New York Commercial Case Compendium : New York Commercial Case Law Updates : Farrell Fritz Lawyers & Attorneys : 7th District & 8th District of NY State

In a January 4, 2012 decision by Justice Fried, the court granted the plaintiff’s motion for summary judgment to enforce a guaranty executed by the defendant in connection with the plaintiff’s sale of its interest in a company to a third party. The court found that because the two express conditions set forth in the guaranty for its enforcement were met, the plaintiff established entitlement to summary judgment as a matter of law. The court then determined that the defendant failed to raise an issue of fact through its affirmative defenses of fraudulent inducement and lack of consideration. Based on the Court of Appeal’s decision in Citibank v Plapinger, the court concluded that an express waiver contained in the guaranty barred the defendant from asserting the substantive defenses. The court rejected the defendant’s argument that the waiver did not apply to the two affirmative defenses at issue because it did not contain the words “absolutely and unconditional”, finding that such language was unnecessary under New York law for a waiver to effectively waive substantive defenses.  The court also granted the plaintiff’s motion to dismiss the defendant’s fraudulent inducement counterclaim under CPLR § 3016(b) on the grounds that the circumstances surrounding the alleged fraudulent inducement were not alleged in sufficient detail.

J. Remora Maintenance LLC v Efromovich, Sup Ct New York County, January 4, 2012, Fried, J, Index No. 650943/11

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In an October 5, 2011, decision by Justice Schweitzer, the court granted defendant’s motion for summary judgment dismissing the complaint and denied plaintiff’s motion for leave to amend. Plaintiff-investment firm sued defendant-biotechnology company for breach of contract under a finder’s agreement in connection with defendant’s partnership with a pharmaceutical company to market and sell one of defendant’s drugs. Defendant moved for summary judgment dismissing the complaint, proffering evidence that plaintiff admittedly failed to comply with the specific finding process set forth in the agreement. Plaintiff ultimately contended that it was entitled to its finder’s fee under the agreement because the third-party pharmaceutical company had subsequently acquired another company – a potential candidate – with which plaintiff previously had contact regarding defendant’s drug. The court granted defendant’s motion finding that plaintiff failed to comply with the agreement, particularly with the provisions requiring plaintiff to identify potential candidates for partnership with defendant “in conjunction with defendant” and to “obtain defendant’s approval” with respect to any such candidates. The court also denied plaintiff’s motion for leave to amend the complaint to allege facts related to the third-party pharmaceutical company’s acquisition of the potential candidate because the company “was acquired . . . nearly three years after plaintiff had contact with [it], and after the [finder’s] agreement had been terminated months before.”

Ferghana Partners Inc. v Bioniche Life Sciences Inc., Sup Ct, New York County, October 5, 2011, Schweitzer, J., Index No. 650747/2009

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In an April 28, 2011 decision by Justice Bransten, the court granted the third-party defendant Frieland’s motion to dismiss the third-party complaint against it; denied the defendant/third-party plaintiff 5 LLC’s cross-motion to disqualify Friedland’s attorney (“Frohman”); and denied Friedland’s motion for sanctions. The matter arose out of the rental of real property owned by 5 LLC. Friedland was 5 LLC’s exclusive agent but Siegel, a real estate broker, claimed it had an instrumental role in securing the rental, entitling it to a commission. After a prior order of the Court dismissed all eight causes of action against Friedland, 5 LLC served an amended third-party complaint which repeated each of the eight causes of action previously dismissed, and added a ninth cause for declaratory judgment. Granting Friedland’s motion to dismiss, the court held that “the CPLR does not permit a party to replead causes of action that have already been dismissed through an amendment to the complaint.” The Court also held that the ninth cause of the action was duplicative of the first cause of action and that declaratory relief was inappropriate because 5 LLC had an adequate alternative remedy. The court dismissed 5 LLC’s cross-motion for disqualification, which alleged Frohman had represented both 5 LLC and Friedland and advocated for both at the same time, finding that 5 LLC failed to establish each of the three requirements of a motion to disqualify: 1) 5 LLC was never Frohman’s client; 2) there was not a substantial relationship between the main action and the third-party action; and 3) the interests of the parties were not materially adverse because in the first action both parties maintained that Friedland was the sole procuring broker. Finally, the court found that the sanctions were not warranted because none of the party’s arguments were completely without merit.

Siegel Consultants, Ltd. v. Nokia, Inc., Sup Ct New York County, April 28, 2011, Bransten, J., Index No. 603277/08.

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In a September 27, 2011, decision by Justice Bransten, the court denied plaintiff’s motion to compel but granted its motion to amend its complaint. Plaintiff provided defendant Chicago Board of Trade with software and related services to assist in the trade of futures and options on futures under a “network” agreement. When plaintiff allegedly disclosed the terms of the agreement to third parties, defendant served notice of material breach and ultimately terminated the agreement. Plaintiff then sued for breach of contract, and defendant counterclaimed. Plaintiff sought discovery regarding, among other things, consequential damages – namely, lost profits. Defendant objected, contending that because plaintiff did not assert a claim for lost profits, its related discovery request was not material and necessary to the prosecution or defense of the action. On plaintiff’s motion, the court sided with defendant, finding that plaintiff had not asserted such a claim in its complaint; that the request was unrelated to defendant’s counterclaim; and that plaintiff’s own discovery responses regarding lost profits did not constitute an “amplified pleading” for purposes of relevance. The court granted plaintiff’s motion to amend its complaint to add a claim for lost profits, however, finding that given the nature of this discovery dispute, defendant would not be inequitably surprised and would be permitted to conduct additional discovery in connection with the claim. 

BGC Partners Inc. v Board of Trade of the City of Chicago, Sup Ct, New York County, September 27, 2011, Bransten, J., Index No. 600437/2009

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In a November 22, 2011 decision by Justice Kornreich, the court granted the defendant’s motion for summary judgment and dismissed plaintiff Guido Orsi’s complaint. Orsi purchased a painting by artist Jean-Michel Basquiat from the Tony Shafrazi Gallery 20 years ago, which had previously acquired the painting from an auction at Christie’s. In 2006, Orsi learned that the painting was counterfeit and sued Christie’s alleging that it knew or was reckless in representing that the painting was not an original work. In granting Christie’s motion, the court found that Christie’s established that it had no knowledge that the painting was not authentic at the time of the auction or intended to defraud. Specifically, the court found that deposition testimony of several former Christie’s employees established Christie’s practices for obtaining information about art work and there was no evidence that Christie’s strayed from that practice with respect to the Basquiat painting. The court found that Orsi failed to establish a triable issue fact because his only evidence was deposition testimony Basquiat’s father who told an anonymous and unidentified man that he thought the painting was “not right.” However, the court found that the record as a whole failed to show that this man, Basquiat’s father, or anyone else ever conveyed to any Christie’s employee or agent that the painting was not authentic. The court found that at most, Orsi created a “shadowy semblance of an issue” which was insufficient to defeat summary judgment. Furthermore, the court rejected Orsi’s argument that Christie’s should have followed up an inquired as to the authenticity of the painting, because while those allegations may support a claim for negligence, they cannot support a fraud claim.

