Forum Selection Clause Applies to a Non-party to Agreement When Found to be "Closely Related" to the Party: Montoya v Cousins Chanos Casino, LLC
In a January 12, 2012 decision by Justice Kornreich, the court granted in part defendants’ motion to dismiss a declaratory judgment action that sought a declaration that plaintiffs complied in all respects with a Subscription Agreement.
The case arose out of an investment in a Law Vegas casino. In response to defendants’ threats of suing plaintiffs for misleading them in an investment, plaintiffs brought this action seeking, among other things, a declaration that they fully performed their obligations to defendants under the terms of the Subscription Agreement and that any common-law claims based on defendants’ investment are preempted by New York's Martin Act, (NY General Business Law §§ 352. After plaintiffs commenced this action, defendants filed suit in Nevada. The Nevada action alleges that plaintiffs engaged in fraud, fraudulent concealment and securities fraud in connection with the solicitation of investments; deceptive trade practices; unjust enrichment; conspiracy; breach of fiduciary duties; aiding and abetting breach of fiduciary duties and gross mismanagement.
On this motion to dismiss, defendants argue that plaintiffs were not signatories to the Subscription Agreement and, as a result, lack standing to bring this declaratory judgment action. Moreover, they claim that the forum selection clause in the Subscription Agreement is inapplicable because the causes of action in the Nevada complaint, common-law and statutory claims, do not arise from the Subscription Agreement. In addition, defendants contend that this action should be dismissed because there is another action pending between the parties in Nevada and this action was commenced solely in an effort to circumvent Nevada's adjudication of defendants' claims.
The Court held that a non-party may enforce a forum selection clause if the non-party is "closely related" to one of the signatories. Here, the Subscription Agreement contains both New York choice of law and forum selection clauses. By signing the Subscription Agreement containing the forum selection clause, defendants agreed to submit to the jurisdiction of the New York courts. Plaintiffs do have standing to bring this action because they are intended beneficiaries of the agreement and/or are closely related to the entity, one of the signatories of the agreement. Dismissal of this action, which was the first filed, is not warranted, since plaintiffs are merely asking the court to declare the parties' respective rights and remedies under the Subscription Agreement. The court observed that New York courts routinely enforce contractual forum selection clauses and pursuant to New York's General Obligations Law (GOL) § 5-1402.
The Court also concluded that no private right of action for damages exists under the Martin Act. Rather, the court reasoned that it appeared that plaintiffs were seeking an impermissible advisory opinion from the court to determine whether they have viable defenses to defendants' lawsuit. Plaintiffs' request for a declaration that they complied in all respects with the Subscription Agreement, requires the court to declare findings of fact, rather than to decide issues of law.
Montoya v. Cousins Chanos Casino, LLC, Sup Ct, New York County, Jan. 12, 2012, Kornreich J, Index No. 651353/2011.
Court Rejects Claim that Christie's was Liable for Sale of Counterfeit Jean-Michel Basquiat Painting
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
Court Seals Record of Settled Case to Protect Anonymity and Foster Purpose of Settlement Agreement: Doe v Szul Jewelry, Inc.
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
Court Rejects MBIA's Claim for Fraudulent Inducement Where it Failed to Conduct its Own Due Diligence: MBIA Ins. Corp. v Credit Suisse Sec. (USA) LLC
In a June 1, 2011 decision by Justice Kornreich, the court granted in part and denied in part, the defendants’ motion to dismiss the complaint which arose out of an insurance policy MBIA issued to guarantee payments to a trust that consisted of residential second mortgages and mortgage-backed securities. Plaintiff MBIA alleged that it issued the insurance policy as a result of the defendants’ fraudulent misrepresentations and breaches of contractual representations and warranties. The court dismissed the fraudulent inducement claim on the grounds that it was duplicative of MBIA’s breach of contract claim and struck the demand for punitive damages. It found that MBIA’s allegations, that the loans at issue did not conform with underwriting guidelines and the defendants’ Prospectus did not adequately disclose information about the loans, were not facts collateral to the contract, and any damages sustained as a result could be recovered under the breach of contract claim. The court further concluded that MBIA’s allegation that the defendants’ representation that they complied with the strict underwriting standards was insufficient to state the fraudulent inducement claim because MBIA, a sophisticated business entity, failed to conduct its own due diligence, was aware that the Prospectus painted a negative picture of the trust’s value and, therefore, assumed the risk when it elected to proceed with the transaction under those known facts.
