breach of fiduciary duty and unjust enrichment are not among the exceptions to the general rule in New York that “each party is to bear its own legal expenses.”
Berney v Ragusa, Sup Ct, Nassau County, Aug. 9, 2010, Driscoll, J, Index No. 013109/10
In an August 9, 2010, decision by Justice Driscoll in connection with petitioner-candidate’s special proceeding against respondent-committee chairman for injunctive and declaratory relief under the Election Law, and on respondent’s motion to dismiss the petition on grounds of failure to join necessary parties and the Statute of Frauds, the court granted respondent’s motion, holding that the petition failed to join the New York State Republican Party (“NY GOP”) and specific committee members as necessary parties to a proceeding in which petitioner was challenging the NY GOP’s rules and procedures; and 2) the action could not proceed in the absence of such necessary parties because (a) petitioner had another effective remedy in that she could still become the NY GOP’s nominee for the office she seeks, (b) the NY GOP would be directly affected and potentially prejudiced by a substantive decision from the court, (c) petitioner could have avoided such prejudice by naming the NY GOP as a party, (d) it would be inappropriate for the court to issue a protective provision in an order without input from the NY GOP whose rules and processes were at issue; and (e) an effective judgment also could not be issued by the court without input from the NY GOP. The court further held that the petition should be dismissed even if the necessary parties had been named or otherwise excused because petitioner’s challenge to respondent’s authority to nominate another candidate for political office was time barred under the Election Law. Finally, the court held that respondent’s alleged oral promise in 2008 to nominate an altogether different candidate in 2010 was unenforceable under the Statute of Frauds.
The New York Racing Association and Charles Hayward v Nassau Regional Off-Track Betting Corp. et al, Sup Ct, Nassau County, July 29, 2010, Bucaria, J, Index No. 21993/09
In a July 29, 2010 decision by Justice Bucaria, the court, inter alia, denied a motion to dismiss claims for conversion and unfair competition and granted a motion to dismiss a defamation claim. The claims arose out of Nassau Regional Off-Track Betting’s (“NROTB”) broadcasting, via the internet and television, races at the Aqueduct, Belmont and Saratoga racetracks, which New York Racing Association (“NYRA”) claimed were unauthorized.
NYRA brought claims for, inter alia, conversion and unfair competition and NYRA’s President brought a defamation claim based on statements made about him by NROTB’s President. The court found that NYRA’s “electronically stored data” (such as the live audio-visual simulcast of the races) could be converted even though NYRA was not excluded from access to the electronic data transmission. Similarly, the court found that the misappropriated live audio-visual simulcast could support a claim for unfair competition.
However, the court dismissed the defamation by NYRA’s president, finding that he was a public figure and therefore malice was required to state a defamation claim, which the Complaint was lacking.
SRG Properties, LLC v. Long Island Power Authority, Sup Ct, Nassau County, May 20, 2009, Warshawsky, J, Index No. 019866/08
In a May 20, 2009 decision, Justice Warshawsky granted LIPA’s motion to dismiss an Article 78 proceeding brought by a LIPA “ratepayer” challenging LIPA’s imposition of a “Power Supply Surcharge”. The ratepayer sought to have LIPA enjoined from continuing to impose the surcharge and an order compelling LIPA to seek approval of the rate increase from the Public Service Commission, as well as seeking monetary damages.
The Court dismissed the action on numerous grounds, including the fact that the petitioner did not suffer an injury separate from that of the general public.
Schwarz Supply Source v. Redi Bag USA LLC., Sup Ct, Nassau County, December 22, 2008, Bucaria, J, Index No. 016733/08
In a December 22, 2008 decision, Justice Bucaria granted defendant’s motion to dismiss on numerous grounds.
The first basis for defendant’s motion was plaintiff’s status as a foreign corporation not licensed to do business in New York. The Court found that the defendant demonstrated that the plaintiff’s business activities in New York were not “casual or occasional.” The plaintiff had not refuted such evidence, and could not insulate itself behind a self description of being an out of state distributor who only occasionally involves itself in New York business.
The Court further granted dismissal based upon documentary evidence, namely a termination letter which disposed of plaintiff’s claim of termination of a contract without proper notice.