Tony Shafrazi Gallery Inc. v Christie’s Inc., Sup Ct, New York County, November 22, 2011, Kornreich, J, Index No. 112192/07

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In a June 16, 2011 decision by Justice Bransten, the court granted the defendants’ motion to dismiss the complaint, the fourth action between the parties, and denied the plaintiffs leave to amend. The complaint was filed in response to litigation defendant Raynor and his affiliated companies commenced in January 2010 which alleged that they were wrongfully denied the opportunity to participate in a stock option plan. In this action, billionaire investor Carl Ichan and his affiliated companies alleged that the timing of the January 2010 lawsuit lowered the demand for and negatively impacted the bonds he was offering (the subject of the January 2010 litigation), and asserted causes of action for (1) tortious interference with contract; (2) libel per se and injurious falsehood; (3) abuse of process and (4) prima facie tort. The court dismissed the complaint, finding that the claims were precluded by various immunity privileges. The tortious interference claim was barred by the Noerr-Pennington doctrine, which holds that a party may not be subjected to liability for petitioning the government or a government agency, such as commencing litigation, and the court found that the “sham” exception to the doctrine did not apply because the January 2010 litigation was not objectively baseless. The court dismissed the libel per se claim, recognizing that New York law grants an absolute privilege to any written or spoken statement made in the course of judicial or legal proceedings if the statement is pertinent to the litigation, which can only be overcome by showing that the alleged defamatory statement is irrelevant to the litigation and “outrageously out of context, which the plaintiffs failed to do. The court found that the plaintiffs failed to state a claim for abuse of process because they alleged nothing beyond the filing of the complaint which in and of itself was insufficient to state the claim for abuse of process. Finally, the determined that the plaintiffs were precluded from bringing a retaliatory lawsuit alleging prima facie tort based on the filing of a prior civil action.

Ichan v Raynor, Sup Ct NY County, June 16, 2011, Bransten, J, Index No. 150040/10

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In an October 28, 2011, decision by Justice Kapnick, the court denied plaintiff’s motion for an order compelling defendant to respond to a notice to admit certain facts concerning sexual harassment and other inappropriate conduct of an employee. The notice, which was served on a former employee of defendant-employer and  requested admission of allegedly inappropriate conduct toward female employees, ultimately was to be used in support of plaintiff-employee’s claim that she was treated differently by defendant in violation of the law. The court denied plaintiff’s motion, finding that she had failed to establish the relevance of the admissions sought, particularly because “there [were] no allegations that [the former employee] reported to the same supervisor as plaintiff, was subject to the same standards governing discipline or engaged in conduct similar to plaintiff’s.” The court also found that “the use of the Notice to Admit as a disclosure device for such extensive discovery of personal information regarding a non-party is not consistent with the device’s prescribed use.”  

Schlisserman v PA Consulting Group, Inc., Sup Ct, New York County, October 28, 2011, Kapnick, J., Index No. 601631/2004

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In an August 8, 2011 decision by Justice Oing the court denied an insurer’s motion for summary judgment for a declaration that an insurance policy was void and rescinded ab initio. The litigation stemmed from an insurance claim for water damage to a clothing store. The insurer performed an investigation after the claim was submitted. Based on the investigation the insurer argued that the insured made material misrepresentations on the insurance application when it failed to disclose prior insurance claims at the store’s location. The insurer also argued that the insured filed false documents in connection with the claim. 

The court denied the insurer’s motion to declare the policy void because it failed to meet its “burden of providing clear and uncontradicted evidence of the materiality of the misrepresentation.” This included the insurer’s failure to provide evidence of its underwriting policies. The court further found that the insurer’s purported evidence that the insured filed false documents in support of his claim at best raised issues of fact which precluded summary judgment.            

BW Sportswear, Inc. v. Those Certain Underwriters at Lloyd’s of London, Subscribing to Certificate Number 34665, Sup Ct, New York County, August 8, 2011, Oing, J, Index No. 603568/09.

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In a September 21, 2011 decision by Justice Fried, the court granted defendant Kam’s motion to dismiss the complaint on the grounds that the court lacked personal jurisdiction. Kam was employed by the plaintiff staffing firm as a recruiter. Almost one year after Kam resigned his position and began working for a different staffing firm, defendant Solomon-Page, the plaintiff brought suit alleging that Kam breached a restrictive covenant. The court found that Kam, a non-New York domiciliary, did not have the minimum contacts necessary to confer personal jurisdiction under CPLR § 302(a)(1) because he: (i) resided in New Jersey; (ii) formed his contract with the plaintiff in New Jersey; (iii) worked only in the plaintiff’s New Jersey office; (iv) placed job candidates with New Jersey businesses; and (v) worked only in Solomon-Page’s New Jersey office recruiting job candidates for New Jersey positions. The court rejected the plaintiff’s “laundry list” of activities Kam allegedly performed in New York as overstated and misrepresented, and noted that the plaintiff failed to allege that Kam engaged in activities in New York since resigning from the plaintiff’s employ and joining Solomon-Page. The court also rejected the plaintiff’s argument that Kam received e-mails from the plaintiff’s New York employees and contacted clients in New York regarding job positions, finding that such conduct was neither “transacting business” nor sufficient to establish that Kam purposefully availed himself of New York. The court also found that it lacked jurisdiction under CPLR § 302(a)(3) because the plaintiff failed to establish that Kam regularly solicited business in New York, derived substantial revenue from New York, expected his tortious conduct to have an impact in New York, or that the plaintiff sustained an injury in New York.

Kforce Inc. v Foote, Sup Ct NY County, Sept. 21, 2011, Fried, J, Index No. 601146/10

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While not from the Commercial Division, an August 24, 2011 decision by Justice York raises issues of a landlord’s responsibility for actions of tenants which disturb other tenants. In this case the plaintiff sued alleging that pop icon Madonna, who owned the apartment below her, was playing her music for 1.5 to 3 hours a day for over two years at a volume which interfered with the plaintiff’s use and enjoyment of her apartment and caused her to have to leave her apartment. Plaintiff sued Madonna as well as her cooperative and the cooperative’s managing agent. This decision deals with the parties’ competing motions for summary judgment on plaintiff’s breach of warranty of habitability claim against the cooperative and her nuisance claims against both the cooperative and Madonna.

The warranty of habitability provides that a landlord (including a cooperative) is reasonable to make sure that (1) a residential premises be fit for human habitation; (2) the condition of the premises be in accord with the uses reasonably intended by the parties; and (3) the tenants are not subjected to any conditions endangering or detrimental to their life, health or safety. The court found that Madonna’s playing loud music for a number of hours could constitute a breach of the warranty of habitability, but it could not rule in either parties’ favor on their dueling motions because there was an issue of fact as to “whether the noise in question possessed such qualities as to violate the warranty of habitability.”

The court also addressed plaintiffs’ nuisance claims against the cooperative and Madonna, which involves a substantial, intentional, unreasonable, interference with plaintiff’s use and enjoyment of her apartment. The court found that under this claim the cooperative corporation couldn’t be held liable for Madonna’s acts but there is a question as to the unreasonableness of the music. For this reason the cooperative was granted summary judgment dismissing the nuisance claim against it, but Madonna was denied the same relief.

George v. Board of Directors of One W. 64^th St., Inc., Midboro Mgmt., Inc. and Madonna Ciccone, Sup Ct, New York County, August 24, 2011, York, J, Index No. 114555/09.

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In an August 4, 2011 decision by Justice Kornreich, the court granted the plaintiff’s motion to seal the entire record of the action which was resolved via settlement. The plaintiff commenced the action as “Jane Doe”, alleging that the defendants utilized film footage of the plaintiff shot as part of an advertisement for the defendant’s products in a sexually suggestive manner not agreed to by the plaintiff. In granting the motion, the court noted that it had previously denied the defendants’ motion to compel the plaintiff to disclose her identity in the caption, and that the parties’ settlement agreement prohibited the defendants from revealing the plaintiff’s name to any third party of jeopardizing the court-awarded anonymity. The court therefore found because the action involved a private matter between parties to which the public had no significant interest in accessing the records, refusing the seal the file would run contrary to the purpose of the settlement agreement which was to ensure that the content of the footage would not be available to the general public.

Doe v Szul Jewelry, Inc., Sup Ct NY County, August 4, 2011, Kornreich, J, Index No. 604277/07

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 In an August 8, 2011 decision by Justice Oing the court granted plaintiffs partial summary judgment on a motion for a judgment of foreclosure. The plaintiffs served a default notice and brought suit seeking the entire principal due under a note at the default rate of 24% per annum. The defendants moved to dismiss arguing that plaintiffs failed to serve a notice of acceleration which was a condition precedent to bringing suit. Defendants based their argument, in part, on a decision in a different case which they claimed analyzed language identical to the language contained in the documents at issue. The court found that the documents at issue were not identical, in that they did not contain a provision that a notice of acceleration was a condition precedent to bringing suit. The court granted the plaintiffs summary judgment on liability and directed that the amount of damages be determined by a referee.

