Attorney's Appearance For Party in Default, Without Reserving Objections, Waives Objections to Faulty Service and Lack of Personal Jurisdiction: Frederic and Ade v Israel et al.
In a February 9, 2012 decision by Justice Demarest, the court granted a defendant’s motion to vacate an order finding it in default and granted plaintiffs’ cross motion to amend to modify the caption and assert additional claims against that same party – but denied that defendant’s motion to dismiss. The dispute arose from a construction project. Defendant “T.I.A. of New York, Inc.” (“TIA”) supplied a dumpster to the project. The project was derailed, leaving TIA’s dumpster overflowing with garbage, located behind a large hole in the ground which allegedly making it impossible for TIA to remove the dumpster.
In their complaint plaintiffs originally named TIA as “TIA Rubbish Removal” (not its legal name). TIA was allegedly served through “affix and mail” service. When TIA did not appear plaintiffs obtained an order finding TIA in default. Shortly thereafter TIA appeared by counsel who filed a “Notice of Appearance” but did not file an answer to the complaint, bring a motion, or otherwise raise the defective service (affix and mail service is inapplicable to corporations). The Court found that this appearance “waived TIA’s objection to the propriety of service and th[e] court’s personal jurisdiction over it.” The Court nevertheless granted TIA’s motion to vacate the order finding it in default because TIA raised a reasonable excuse for its default and stated a potentially meritorious defense to plaintiffs’ claims. The Court also considered TIA’s other arguments that the claims against it should be dismissed because plaintiffs failed to properly name TIA before the expiration of the statute of limitations and found those arguments unpersuasive because TIA was not prejudiced by the misnomer. In addition, the Court allowed plaintiffs to amend their complaint to correct TIA’s name and allege additional causes of action against TIA finding there, too, that TIA would not be prejudiced by the amendments and the stated claims are not devoid of merit.
Frederic and Ade v Israel et al., Sup Ct, Kings County, February 9, 2012, Demarest, J, Index No. 20290/06.
Preliminary Injunction Granted, Contracts Voided based on Fraudulent Inducement and Public Policy: Ceppos v Szlendak
In a January 12, 2012 decision by Justice Bucaria, the court granted the plaintiffs’ (“Ceppos’”) motion for a preliminary injunction restraining the defendants (“Szlednaks”) from enforcing three agreements; denied Ceppos’ motion for a preliminary injunction restraining the Szlendaks from using any of Ceppos’ confidential business information; and denied the Szlendak’s cross-motion to dismiss the complaint. The three contracts between Ceppos and Marisuz Szlendak, the CFO of plaintiff company Sarut, were entered after Ceppos discovered that Marisuz embezzled approximately $500,000 from Sarut. The contracts were: 1) a severance agreement in favor of Marisuz, in which Marisuz agreed not to compete with Sarut or to use any of its confidential information; 2) an agreement through which Ceppos pledged Marisuz‘s 30% stock in Sarut back to him to secure the severance agreement payments; and 3) an escrow agreement appointing Blank Rome LLP as escrow agent to hold the stock. Ceppos moved for a preliminary injunction declaring all three agreements void due to allegedly false representation made by the Szlednaks that they would “restore the ‘familial and emotional’ relationship” that Ceppos enjoyed with the Szlendaks’ children. Additionally, Ceppos sought to restrain the Szlednaks from using Ceppos’ confidential business information. The Szlendaks’ cross-moved to dismiss for failure to state a cause of action for fraud in the inducement and based on a general release in the severance agreement.
The court granted Ceppos’ motion with respect to the enforcement of the agreements, finding that there was a danger of irreparable injury if the stock was sold to a third party, and that although a promise to foster a relationship might be too vague for enforcement, Ceppos established a likelihood of success on the merits because the circumstances suggested that the Szlendaks intended to sever any relationship between their children and Ceppos. The court also found that overarching public policy could mandate voiding the agreements to the extent that the purpose of the severance agreement was to avoid criminal prosecution of Mariusz. Because Ceppos established a likelihood of success on the fraud claim, the court denied the Szlendak’s cross-motion to dismiss in its entirety. Finally, the court held that because the severance agreement was void due to fraud, Ceppos surrendered every right under it, including the benefits of the non-compete provision.