The court denied the motion to dismiss the breach of contract claim, rejecting the defendants’ argument that the claim lacked specificity, because CPLR § 3013 required MBIA only to provide notice of the transactions, which it properly did. However, the court struck MBIA’s claim for lost profits because such damages are recoverable under a breach of contract claim only where the particular damages are contemplated by the parties at the time of the agreement, and the court found that the insurance agreement evidenced the parties’ intent to limit damages to the amounts due under the agreement and amounts necessary to enforce MBIA’s rights thereunder.
MBIA Ins. Corp. v Credit Suisse Sec. (USA) LLC, Sup Ct NY County, June 1, 2011. Kornreich, J, Index No. 603751/09
Fact Questions Concerning Industry-Specific Practices Cannot Be Determined in the Context of a Motion to Dismiss: Deloitte (Cayman) Corporate Recovery Servs., LTD v Sandalwood Dept Fund A, LP
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
Restaurateurs Liable for Damages to Contractor Convinced to Accept an Ownership Interest in Lieu of Payment Owed: Deriggi v Brady, et al
In an April 7, 2011 decision by Justice Kornreich the Court partially granted plaintiff’s motion for summary judgment. Plaintiff performed construction and related work for a restaurant. The defendants convinced plaintiff to accept an ownership interest in the restaurant in lieu of the money he was owed for the work. The defendants also convinced plaintiff to make cash contributions towards the development of the restaurant. Defendants made a number of false representations to obtain plaintiff’s agreement, including falsely representing their own contributions towards the endeavor.
Plaintiff moved for summary judgment. The Court previously struck two of the defendants’ answer because of their failures to comply with their discovery obligations and therefore performed its analysis as if each allegation in the complaint had been admitted. The Court, nevertheless, found that elements of plaintiff’s claims were lacking and partially granted plaintiff summary judgment on only some of his claims for fraud. The Court also granted summary judgment on plaintiff’s claims for implied-in-fact contract/oral contract (which claims the Court allowed after it sua sponte conformed the complaint to the proof developed during discovery.
Deriggi v Brady, et al., Sup Ct, New York Count, April 7, 2011, Kornreich, J, Index No. 104300/07
Motion to Dismiss Claim Based on Breach of Recapitalization Agreement Denied: Bryanston Group, Inc. v. Empire Resorts, Inc.
In a March 28, 2011 decision by Justice Kornreich, the Court denied defendant’s motion to dismiss a breach of contract complaint. The action arose out of a recapitalization agreement between defendant Empire Resorts (“Empire”), and two of its preferred shareholders, plaintiffs Bryanston Group, Inc. and Stanley Tollman. Plaintiffs claimed that Empire breached the recapitalization agreement and sought a preliminary injunction requiring the company to set aside funds sufficient to redeem their preferred shares and pay accrued dividends. Empire moved to dismiss.
According to plaintiffs, Empire used certain funds for purposes other than retirement of plaintiffs' preferred stock, including payment of operating expenses in excess of $1 million and settling a contested claim with a former CEO. According to the Court, if such use of those funds constituted payment of "dividend" or the making of a "distribution," then plaintiffs correctly alleged that Empire breached Section 1.9 the Recapitalization Agreement. Accepting the allegations of the complaint as true, the Court denied the motion to dismiss.
Bryanston Group, Inc. v. Empire Resorts, Inc., Sup Ct, New York County, March 28, 2011, Kornreich, J, Index No. 650881/10.
Court Applies English Common Law Regarding Derivative Claims and Dismisses Complaint for Lack of Standing: CMIA Partners Equity Ltd. v O'Neill
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
Pre-Suit Demand in Derivative Action Not Met: Security Police & Fire Professionals of Am. Retirement Fund v Mack
In a December 9, 2010 decision by Justice Kornreich, the Court dismissed a derivative action brought by shareholders of Morgan Stanley, against Morgan Stanley and its executive officers and directors. The complaint sought damages for compensation that Morgan Stanley paid and planned to pay its employees from the years 2006, 2007 and 2009. Plaintiffs alleged claims of breach of the duty of loyalty and waste against the individual director and officer defendants. Applying Delaware law, since Morgan Stanley is incorporated in Delaware, the Court analyzed the demand futility doctrine and business judgment rule, and concluded that the demand requirement under Rule 23.1 was neither excused nor satisfied.
Security Police & Fire Professionals of Am. Retirement Fund v Mack, Sup Ct, New York County, December 9, 2010, Kornreich, J., Index No. 600359/2010
Matter of Giampaola v. Allstate Ins. Co., Sup Ct, New York County, May 26, 2009, Kornreich, J, Index No. 104920/07
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.