Prompt Mortgage Providers of North America LLC v. Direct Realty, L.L.C. et al., Sup Ct, New York County, August 8, 2011, Oing, J, Index No. 116889/09.

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In an August 15, 2011 decision by Justice Kapnick, the court granted in part and denied in part the defendants’ motion to dismiss. The court upheld the plaintiff modeling agency’s claim for unfair competition which alleged that the defendants, the Ford Modeling agency and several of its employees who were former employees of the plaintiff, used confidential information provided to Ford for the limited purpose of exploring a potential investment in the plaintiff, to divert potential new models away from the plaintiff and to the defendant competitor after the plaintiff rejected Ford’s investment offer. The court also upheld the breach of fiduciary duty claim against defendant Rowland, who was the founder of the plaintiff agency, because an inference could be drawn that Rowland was acting in Ford’s best interest and not the plaintiff’s when he persuaded several employees of the plaintiff to leave the plaintiff agency and join Ford with him. The court also upheld the claim for aiding and abetting a breach of fiduciary duty against Ford, upon concluding that it could be inferred that Ford and Rowland were acting in concert in recruiting and soliciting the plaintiff’s employees.        

However, the court dismissed the claim for tortious interference with business relationships against all of the defendants because it found the plaintiff’s allegation showed only that the defendants acted to benefit themselves and not out of malice or with the intent to specifically injure the plaintiff, as is required to sustain such a claim. The court also dismissed the breach of contract claim which alleged that the defendants breached a confidentiality agreement when they used information obtained two years earlier to divert new models and persuade employees to join Ford, because the court found that the plaintiff took no action to terminate the defendants’ access to the confidential information. The court similarly rejected the unjust enrichment claim because a company that hires away from a competitor by offering higher salaries is not unjustly enriched by those actions.

Men Women NY Model Mgt., Inc. v Ford Models, Inc., Sup Ct, NY County, August 15, 2011, Kapnick, J, Index No. 601144/10.

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In a July 8, 2011, decision by Justice Ramos, the court granted plaintiff-lender’s motion for summary judgment on its claims for breach of contract and guaranty, as well as dismissed defendant-borrower’s counterclaim and affirmative defenses. Notably, the court began its analysis with a footnote admonishing both parties for violating a practice rule providing that “Memos of Law ARE REQUIRED on ALL motions” and that a failure to submit a separate memo of law “may result in the denial of the motion.” The court then rejected defendant’s argument that the loan was not personally guaranteed as “belied by the documentary evidence” – namely, the loan agreement and guaranty itself – and noted that the “fatal” attorney affirmation submitted on behalf of defendant failed to “make a representation that his clients deny signing the 2009 Guaranty . . . and offers nothing by way of documentary proof sufficient to raise an issue of fact or otherwise defeat summary judgment.” The court also found that the “unusually bare affirmation in opposition” effectively abandoned the affirmative defenses pleaded in defendant’s answer by failing to address plaintiff’s motion to strike them, and otherwise rejected defendant’s “new” defense that the guaranty was a contract of adhesion, raised for the first time on this motion, as “indiscernible, nonsensical, and unsubstantiated.” Specifically, the court held that unequal bargaining power and a lack of legal representation on one side of a contract, without more, does not render the contract one of adhesion, and that a contractual interest rate of 9.75% is hardly usurious given New York’s statutory maximum rate of 16%.

General Elec. Capital Corp. v Miron Lbr. Co. Inc., Sup Ct, New York County, July 8, 2011, Ramos, J., Index No. 650728/2011

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In a June 20, 2011, decision by Justice Bransten, the court addressed a third-party defendant’s motion for summary judgment dismissing indemnification claims brought by an owner and general contractor in connection with damages to an adjacent structure caused by a failure to properly excavate and underpin the structure during construction of a commercial condominium building. Third-party defendant, a structural engineer retained in connection with the excavation, contended that the relevant provisions of the New York City Building Code did not require it specifically to inspect the soil under the adjacent building prior to construction and that, in any event, it was not a proper party in a cause of action for loss of lateral support under the law because it was not the owner or excavator on the project. The court, however, largely denied third-party defendant’s motion, finding that it had misstated both the code and the law and that fact issues existed as to whether it was negligent in its underpinning inspections. The court granted third-party defendant’s motion only as to the claim for contractual indemnification because it was not supported by a written contract containing an indemnity provision.

RAE Realty Holdings, LLC v 643 E. 11^th St. Realty, LLC, Sup Ct, New York County, June 20, 2011, Bransten, J., Index No. 102264/2007

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In a June 14, 2011, decision by Justice Kapnick, the court granted plaintiff-insurer’s motion for summary judgment declaring that, under a reinsurance agreement between the parties, defendant-reinsurer was obligated to reinsure plaintiff’s insured in connection with a financial guarantee insurance policy. A schedule attached to the parties’ reinsurance agreement itemized some 1300 insurance policies covered under the agreement. A provision in the agreement allowed for the exclusion of a policy if it did not meet certain rating standards as established by S & P, Moody’s, or certain internal standards established by plaintiff as of the effective date of the agreement. Defendant contended, among other things, that because plaintiff’s internal rating was not static, discovery was necessary to determine whether the financial guaranty policy was “below investment grade” according to plaintiff’s standards. The court rejected defendant’s contention, finding that the exclusion provision in the reinsurance agreement was unambiguous and plainly excluded the financial guaranty policy whose rating as of the effective date of the agreement was not in dispute. The court also dismissed defendant’s counterclaims as necessarily failing by virtue of its interpretation of the reinsurance agreement. The court, however, neglected to find that defendant engaged in bad faith by refusing to attend to its payment obligations under the agreement in connection with the financial guaranty policy.  

CIFG Assur. N. Am., Inc. v Assured Guar. Corp., Sup Ct, New York County, June 14, 2011, Kapnick, J., Index No. 651090/2010

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In a May 6, 2011, decision by Justice Kornreich, the court granted in part and denied in part defendant-hedge fund partners’ motion to dismiss plaintiff-fund liquidator’s action for breach of a limited partnership agreement (LPA) among defendants and the fund. In light of “serious economic concerns” resulting from the Lehman Brothers bankruptcy in September 2008, the fund dissolved. A year earlier, defendants had begun to redeem their initial investment in the fund. The fund’s liquidator ultimately brought suit under Delaware law, asserting claims for breach of contract, breach of implied covenant of good faith and fair dealing, unjust enrichment, and money had and received, and essentially alleging that defendants had been improperly overpaid through their redemptions under the LPA. Defendants moved to dismiss the claims. The court honored the choice-of-law provision in the LPA, applied Delaware contract law, and granted defendants’ motion as to plaintiff’s claims for breach of implied covenant of good faith and fair dealing, unjust enrichment, and money had and received because their alleged obligation to return the overpayments expressly was governed by specific provisions in the LPA, a valid and enforceable contract. The court otherwise dismissed defendants’ motion as to plaintiff’s claim for breach of contract primarily because the claim raised issues regarding hedge fund “reserves,” which concern practices of “custom and usage in the hedge fund industry that cannot be properly determined by the court in the context of a motion to dismiss and in the absence of expert testimony.”