Ceppos v. Szlendak, Sup Ct, Nassau County, January 13, 2012, Bucaria, J, Index No. 013788/11
Subcontractor Proceeds with Contract Claim Against Property Owner Despite Lack of Privity: Schwing Elec. Supply Corp. v Hunter Roberts Constr. Group LLC
In a December 28, 2011 decision by Justice Whelan, the court denied the defendant’s motion to dismiss the complaint and permitted a subcontractor to proceed with its breach of contract and unjust enrichment claims against the property owner, as well as the claim for fraudulent inducement against the individual defendants who the plaintiff claimed induced its performance under the contract. The contractor entered into a sub-contract with a non-party for electrical goods which, in turn, entered into a sub-contract with the plaintiff. When the non-party stopped paying the plaintiff, the general contractor and the individual defendants convinced the plaintiff to enter into a joint checking account agreement, by which the monies owed to the non-party would be held for the plaintiff’s benefit, so that the plaintiff would continue to supply goods to the project. The plaintiff brought suit when the defendants failed to make payments under the joint checking account agreement.
The defendants moved to dismiss on the grounds that they lacked privity of contract with the plaintiff. Although the court recognized the basic rule of law that a sub-contractor cannot state a breach of contract claim against an owner in the absence of privity of contract, it found that such a claim could be maintained where the owner had direct dealings with the subcontractor, to justify imposing an obligation on the contractor. Finding no dispute that the owner had direct dealings with the plaintiff in order to keep it engaged in the project, and based on the factual allegations and documentation submitted in connection with the motion, the court found the plaintiff stated cognizable claims for recovery. The court also found that the plaintiff sufficiently stated a fraudulent inducement claim against the individual defendants because it satisfied the specificity pleadings requirements of CPLR § 3016(b) and because the plaintiff could state a claim against corporate officers and directors who participated in or had knowledge of the fraud, and where the plaintiff specifically alleged a breach of duty separate from or in addition to the breach of the contract.
Schwing Elec. Supply Corp. v Hunter Roberts Constr. Group LLC, Sup Ct, Suffolk County, December 28, 2011, Whelan, J, Index No. 4328-11
Jilted Boyfriend Can Proceed with Action Against Ex For Wrongful Transfer of Real Property: Menteiga v DePaola
In a November 30, 2011 decision by Justice Pines, the court granted in part and denied in part the defendants’ motion to dismiss the complaint which contained 12 separate causes of action premised on the plaintiff’s allegations that defendant DePaola transferred title to real property located in Pennsylvania to herself and the plaintiff as tenants in common when they began dating but then wrongfully transferred the deed back to herself by forging the plaintiff’s name, following their break-up. The court dismissed the cause of action for slander on the grounds that the plaintiff failed to plead special damages with the requisite particularity, the fraud claim because the plaintiff failed to allege in detail, as required under CPLR § 3016(b), any misrepresentation DePaola made on which the plaintiff justifiably relied, and the claim for civil conspiracy as such cause of action is not recognized in New York. However, the court permitted the plaintiff to proceed on his other claims (except those he voluntarily dismissed). First, the court rejected the defendants’ argument that it lacked subject matter jurisdiction over the claims brought under Article 15 of the Premises Actions and Proceedings Law and RPL § 329 because the subject property was located in Pennsylvania on the grounds that the court’s undisputed personal jurisdiction over the defendants gave the court equity jurisdiction over their rights with respect to foreign property. The court also found that the plaintiff stated a claim for breach of fiduciary duty based on the legal principle that co-tenants in common owe each other fiduciary duties and may not ordinarily acquire adverse title to the common property without consent. Finding that claim sufficient, the court permitted the plaintiff to proceed on his claim for aiding and abetting breach of fiduciary duty. Finally, the court found the defendants’ argument that the claims against defendant Nolan as a notary failed because the plaintiff cannot prove money damages, as premature, because the plaintiff was not required to provide a rationale for his damages at the pleadings stage.
Manteiga v DePaola, Sup Ct Suffolk County, November 30, 2011, Pines, J, Index No. 16432-2011
Employer Loses Bid to Dismiss Claim that it Unlawfully Withheld Tips: Martin v Restaurant Assoc. Events Corp.
In a January 12, 2012 decision by Justice Scheinkman, the court denied the defendants’ motion to dismiss a class action complaint under CPLR §3211(a)(7), brought by current and former employees of the defendant catering companies which alleged that the defendants violated New York Labor Law § 196-d by misleading the customers to believe that a mandatory service charge on all orders was in lieu of gratuities and failing to distribute those service charges to the employees. Both sides argued that the case turned on the application of Samiento v World Wide Yacht, Inc., a 2008 decision by the Court of Appeals which held that Labor Law § 196-d is to be broadly construed and applied where a service charge, even if mandatory, purports to be a gratuity. The defendants argued that Samiento did not apply because there, the employer affirmatively told its customers that the service charge was remitted to the waitstaff as a gratuity, when in reality it was not. The plaintiffs, on the other hand, argued that the phrase “purports to be a gratuity” should liberally apply to passive conduct by the employer. The court found in the plaintiffs’ favor. It determined that the complaint sufficiently alleged a cause of action under section 196-d through the allegations that, by creating and imposing a service charge on customers without any explanation, and by barring employees from discussing gratuities with the customers under threat of termination from employment, the defendants created the prospect that a reasonable customer could believe that the charge was a gratuity and thus had policies that mislead the customers into believing that the charges were gratuities.