Last, the Court commented that the prior action commenced by the defendant was the appropriate venue for plaintiff’s equitable claims because the parties claims both arose out of the same contract.
Metro Realty Services, LLC v. Old Country Realty Corp., Sup Ct, Nassau County, June 2, 2009, Bucaria, J, Index No. 0195449/05
In a decision dated June 2, 2009, Justice Bucaria, in a connection breach-of-contract and fraud action by Plaintiff-real estate broker against Defendant-property owner involving a claim for a brokerage commission, and on Plaintiff’s motion to strike Defendant’s answer and for the imposition of costs and sanctions, as well as Defendant’s cross-motion to compel Plaintiff to provide documents in response to Defendant’s discovery demands, 1) directed Defendant to produce correspondence between the parties regarding the subject premises as material and necessary but found that the file of Defendant’s real-estate attorney was overly broad and protected by the doctrines of attorney work product and attorney-client privilege; 2) directed Defendant to produce advertisements or listings for sale of the subject premises as material and necessary; 3) directed Defendant to produce the title report respecting the sale of the subject property as material and necessary; 4) denied Plaintiff’s request for Defendant’s tax returns and financial records as confidential and irrelevant to the transaction at issue; 5) directed Defendant to produce its corporate resolution authorizing the sale of the subject property and its certificate of dissolution as material and necessary; and 6) denied Plaintiff’s motion for sanctions absent a clear showing that Defendant’s failure to comply with discovery was willful and contumacious. The court also 1) directed Plaintiff to produce documents respecting its status as a legal entity as material and necessary; 2) directed Plaintiff to produce documents respecting agent real estate licensure as material and necessary; 3) directed Plaintiff to produce documents respecting the financial condition of its prospective buyer as material and necessary; 4) directed Plaintiff to produce documents respecting the offer and acceptance by its prospective buyer as material and necessary; 5) directed Plaintiff to produce the names, addresses, and telephone numbers of all potential witnesses; and 6) directed Plaintiff to provide “thorough and specific written responses under oath” to Defendant’s interrogatories without referring to other discovery responses.
Schneider v Rothstein, Sup Ct, Nassau County, July 8, 2009, Driscoll, J, Index No. 005546/08
In a decision dated July 8, 2009, Justice Driscoll denied Plaintiff’s motion for summary judgment which sought damages on Defendant’s alleged failure to repay under a promissory note in connection with a loan allegedly conditioned on the sale of Defendants’ dental practice, finding that the language in the promissory note regarding the date of repayment on the loan was ambiguous and that an issue of fact therefore existed as to whether Defendants were in breach of the promissory note.
Metro Coffee Service Corp. and Kim v. Metro Spring Coffee Inc., Yang and Yang, Sup Ct, Nassau County, Dec. 24, 2008, Austin, J, Index No. 16080/08
In a December 24, 2008 decision, Justice Austin denied plaintiff’s motion for summary judgment in lieu of a complaint based upon a promissory note.
The action was based upon a promissory note provided at the time of the sale of a business and accompanying restrictive covenants.
In opposition to plaintiffs’ claims that amounts were due under a promissory note defendants, through their attorney’s affidavit, submitted to the Court checks showing payments to the plaintiffs in excess of the amounts then due for the purchase of the business, which the defendants alleged were pre-payment of their obligation under the note. The plaintiffs alleged that such payments were in consideration of certain non-compete agreements (which on their face did not indicate that separate payments were due) and not prepayment on the note.
The Court found in light of the additional payments to plaintiffs there were issues of fact as to whether defendants had a bona fide defense, precluding summary judgment.
Defendants in their opposition papers also claimed that plaintiffs’ motion was frivolous and sanctions should be awarded. The Court found that such application could not be granted for two reasons (1) no cross motion was served, and (2) defendants failed to demonstrate that plaintiffs’ conduct was completely without merit.