Deloitte (Cayman) Corporate Recovery Servs., LTD v Sandalwood Dept Fund A, LP, Sup Ct, New York County, May 6, 2011, Kornreich, J., Index No. 650735/2010

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In a June 20, 2011 decision in a case originating in the commercial division (Lowe, J.) and on remand from the First Department, Justice Saliann Scarpulla denied the motion for summary judgment by Dennis Coles, a/k/a “Ghostface Killah”, a member of the Wu-Tang Clan, which sought unpaid royalties and unpaid damages stemming from an earlier trial in which Coles successfully challenged the defendants’ respective 25% and 50% withholdings. The First Department modified that earlier decision, by finding that defendant Wu-Tang Productions could continue to receive its 25% deductions and remanded the case for a new calculation of damages. In the new complaint, Coles alleged that he had not received any damages from the first action, nor any royalties that were accounted after the first suit. The court denied the motion for summary judgment as premature because: (1) defendant Diggs had not answered the complaint and, therefore, issue had not been joined; and (2) the damages calculation ordered by the First Department on the remand had not yet been determined and therefore, it was not yet apparent that Wu-Tang Productions had any liability to Coles.

Coles v Wu-Tang Prods., Inc, Sup Ct New York County, June 20, 2011, Scarpulla, J, Index No. 602896/09

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In a May 27, 2011 decision by Justice Ramos, the court confirmed in part and rejected in part, pursuant to CPLR § 4003, a special referee’s report recommending that defendants be indemnified for certain legal fees. After the JHO held a two-day evidentiary hearing, at which he was presented with invoices showing block billing and testimony from defense counsel, the JHO issued a report recommending the payment of $121,299 in legal fees. While the court noted that the JHO’s recommendations as to the appropriateness of fees are entitled to deference where the JHO found the billing entries sufficiently informative and credited witness testimony, the court found that the JHO recommended certain fees that were incurred for time spent on the instant matter as well as related matters which the defense counsel sought to allocate entirely to the instant matter, representing that he would have performed the same work even if the other matters were not pending. The court rejected the recommendation and held that a 50-50 split allocation was warranted on the grounds that it is not equitable to charge all of the fees incurred with respect to non-idemnifiable matters to a single indemnifiable matters and because the time entries made it difficult for the court to identify the amount of time spent on tasks for which fees are recoverable.  

The court confirmed the JHO’s recommendations for a 40% reduction in fees sought in connection with a reargument motion stemming from the courts’ denial of the defendants’ motion to quash a subpoena and an untimely appeal, as well as a recommendation for a reduction in fees sought in connection with a motion to disqualify counsel, finding that they were reasonable, supported by the record, and clearly defined.

The defendants also sought prejudgment interest, pursuant to CPLR § 5001, because the plaintiffs challenged the entitlement to indemnification and delayed the resolution of the matter. The court denied that request, finding that interest is not a penalty and is not meant to punish a party for delaying the resolution of a matter.

546-552 W. 146^th St. LLC v Arfa, Sup Ct, New York County, May 27, 2011, Ramos, J, Index No. 603041/06

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In an April 14, 2011 decision by Justice Bransten, the court granted the plaintiff’s motion for partial summary judgment on an individual claim asserted in a shareholder derivative action brought by a minority shareholder against a judicially dissolved corporation’s majority shareholder. Because the defendants failed to submit a responsive Rule 19-A Statement, the court deemed all of the plaintiff’s material facts admitted, and found that the plaintiff established that the defendants breached both statutory fiduciary duties under BCL § 909(a) and common law fiduciary duties by concealing from the plaintiff that they sold the corporation’s sole asset, a parking lot, while falsely representing to the purchaser of the property that the sale was approved by an affirmative vote of 2/3 of the corporation’s shareholders, and thereby depriving the plaintiff of his share of the sale proceeds. While the court granted partial summary judgment as to liability, it declined to enter a judgment on the grounds that the plaintiff could be entitled to additional damages from his individual cause of action, which could be foreclosed if judgment was entered.

Farrell Fritz represented the plaintiff in this action.

Berger v Pavlounis, Sup Ct, New York County, April 14, 2011, Bransten, J, Index No. 103170/08

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In a May 2, 2011 decision by Justice Oing the Court dismissed a number of the “standard” affirmative defenses pled in a mechanic’s lien/breach of contract action.

The defendants’ affirmative defense that “complaint fails to state a cause of action” was allowed to survive as “mere surplusage.” The defendants’ affirmative defense that “the plaintiff was paid in excess of the fair and reasonable value of any work, labor, materials, services and equipment” was also allowed to survive because it was directly related to the mechanic’s lien claim. The defendants’ affirmative defense that the action was started after the statute of limitations agreed to by contract also survived dismissal because there was an issue whether or not this part of the contract was enforceable.

However, the defendants’ affirmative defense that the “claims are barred in whole or in part by the equitable doctrines of waiver, estoppels and/or unclean hands” was dismissed because there was no showing that these affirmative defenses were viable. Similarly, defendants failed to show how the action did not comply with the Mechanic’s Lien Law so that affirmative defense was dismissed, as was the affirmative defense that plaintiffs’ claims were barred by the parties’ contract.

Model Iron Works, Inc. v. Tiago Holdings, LLC, Sup Ct, New York County, May 2, 2011, Oing, J, Index No. 600857/10

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In an April 8, 2011 decision by Justice Fried, the court granted the defendants’ motion pursuant to CPLR § 6501 to vacate a notice of pendency. The plaintiff formed an “Enterprise” with the defendants to engage in real estate ventures and specifically alleged in the complaint that the title to the real property was held on behalf of the Enterprise.  The court found that a notice of pendency was inappropriate because the claimed interest was in a partnership or corporation that deals in real property because such interest was in personality and does not affect the title to real property. The court rejected the plaintiff’s arguments that a request to impose a constructive trust on the property established a basis for the notice of pendency, finding that under New York law, a cause of action for a constructive trust does not alone permit a filing of a notice of pendency. The court also concluded that the true action behind the plaintiff’s request for a constructive trust was to enforce the defendants’ an oral agreement to share with the plaintiff the profits and income the Enterprise had generated. Thus, the court found that the right to a constructive trust over the proceeds of the real property did not render the claim sufficient to satisfy the notice of pendency requirements.

Ostad v Nehmadi, Sup Ct, NY County, April 8, 2011, Fried, J, Index No. 650460/10

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In an April 19, 2011 decision by Justice Sherwood, the court held respondent Grynberg in contempt of court for violating the court’s prior order of April 1, 2005 enjoining him or anyone acting on his behalf from initiating or prosecuting an action in any court relating to the joint venture agreement between the parties. Grynberg had commenced an action in Colorado against the petitioners concerning the joint venture agreement. In light of the joint venture agreement’s arbitration clause, that action was stayed by the New York court pending arbitration, pursuant to CPLR § 7503(a).  In connection therewith, the court issued the April 1, 2005 injunction. Following the arbitration and confirmation of an arbitration award against Grynberg, Grynberg’s wife commenced an action against the same petitioners concerning the joint venture agreement. The court held Grynberg in contempt, finding that the April 1, 2005 injunction order was broad enough to include Grynberg’s wife, who (a) specifically alleged in the Wyoming action complaint that Gynberg was her agent and that she was doing business as GCP which, the court found, had no legal existence apart from Gynberg himself; and (b) was in privity with Grynberg and was likely aware of the injunction. The court found that Grynber’s actions prejudiced the petitioners by delaying their efforts to secure the fruits of the arbitration award and requiring the expenditure of additional defenses to enforce the April 1, 2005 injunction through the contempt order.