Martin v Restaurant Assoc. Events Corp., Sup Ct Westchester County, January 12, 2012. Scheinkman, J, Index No. 53700/11
Cross Motion to Dismiss Dissolution Petition Cannot Be Based on Disputed Facts: Matter of Langella v Front Door Assoc. Inc.
In a January 13, 2012 decision by Justice Whelan, the court denied a motion to dismiss a dissolution proceeding brought under Business Corporation Law § 1104-a to dissolve two different businesses. Respondents moved to dismiss both proceedings, arguing that Petitioner did not own the requisite number of shares (20% of each entity) necessary to obtain dissolution. Respondents also raised issues of fact, disputing Petitioner’s claims of wrongful conduct. The court denied the motion, finding that a cross-motion to dismiss a special proceeding can only be based on “objections in points of law,” not disputed issues of fact. Also, the court found that there were disputed issues of fact whether Petitioner owned the requisite number of shares to bring a dissolution action, and while this was a threshold issue to bringing a dissolution proceeding, the court would determine petitioner’s percentage ownership in the corporation at the same time it determined the ultimate merits of the petition.
Matter of Langella v Front Door Assoc. Inc., Sup Ct, Suffolk County, January 13, 2012, Whelan, J, Index No. 27189-11.
A Party Preventing Performance of a Condition Precedent Cannot Rely on It: Independent Temperature Control Servs., Inc. v WDF Inc.
In a July 21, 2011 decision by Justice Kitzes, the court denied the defendant M.A. Angeliades, Inc.’s (“MA”) motion to dismiss the cross claims by defendant WDF, Inc. and denied WDF’s cross-motion for sanctions against MA. The action arose out of a public works project at high school in Queens, where MA was the general contractor and WDF a subcontractor. The plaintiff’s (“ITC”) suit alleged that it was owed money by WDF in connection with a subcontractor agreement entered between ITC and WDF. WDF also entered a subcontractor agreement with MA, to provide labor, services and materials for the installation of HVAC facilities on the project. During the course of the project, at MA’s request, WDF performed additional work which was documented by certain “Change Orders.” WDF’s cross-claims sought payment for the work performed under the Change Orders, which MA had not yet made.
On its motion to dismiss WDF’s cross-claims, MA asserted that the contract between WDF and MA established that WDF was not due any payment. The contract provided that no payment was due until WDF submitted evidence that "no unpaid claims existed against it for ‘labor, materials, services, supplies of other obligations incurred by [WDF] in the performance of the Work.’” MA argued that because WDF had not paid its own subcontractors, which it deemed a condition precedent to receiving final payment on the project, it could not seek payment from MA. The court found that an issue existed as to whether MA directly caused the dispute between WDF and its subcontractors leading to the nonpayment. Therefore, the court held that because the condition precedent was directly tied to “the implied obligation of M.A to do something which would have enabled WDF to meet the condition precedent,” it could not then “insist upon the condition precedent, when its non-performance [wa]s its own doing.” Further, the court held that even if the condition precedent had definitively not been met, WDF’s substantial performance under the contract allowed it to recover.
WDF’s motion for sanctions asserted that MA’s conduct in seeking dismissal was frivolous because MA’s material factual statements were blatantly false. The court, however, held that the motion was based upon “assertions that are reasonably related to the evidence presented,” and therefore denied the motion.
Independent Temperature Control Servs., Inc. v WDF Inc., Sup Ct Queens County, July 21, 2011, Orin R. Kitzes, J, Index No. 2107/11
Affirmative Defenses are Barred by Guaranty's Express Waiver Provision: J. Remora Maintenance LLC v Efromovich
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
Express As-Is Lease Provisions Bars Fraud Claim: Midorimatsu, Inc. v Hui Fat Co.
In an November 22, 2011, decision by Justice Kitzes, the court granted defendant’s motion to dismiss for failure to state a cause of action. Plaintiff-restaurant tenant sued defendant-landlord for allegedly failing to prepare the premises for compliance with certain restaurant regulations, including seating capacity for up to 150 customers. Defendant moved to dismiss based on specific provisions in the lease, which expressly placed the burden of such compliance on plaintiff in several “as is” provisions. Based on the unambiguous lease provisions, the court granted the motion, finding that defendant was under no obligation to make any changes to the premises and that any alleged representations to the contrary were specifically merged into the lease documents.