Taub v. Kaplan, Sup Ct, Nassau County, Jan.13, 2009, Austin, J, Index No. 12553/06
In a decision dated January 13, 2009, Justice Austin (1) granted the plaintiffs’ motion for a judgment pursuant to a stipulation of settlement entered into and resolving five related cases involving breach of contract claims and awarded prejudgment interest under CPLR § 5001 because the unambiguous language of the settlement agreement stated that defendant PRK owed H. Co. $276,958.00 and that defendant Kaplan agreed to be personally liable for that amount; and (2) denied Defendants’ motion to vacate the settlement stipulation and appoint and independent accounting firm to value H. Co’s ending inventory, finding that stipulations of settlement are judicially favored and, as no public policy issue was presented, the defendant failed to show a change in valuation methodology did not constitute fraud necessary to prove to set aside the stipulation.
Malament v. Kim and Arctic Products Corp., Sup Ct, Nassau County, Dec. 23, 2008, Austin, J, Index No. 16602/08
In a December 23, 2008 decision, Justice Austin denied plaintiff’s motion for summary judgment in lieu of complaint and dismissed plaintiff’s action which was based upon two promissory notes.
The Court found that the plaintiff failed to provide defendant with the required time to oppose the motion in setting the return date on the motion, and therefore the court lacked jurisdiction to hear the motion and the action must be dismissed with prejudice.
The Court explained that in setting the return date on a motion for summary judgment in lieu of complaint the motion must provide for a date to serve opposition papers which is equal to the amount of time the defendant would have to appear in the action if the defendant had been served with a summons and complaint or summons with notice. Because substituted service was utilized, 40 days after service was completed (i.e. an affidavit of service was filed with the clerk) was the appropriate date for opposition papers. For the corporate entity served by way of the secretary of state, 30 days was the appropriate date for opposition papers.
The Court also noted that in setting the return date the movant must not only allow the opposing party the necessary time to submit opposition papers, but must also allow time for the movant to support reply papers.
Claremont Realty LLC v. River Oaks Capital Management, Inc., 2008 NY Slip Op 33194(U) [Sup Ct Nassau County]
In a November 14, 2008 decision, Judge Bucaria granted a request for a preliminary injunction to enjoin defendants using, drawing down, or depleting a letter of credit from plaintiff on the grounds that defendants breached a contract and engaged in fraud. (1) The plaintiff demonstrated a likelihood of success on the merits of its breach of contract claim because the contract required the plaintiff to issue a letter of credit in favor of defendants as security for a loan, and the defendants’ breached the contract by failing to fund the loan as required. (2) The plaintiff demonstrated irreparable injury by showing its credit will be adversely affected if defendants can draw down the letter of credit, and monetary damages will not adequately compensate plaintiff because defendants were insolvent. (3) The balance of equities favored the plaintiff because while the plaintiff satisfied all conditions of the loan agreement with the defendants, the defendants breached the contract.
Click here for full decision.
Choice Valet, Inc. v. Dang Doo Lee, 2008 NY Slip Op 52549(U), 21 Misc.3d 1148(A) [Sup Ct Nassau County]
In a decision dated December 4, 2008, Justice Austin denied the plaintiff’s motion for summary judgment in lieu of a complaint to set aside a stipulation of settlement on the grounds that the settlement was obtained by fraud on the grounds that the plaintiff failed to state a cause of action for fraud, which is necessary to set aside a judicially favored settlement because (1) the plaintiff’s allegation of reliance upon sworn statements made before the settlement was entered into was not reasonable; and (2) the plaintiff did not make use of means to discover whether the settlement was being obtained by fraud as he was required to do.
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Arbor Secured Funding, Inc. and Arbor Management, LLC v. Just Assets NY 1, et al., Supreme Court, Nassau Count Index No. 012550/2004 (Nov. 19, 2008)
In a November 19, 2008 decision, Justice Warshawsky partially granted defendants’ motion to amend its answer to assert additional counter claims, cross claims and third-party claims in an action stemming from the sale of tax deed.
The court partially granted defendants’ motion finding that the opposing parties failed to establish that significant prejudice would result from the amendment or that the statute of limitations had run on certain of the claims.
Nevertheless, the court did deny the motion to amend as to certain new parties finding that there could not be a relation back to the filing of the original answer and counterclaims and because the new parties were not united in interest with the original parties to the action. Last, the court found that it could not at this juncture in the litigation determine the scope of a general release provided to certain of the parties, allowing those claims to go forward.