L&R Exploration Venture v Grynberg, Sup Ct, NY County, April 19, 2009, Sherwood, J, Index No. 101646/02

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In a March 30, 2011 decision by Justice Sherwood, the Court extended judicial comity to a decision by a British Columbia court dismissing a complaint by Carl Icahn against the Lions Gate Entertainment Corp. that asserted claims of shareholder oppression and breach of fiduciary duty, and dismissed the complaint brought in New York County which alleged causes of action for breach of a Standstill Agreement, tortious interference with contractual rights, tortious interference with prospective business relations, and violations of the New York Stock Exchange Rules. In dismissing the complaint, the court adhered to the longstanding policy of New York courts to give preclusive effect to foreign country judgments, especially judgments from Canadian courts where plaintiffs have substantive rights similar to those available in U.S. courts, and in this case, where the British Columbia courts maintain a statutory mechanism to address a shareholder’s claim of oppression. The court also found that the doctrine of res judicata barred Icahn from litigating in New York because (1) the Canadian decision was based on the merits (and not solely on procedural standing) which were similar to the claims raised in the New York action, (2) the Canadian action involved the same parties and series of transactions, (3) Icahn could have, but failed to raise the other claims in the Canadian action, and (4) a judgment for Icahn would effectively invalidate the British Columbia court’s judgment premised on a finding that there was no breach of the Standstill Agreement. The court specifically rejected Icahn’s argument that he could not have asserted the common law breach of contract claim in the Canadian action on the grounds that the mere procedural differences to assert the breach of contract and oppression claims did not foreclose Icahn’s ability to bring the claim; the Canadian statutes providing for oppression remedies also allowed for corporate derivative actions; there were numerous Canadian cases where claims for oppression and breach of contract were alleged; and Icahn failed to identify any Canadian procedural rule barring the claims he asserted in New York.

Icahn v Lions Gate Entertainment Corp., Sup Ct NY County, March 30, 2011, Sherwood, J, Index No. 651076/10

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In a February 14, 2011 decision by Justice Sherwood the Court granted summary judgment to an insurance carrier dismissing claims brought by a person injured at a beach club cabana rented by the insurance carrier’s customer. 

The plaintiff was injured at the cabana in September 2005. The plaintiff initially brought an action against the renter of the cabana. The insurer did not provide a defense and disclaimed coverage because, among other things, it did not insure the cabana. The renter defaulted and the injured party obtained a default judgment against the renter.

The injured party then commenced an action against the insurance carrier predicated on the insurance carrier’s allegedly improper denial of coverage. The Court found that the cabana which had been rented for over 20 years was not covered by the homeowner’s insurance policy even though the policy provided coverage for a “Premises Occasionally Rented to an Insured.” 

Raner v. Security Mutual Insurance Co., Sup Ct, New York County, February 14, 2011, Sherwood, P.O., Index No. 601409/09

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In an August 2, 2010 decision by Justice Bransten, the court denied the plaintiff’s motion pursuant to CPLR § 3025 for leave to amend the complaint a second time to add new parties and causes of action. The plaintiff sought to add a claim under the New York Judiciary Law § 487 against the defendants’ prior counsel based on allegations that the attorney made false statements and presented false witness testimony to the court. In denying the motion, the court found that the attorney presented the court with the facts as he knew them and answered questions at a deposition concerning those facts, which did not constitute a pattern of delinquent behavior or a single instance of delinquent behavior so egregious as to give rise to liability under the Judiciary Law. The court also denied a claim against the defendants’ current counsel which was based on an assertion that they intentionally withheld information and submitted false testimony concerning the defendant’s knowledge a line of credit. The court found that the defendants’ assertions did not go toward their knowledge of the line of credit, but rather the purported failure to disclose. The court also denied that portion of the motion because permitting the plaintiff to proceed with those claims would require the current counsel to withdraw, as required under the Code of Professional Responsibility, and, therefore, prejudice the defendants by denying them the right to counsel of their choice.  

360 w. 11^th St. lLC v ACG Credit Co. II, LLC, Sup Ct NY County, August 2, 2010, Bransten, J, Index No. 600141/07.

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In a December 23, 2010, decision by Justice Fried, the court granted defendant’s motion for summary judgment and denied plaintiff’s cross-motion for the same relief. Plaintiff-subcontractor and its carrier sued defendant-general liability insurer for coverage under an “owner controlled insurance policy” (OCIP). Defendant had declined coverage due to plaintiff’s failure to obtain a written subcontract and to enroll in the OCIP program before the loss, both requirements under the policy. The court granted defendant’s motion and dismissed the complaint, finding that requirements were “unambiguous” conditions precedent to coverage under the policy – namely, that “the language is clear: no enrollment, no coverage.” The court rejected plaintiff’s equitable estoppel argument, finding no evidence that defendant took actions to mislead plaintiff into believing that coverage was available or that plaintiff had relied on such allegedly-misleading activity.

Zurich Am. Ins. Co. v Illinois Natl. Ins. Co., Sup Ct, New York County, December 23, 2010, Fried, J., Index No. 105533/09

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In a January 31, 2011 decision by Justice Fried, the court dismissed the plaintiff’s claims for fraud and aiding and abetting fraud which were based on allegations that the defendant notarized a signature on a guaranty knowing that the purported signatory did not sign the document because: (1) the plaintiff failed to satisfy the pleading requirements of CPLR § 3016; (2) the defendant’s notarization was not the proximate cause of the plaintiff’s damages where 11 years elapsed between when the guaranty was notarized, during which the plaintiff orally modified terms of the guaranty; and (3) the damages alleged were not out-of-pocket losses recoverable on a fraud claim and admittedly caused by other factors.

Saleh Holdings Group, Inc. v Chernov, Sup Ct NY County, January 31, 2011, Fried, J, Index No. 650177/10

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In a January 14, 2011 decision by Justice Bransten, the Court was faced with a series of motions to dismiss for lack of personal jurisdiction, as well as for failure to timely serve the complaint pursuant to CPLR 306-b.  Plaintiff also moved for leave to amend and for an accounting.

The complaint alleges that defendants failed to pay salary and commissions allegedly owed to plaintiff. Several defendants, Kennedy Associates (“KA”) and Jason Kennedy, moved to dismiss under CPLR 306-b, for failure to timely serve the complaint. The other defendants, Kennedy Executive Search, Inc. (“KES”) and Jack Kandy, moved to dismiss on the ground that service on KA, a British affiliate of KES, was not sufficient service on KES or Kandy. 

On the personal jurisdiction issue, plaintiff claimed that KES was “a mere department” of KA, which was validly served. The Court analyzed the “mere department” and agency theories of corporate presence developed under the Court of Appeals’ cases Taca Intern. Airlines, SA v. Rolls-Royce of England, Ltd. and Frummer v. Hilton Hotels Int’l, Inc., concluding that KES is indeed an agent of KA for jurisdictional purposes.

As to KA and Kennedy, the Court held that plaintiff did not serve within the required 120 days of filing, and noted that plaintiff did not move to extend that time. In addition, the Court noted that the plaintiff could have served those defendants (both British citizens) through the Hague Convention. Accordingly, the complaint was dismissed without prejudice as to those defendants.

The Court granted plaintiff’s motion for leave to file an amended complaint, but denied the application for an accounting. The Court reasoned that as an at-will employee, there was no fiduciary duty to establish a right to an accounting.

Arbeeny v. Kennedy Executive Search, Inc., Sup Ct, New York County, Jan. 14, 2011, Bransten, J,  Index No. 105733/07.

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In a July 1, 2010 decision by Justice Sherwood, the Court granted plaintiff’s motion to amend the complaint to change the name of a party and to add additional allegations and also granted one of the defendants’ motions to dismiss. The original plaintiff in the action was a wholesaler of novelty items. The defendants were the purchaser of the items, a related entity and one the entities’ principals. Plaintiff alleged that the related entity guaranteed payment for goods shipped to the purchaser and the purchaser’s principal was personally liable for the transaction.

The defendants moved to dismiss on a number of grounds including CPLR 1003 for “misjoinder” of parties, namely the related entity and the principal. The plaintiff crossed moved to amend the complaint, including changing the name of the plaintiff to a commercial financial services corporation which was the successor in interest to the plaintiff, to add new allegations against the entities and change the nature of the cause of action against the principal. 

The Court granted plaintiff’s motion finding that the defendants would not be prejudiced by the amendment, but also granted the individual defendant’s motion to dismiss because there were insufficient allegations to hold him liable for the corporate obligation.

Glaze Inc. v Coach Choice Apparel, Inc., et al., Sup Ct, New York County, July 1, 2010, Sherwodd, J, Index No. 100993/2009.

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In a June 28, 2010, decision by Justice Sherwood, the court denied respondent’s motion to confirm an arbitration award in connection with a dispute over the valuation of a condominium apartment. The arbitrator determined in his award that the final buyout amount would be subject to and offset by, among other things, certain credits related to the parties’ respective payment of expenses on the apartment over the years. When the parties submitted conflicting calculations of the value of the apartment in connection with respondent’s motion, the court found that the award was “not sufficiently specific and definite to constitute a final award, and, for enforcement purposes, warrants more than a ministerial act or arithmetic calculation to arrive at the buyout amount.” Because the award was not sufficiently final and definite, the court denied the motion and remitted the matter to the arbitrator for a hearing on the buyout amount of the apartment.  

Johnson v Caputo, Sup Ct, New York County, June 28, 2010, Sherwood, J., Index No. 117063/07

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Justices Eileen Bransten and Charles E. Ramos of the New York County Commercial Division have updated their individual practice rules.  Access Justice Bransten’s updated practices here and Justice Ramos’s updated practice here.

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In a January 27, 2011 decision by Justice Lowe, the court found that defendant Tequila Cuervo was liable for breaching a 1997 agreement with Jim Beam which resolved a dispute pending before the U.S. Patent and Trademark Office concerning Tequila Cuervo’s unauthorized use of Jim Beam’s trademarked “crow” design. The court granted summary judgment on liability upon finding that Tequila Cuervo admitted to using certain designs beyond the limitations set forth in the 1997 agreement. The court rejected Tequila Cuervo’s contention, that Jim Beam is not entitled to damages because any breach was not material because Jim Beam did not lose any sales as a result of any Tequila Cuervo’s use of the designs, finding that New York law permits an aggrieved party to seek damages for both material and minor immaterial breaches.

Jim Beam Brands Co. v Tequila Cuervo La Rojena S.A. De C.V., Sup Ct, New York County, January 27, 2011, Lowe, J, Index No. 600122/08

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In a December 1, 2010, decision by Justice Bransten in connection with an action to recover damages stemming from an alleged breach of contract and various business torts, and on plaintiff’s motion to compel defendants to pay fees related to the production of plaintiff’s expert witness for a deposition, the court denied the motion finding “no dispositive controlling authority . . . to exert its own authority to order either party to pay for the professional fees incurred by plaintiff’s expert witnesses during deposition by defendants.” Rejecting plaintiff’s argument that a defendant must bear the expense of taking a deposition under CPLR 3116 [d], the court held that the “expenses” referenced in that provision pertain only to the administrative costs of a deposition, not the professional fees associated with the expert’s time. The court noted, however, that it agreed with “the Federal system requiring the party seeking discovery to pay the reasonable cost of the expert in responding to the deposition and taking part therein” and “prefer[ed] this manner of proceeding.” 

Maniscalco v Couri, Sup Ct, New York County, December 1, 2010, Bransten, J, Index No. 115646-08

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In a November 24, 2010, decision by Justice Fried in connection with an action by plaintiff-lender against defendant-guarantor to recover under a personal guaranty after a default on a construction loan, the court granted plaintiff’s motion for summary judgment in lieu of complaint and denied defendant’s cross-motion to dismiss for lack of personal jurisdiction. The court found that despite the fact that proper documentation was not filed with the county clerk as prescribed by CPLR 318, service of plaintiff’s motion on an agent designated in the guaranty was sufficient because “parties can contractually agree to other methods of service beyond those set forth in the CPLR, and a contract provision designating a party’s service agent is valid.” Because a motion for summary judgment in lieu of complaint may be based on a guaranty, and because the law recognizes waiver-of-defenses provisions in guaranties as valid and enforceable, the court found that plaintiff was entitled to summary judgment as a matter of law and granted the motion. The court also denied defendant’s motion to supplement the record with a medical report suggesting that defendant “lacked the requisite contractual capacity” to enter the guaranty for lack of good cause shown because the motion, initially proposed informally during oral argument, clearly was an afterthought motivated by defendant’s perception that plaintiff was going to prevail.

GSO RE Onshore LLC v Sapir, Sup Ct, New York County, November 24, 2010, Fried, J., Index No. 650367/10

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In an October 12, 2010 decision by Justice Kapnick, the court granted a motion to reargue a motion to confirm a Special Referee’s report. Following a two-day hearing, the Special Referee found that a valid power of attorney existed and recommended that the court reinstate a previously vacated stipulation of settlement which ended litigation grounded upon an alleged fraudulent transfer of an apartment building. The defendants’ motion for reargument hinged on their position that the Special Referee should have, but failed to, consider whether or not the power of attorney was properly filed and recorded pursuant to EPTL 13-2.3. In confirming the Special referee’s report, the court initially determined that that issue was outside the court’s reference to the Special Referee. However, it subsequently concluded that reargument must be granted and the stipulation of settlement vacated because: (1) EPTL 13-2.3 applied to the transaction at issue and provides that no actions taken pursuant to a power of attorney are effective unless such power of attorney is duly recorded; and (2) there was no evidence in the record that the power of attorney had been recorded.

Webb v Smith, Sup Ct, New York County, October 12, 2010, Kapnick, J, Index No. 101329/00

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In a November 22, 2010, decision by Justice Kornreich in connection with a derivative action on behalf of an investment fund by plaintiff-shareholders against the fund’s board of directors for wrongfully commencing a lawsuit that allegedly caused the fund to incur substantial legal fees and exposed it to potential liabilities, and on defendant-directors’ motion to dismiss for lack of standing, the court granted the motion and dismissed the complaint with costs and disbursements to defendants. As the fund was incorporated in the Cayman Islands, the court took judicial notice of and applied English common law, which defers to “the principle of majority rule with respect to matters of ordinary corporate governance,” and found that plaintiffs lacked standing to bring the action derivatively because 1) a simple majority of the fund’s shareholders could ratify defendants’ conduct in commencing the allegedly-unnecessary suit; and 2) defendants’ conduct did not rise to the requisite level of self dealing to constitute fraud on the minority. 

CMIA Partners Equity Ltd. v O’Neill, Sup Ct, New York County, November 22, 2010, Kornreich, J., Index No. 603622/09

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In an October 18, 2010 decision by Justice Bransten, the Court granted Defendant summary judgment dismissing the complaint. The parties’ dispute arose out of a contract for the sale of a condominium loft. Plaintiff refused to close on sale and brought claims for rescission and fraud, seeking the return of his deposit, claiming that he was misled as to the ability to build a sleeping loft in the apartment. 

Plaintiff and defendant both moved for summary judgment in their favor. The court granted Defendant’s motion for summary judgment finding (i) the contract did not contain any misrepresentation regarding the ability to build a sleeping loft, (ii) the contract contained a “general merger clause” (stating that the contract contained the parties’ entire agreement) and (iii) the contract contained a specific merger clause attesting to the fact that Plaintiff had not relied upon anyone representations other than those contained in the contract and Plaintiff reviewed the condominium’s by-laws and regulations and the contract of sale was “as-is.” The Court also found that, even if the contract did not contain those provisions, Plaintiff failed to adequately plead a fraud cause of action because he did not particularize any allegedly fraudulent statements made by defendant.

Casano v New 19 W. LLC et al, Sup Ct New York County, October 18, 2010, Bransten J, index No. 650220/10

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In a November 10, 2010 decision by Justice Kapnick, the court in connection with a dissolution proceeding, denied the respondent’s motion to reject certain aspects of the Special Referee’s Report which determined the valuation of the petitioner’s interest in the subject company.   Turning to the well settled-law that “New York courts will look with favor upon a Referee’s report,” the court found that the Special Referee properly exercised his discretion in evaluating the credibility of the parties’ expert witnesses and their valuation techniques, and that the record substantiated his findings. The court therefore confirmed all aspects of the report.

Matter of Abraham v. Hanui Lu, Sup Ct, New York County, November 10, 2010, Kapnick, J, Index No. 602895/06

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In a December 1, 2010 decision by Justice Ramos, the Court granted defendant’s motion to dismiss the fraudulent conveyance claim asserted by plaintiff. In BPLY, Inc., plaintiff, a fashion sales agent for defendants, claimed that the individual defendants (principals of the defendant entity), engaged in a series of fraudulent conveyances. The defendant entities filed voluntary bankruptcy petitions in the District of Nevada, in which BPLY, Inc. was listed as a creditor. After examination by the Trustee in bankruptcy, final decrees were issued and the Chapter 7 Trustee discharged. The Trustee had concluded that the entities had no property available for distribution and that the estates had been fully administered. Defendants moved to dismiss the fraudulent conveyance claim, asserting that the assets subject to the claim reverted back to the entities’ bankruptcy estates upon filing the petitions, thus there could be no conveyance to the defendants. Defendants also moved to dismiss for lack of personal jurisdiction.   Concluding that the bankruptcy estate has exclusive authority to maintain fraudulent conveyance claims brought by a creditor of the debtor against a principal of the debtor involving pre-petition transfers, the court granted defendants’ motion to dismiss, and denied as moot, the motion to dismiss for lack of personal jurisdiction.   (BPLY, Inc. v. W1nder, Inc., Sup Ct, NY County, Dec. 1, 2010, Ramos, J, index No. 650029/10)

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In a November 3, 2010 decision by Justice Richard B. Lowe, the Court granted the motion of Respondent Quinn Emanuel Urquhart Oliver & Hedges, LLP ("Quinn Emanuel"), pursuant to the Federal Arbitration Act, 9 U.S.C. §9, Rule 11, and Article 75 of the Civil Procedure Law and Rules, to confirm an arbitration award issued by the arbitration panel in AAA Arbitration No. 13 194 Y 995 08 on August 25, 2010. The Court denied Petitioners’ cross-motion for an order staying confirmation of the award pending an appeal to the Ninth Circuit Court of Appeals.   This case arises out of a fee dispute between Quinn Emanuel and petitioners over a contingency fee arrangement subject to arbitration. In an earlier decision in 2008, Justice Lowe denied petitioners’ motion to stay arbitration.

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In an October 15, 2010, decision by Justice Schweitzer in connection with a shareholder derivative action brought by plaintiff-shareholder on behalf of an asset-management company against its board of directors alleging an improper accounting of the company’s investments, and on defendants’ motion to dismiss for failure to state a cause of action and failure to make a pre-suit demand on the board under Delaware law, the court granted defendants’ motion, finding that plaintiff was not excused from making such a demand under the demand-futility doctrine because 1) the sole authority of each of the directors to determine the company’s value was not “unique” and plaintiff failed to plead with the requisite particularity facts to suggest that the board was alerted to potential misconduct; 2) the board’s knowledge of the market meltdown of 2008 was not a violation of the its code of ethics and was not suggestive of its awareness of any company wrongdoing; 3) the board members’ service on the company’s audit, valuation, and compensation committees alone was insufficient to excuse a pre-suit demand and plaintiff’s allegations regarding specific breaches on the part of committee members was “entirely conclusory”; and 4) plaintiff failed to show how the board members’ past and current professional relationships impeded their ability to assess objectively a pre-suit demand. In sum, the court found that “the complaint fails to plead particularized facts that show where the board ostensibly crossed the line making their failure to prevent the false valuations to be bad enough to create a reasonable doubt that the board cannot properly exercise its independent and disinterested business judgment in responding to a demand.” The court granted plaintiff leave to amend the complaint within 45 days of its order.

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In a September 9, 2010, decision by Justice Ramos in connection with an insurance-coverage dispute between plaintiff-asbestos provider and defendant-insurers, and on cross-motions for summary judgment regarding a loss-of-fortuity exclusion in the related insurance policy, the court, “on weighing the public policy that . . . contracts for insurance based upon a known loss should not be enforced, against the right to establish private contracts,” granted plaintiff’s motion and denied defendants’ motion, finding that the exclusion based on intended or expected harms did not apply because there was no evidence of bad faith or concealment of risks on the part of plaintiff who in fact habitually disclosed such risks to its customers. The court also denied defendants’ motion based on collateral estoppel for lack of specificity, finding that defendants did not sufficiently establish that the same issue was raised in a previous litigation.

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In an August 10, 2010, decision by Justice Bransten in connection with plaintiff-subcontractor’s action against defendant-general contractor to recover money due on a construction contract, and on plaintiff’s motion for summary judgment, the court granted plaintiff’s motion finding that it had made a prima facie showing of entitlement to judgment as a matter of law based on account stated by submitting evidence that it had sent defendant seven invoices for services rendered, some of which defendants had made partial payment and all of which defendant had assured full payment. The court found that defendant’s submission of an attorney affirmation asserting a defense based on condition precedent was without merit because the affirmation was not accompanied by admissible documentary evidence and because plaintiff had submitted contrary evidence that defendant had imposed no such conditions on payment under the parties’ contract. The court also found defendant’s letter objecting to the invoices, sent a year and a half after the last invoice, was not timely for purposes of defeating a claim based on account stated.

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In a September 10, 2010 decision by Justice Ramos the Court partially granted a motion to amend a complaint and denied a cross-motion for sanctions. The action was originally brought against plaintiffs’ architectural firm, one of its owners and plaintiffs’ general contractor alleging a scheme by which the architects directed clients to the contractor and approved inflated bills tendered by the contractor, and in exchange the contractor paid the architect kick-backs. 

Plaintiffs sought to amend their complaint to add claims against one of the owners of the architectural firm (who was not a party to the action), to add mail and wire fraud RICO charges and to add details to their bribery RICO charges. The court denied the motion to add claims against the individual owner of the architectural firm based on statute of limitations. The Court also denied the motion to amend to add mail and wire fraud charges because the proposed pleading did not contain sufficient particularity and did not allege a viable mail and wire fraud RICO claim. But the Court granted plaintiffs motion to the extent it sought to add additional detail to the bribery RICO claim. The Court also denied defendants’ cross-motion for sanctions.

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In a decision dated August 9, 2010, Justice Bransten granted in part and denied in part a motion to dismiss a complaint brought by the plaintiff investor who purchased from defendant Dutch Book Funds, SPC, a segregated portfolio company, shares in a portfolio following its receipt of a Memorandum containing certain representations as to the portfolio, including a representation that the defendant fund had developed a certain set of algorithms that had been successfully used previously . After the plaintiff lost millions of dollars, the plaintiff brought suit against the fund, the fund’s investment advisor, and the CEO/CFO of the and alleged causes of action for breach of contract, breach of fiduciary duty, negligence, fraud, and personal liability against the CEO/CFO. The court granted the motion to dismiss insofar as it dismissed: (1) the breach of contract claim against the fund and the advisor because the Memorandum did not contractually obligate the fund to achieve the investment objective, and because there was no valid and binding contract between the plaintiff and the advisor; (2) the breach of fiduciary duty claim against all defendants because it was duplicative of the breach of contract claim asserted against the fund, the advisor owed no fiduciary duty to the plaintiff, and the plaintiff admitted it was a sophisticated investor and failed to allege that the CEO/CFO acted outside of his capacity as a corporate representative; and (3) the negligence claim against all defendants because it was duplicative of the breach of contract claim and no defendant owed a duty to the plaintiff beyond the terms of the Memorandum. 

The court denied the motion with respect to the fraud claims, finding: (1) the alleged misrepresentations contained in the Memorandum were not merely aspirational, as the defendants argued, but may have mislead a reasonable investor; (2) the cautionary language contained in the Memorandum concerning risk disclosures did not insulate the defendants from a failure to disclose adverse current conditions; and (3) even as a sophisticated investor, the plaintiff may have justifiably relied on the misrepresentations concerning the algorithms. Finally, the court denied the motion to dismiss the claim for personal liability against the CEO/CFO, finding that the complaint sufficiently pled, and thus created an issue of fact as to whether the CEO/CFO “exercised complete dominion of the corporation in respect to the transaction attacked, and that such dominion was used to commit a fraud or wrong against the plaintiff which resulted in plaintiff’s injury.”

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In a decision dated May 22, 2009, Justice Lowe granted Plaintiff’s motion for a preliminary injunction freezing Defendants’ funds, finding that Plaintiff demonstrated a likelihood of success on the merits because Defendants may have committed active intentional fraud; that the destruction by Defendants of the trust placed in title agencies at real estate closings demonstrated irreparable harm; and that the balance of equities favored preservation of the status quo by preventing Defendants from destroying their records and converting further escrow funds.

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In a May 26, 2009 decision, Justice Kornreich affirmed an arbitration award which denied the petitioner any relief on statute of limitations grounds. The Court found that the arbitrators’ decision was neither arbitrary nor capricious, but in fact rational, and the motion to confirm was brought within one-year of the decision being rendered, mandating confirmation of the award.

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In an April 13, 2009 decision, Justice Kapnick granted the defendant’s motion to dismiss the complaint, which alleged breach of a Shareholder’s Agreement, fraud, and fiduciary duty stemming from the plaintiff’s agreement to become a 50% partner in the defendant’s radio station business and their execution of two Shareholder’s Agreements. The court dismissed the breach of contract claim, finding the defendant did not breach any provisions of the second Shareholder’s Agreement as the plaintiff’s rights to recover relocation and constructions costs set forth in the first agreement were merged with the subsequent agreement. The court dismissed the fraud claim on the grounds that the plaintiff failed to demonstrate that he justifiably relied on any alleged misrepresentation as to the profitability of the radio station, as there was no allegation that he undertook any due diligence to determine profitability before entering into the agreement. The court dismissed the breach of fiduciary duty claim alleging that defendant breached duties to her fellow shareholder on the grounds that the claim was a derivative claim as a shareholder has no individual cause of action to recover damages for a wrong against a corporation.

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Industry:  Real Estate

In a November 3, 2008 decision, Judge Ramos denied a motion for a preliminary injunction brought to enjoin the defendants from competing with the plaintiffs to acquire development rights on the grounds that the defendants breached fiduciary duties owed to the plaintiffs. The court first determined that either Delaware or New York law applied. Where a claim involves a breach of fiduciary duty, the state of formation governs. Even though the plaintiff 125 Urban was formed in Delaware, the defendants were not signatories to the articles of organization, but could be held to some duty.

The court denied the preliminary injunction finding that to the plaintiffs failed to establish a reasonable probability of success on the merits of the breach of the fiduciary duty claim because:

1. No operating agreement was executed to establish the defendants were fiduciaries;
2. That one of the defendants made a contribution to Plaintiffs for payment was inadequate to make it a member of Plaintiff 125 Urban;
3. The potential distribution of profits on an equal basis did not create a partnership or joint venture; and
4. Evidence showed that defendants did not engage in prohibited conduct because an exclusivity period expired prior to defendants’ actions.

 Click here for full decision.

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On Plaintiff-general contractor’s claims for money damages and foreclosure on its mechanic lien, and on Defendant-owners’ motion to strike Plaintiff’s demand for trial by jury by reason of its joining equitable and legal claims, the Supreme Court, New York County, Lowe, J. denied Defendants’ motion, finding that the dispute as a whole was legal in nature because it involved a breach of a construction contract for which Plaintiff essentially sought money damages and because all the issues in the case were sufficiently intertwined and related such that only one trial was desirable and necessary.

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Index Words: motion to dismiss; breach of fiduciary duties, not-for-profit law violations; fraud; breach of covenant of good faith and fair dealing; professional malpractice tortuous interference with a contract; aiding and abetting breaches of fiduciary duty/fraud; fraudulent transfers; bankruptcy code fraudulent transfer claims; civil conspiracy; corporate status

In a February 2, 2009 decision, Justice Fried addressed a motion to dismiss 19 of 20 causes of action stemming from attempts to restructure the St. Vincent Merical Centers of New York.

The action was brought against a turn-around specialists hired by St. Vincent named Speltz & Weiss and Huron; and the individual owners of Spetz & Weiss.

The court denied dismissal of the breach of fiduciary duties cause of action, finding that it was not a restatement of the breach of contract cause of action, but rather alleged breaches of a duty arising out of the relationship created by the contract which is nonetheless independent of the contract. The court also found that the “business judgment rule” did not protect corporate officials who engage in fraud or self-dealing when they make decisions affected by inherent conflicts of interest.

The court affirmed the not-for-profit law violations, against the individual Spetz & Weiss defendants, because N-PCL §§ 717 and 720 creates an independent fiduciary duty to the not-for-profit corporation. But the court dismissed the claims as against the corporate entities, because the statutes only apply to offices and directors.

The court declined to dismiss the common-law-fraud claims, finding that they were pled with sufficient particularity and that they are duplicative of the breach of contract claims because they allege fraudulent conduct that was collateral to the parties’ contract. The court also declined to dismiss the breach of covenant of good faith and fair dealing claims for similar reasons.

The court dismissed the professional malpractice claims, finding that the business the Spetz & Weiss defendants engaged in was not a “profession” for professional malpractice claim purposes.

The court declined to dismiss the tortuous interference with a contract claim against the Huron defendants, who purchased Spetz & Weiss during the restructuring of the hospital, because it was sufficiently pled, because the sale was on terms which created an irreconcilable conflict of interested between the hospistal and Spetz & Weiss;

The court denied dismissal of all but one of the aiding and abetting breaches of fiduciary duty claims against Huron and the Spetz and Weiss defendants. The reason the court did dismiss one of the claim was because plaintiff failed to alleged that the Huron defendants were aware of any particular instances of outright fraud being committed by the Spetz and Weiss defendants.

The court dismissed the fraudulent transfer claims because the plaintiff failed to alleged the elements of such claims and failed to plead them with sufficient particularity.

Nevertheless, the court allowed to remain the Bankruptcy Code Fraudulent transfer claims, holding that there was no case law which restricted such claims to the Bankruptcy Court and that the claims were ultimately made for the benefit of the benefit of St. Vincent’s estate.

The court dismissed the civil conspiracy cause of action, because it is not recognized as an independent tort in New York.

The court allowed the punitive damages claim to remain, because the acts complained of were sufficient if proven to be intentional or deliberate, with wonton disregard of the right of a charitable hospital and at a time that the hospital was in the middle of a financial crisis.

The court allowed the plaintiff to correct a pleading failure, its failure to plead that it was a limited liability company authorized to do business in New York, through the submission of documentary evidence and that “plaintiff has cured what is a non-jurisdiction defect by obtaining the requisite authority to maintain this lawsuit” after commencing the lawsuit.
 

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In a special proceeding for dissolution under BCL 1104-a and a subsequent election to purchase Petitioner-minority owner's shares, and on a joint application for partial summary judgment on the issue of the proper valuation date, the Supreme Court, New York County, Cahn, J. granted Petitioner partial summary judgment, holding that BCL section 1118 "is clear that the relevant date for determining the valuation of Petitioner's shares is the day prior to his filing the Petition" as opposed to the date prior to Petitioner's earlier filing of a demand for arbitration.

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Industry:  Tax

In a December 1, 2008 decision, Judge Kapnick upheld the decision by a Special Discovery Referee which directed the plaintiff to disclose to the defendant communications it had with the IRS because: (1) the attorney-client privilege had been waived by plaintiff’s voluntary disclosure to a third party, (2) the privilege afforded the work product doctrine had been waived by because the plaintiff disclosed information to the IRS with which it had an adversarial interest, and (3) there was no common interest between the plaintiff and IRS because affidavits from the IRS agreeing to keep information confidential did not establish an oral or written common interest agreement between the plaintiff and IRS.
 

The court concluded the Referee had broad discretion in supervising discovery and its determination was support by the record. 
 

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