Midorimatsu, Inc. v Hui Fat Co., Sup Ct, Queens County, November 22, 2011, Kitzes, J., Index No. 16053/2011
Court Holds Complaint Sufficiently Alleges Anticipatory Repudiation: Israel Cancer Research Fund, Inc. v Harvey & Gloria Kaylie Foundation, Inc.
In a December 14, 2011 decision by Justice Fried, the court denied the defendant’s motion to dismiss the complaint which alleged anticipatory breach of contract. Taking the plaintiff’s allegations as true for purposes of a motion to dismiss, the court found that allegations that the defendant persistently refused to make payments owed to the plaintiff unless the plaintiff agreed to take on obligations beyond those set forth in the parties’ agreements demonstrated a positive and unequivocal repudiation of the defendant’s obligations, and therefore satisfied the pleading requirements to state a claim for anticipatory breach.
Israel Cancer Research Fund, Inc. v Harvey & Gloria Kaylie Found., Inc., Sup Ct NY County, December 14, 2011, Fried, J, Index No. 651993/2010
Motion to Dismiss Granted Where Causes of Action in Amended Complaint Were Identical to Those in Original: Siegel Consultants, Ltd. v Nokia, Inc.
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.
Electronic Acknowledgment of Agreement to Arbitrate in Employee Handbook Binds Former Employee: Mustaphalli v Citigroup Global Mkts., Inc.
In an August 9, 2011 decision by Justice Kitzes, the court granted defendant’s motion to compel arbitration. Plaintiff-employee brought a discrimination claim against defendant-bank under the NYS Human Rights Law. Defendant moved to compel arbitration under an arbitration provision in its employee handbook, which expressly covered “all employment disputes based on legally protected rights,” including claims “regarding employment discrimination.” Plaintiff opposed the motion, contending that the employee-related documents submitted by defendant were “illegible” or did not clearly set forth a mandatory arbitration policy. The court disagreed, finding that the documents submitted on defendant’s motion, as well as plaintiff’s electronic acknowledgment of them and the policy therein, “evidenced an objective manifestation of assent [to the agreement to arbitrate], rendering plaintiff’s subjective understanding unnecessary.”
Mustaphalli v Citigroup Global Mkts., Inc., Sup Ct, Queens County, August 9, 2011, Kitzes, J., Index No. 2473/2011
Court Holds Jimmy Kimmel Live is Newsworthy and Dismisses Invasion of Privacy Claim: Sondik v Kimmell
In a December 15, 2011 decision by Justice Schmidt, the court dismissed an action brought against Jimmy Kimmel claiming he invaded the plaintiff’s privacy by using a picture of the plaintiff taken from a YouTube video in a comedic sketch on Jimmy Kimmel Live. The court first addressed a choice of law issue and rejected the plaintiff’s argument that California law applied because the YouTube video was downloaded in California. Applying tort choice of law rules, the court found that New York law, which does not recognize a common law invasion of privacy claim, applied rather than California law, which does recognize such common law claim, because the plaintiff alleged he was domiciled and was injured in New York and, thus, New York had the strongest interest in seeing the rights of its citizens vindicated. The court then found that the claim failed because the Jimmy Kimmel Live segment in which the plaintiff’s image appeared satisfied the broadly construed “newsworthy exception” to New York Civil Rights Law §§ 50 and 51, which are strictly limited to nonconsensual commercial appropriation of a name, portrait or picture of a living person.” Even if the video did not fall into the “newsworthy exception,” the court found First Amendment concerns required dismissal of the claim.
Sondik v Kimmel, Sup Ct Kings County, December 15, 2011, Schmidt, J, Index No. 30176/10
Contract Guaranty Signed in Massachusetts is Subject to New York Long-Arm Jurisdiction: Summit Const. Servs. Group, Inc. v Act Abatement, LLC
In a December 16, 2011 decision by Justice Scheinkman, the court examined whether a contract guaranty to be performed in New York constituted a contract for services to be performed in New York thereby permitting the court to exercise long-arm jurisdiction over the guarantying party. It concluded that it did and dismissed the defendant’s motion to dismiss the complaint grounded on the lack of personal jurisdiction. The plaintiff alleged that the defendant Act Abatement was required under a contract setting forth a New York choice of forum to provide labor and material to a construction project in New York City. The plaintiff asserted several causes of action against the company and against defendant Jeter, a Massachusetts resident, who personally guaranteed the Act’s payment and performance obligations. The complaint alleged that the defendant provided the Jeter Guaranty, signed in Massachusetts, when it was unable to procure a performance bond as required under its contract with the plaintiff. Recognizing that the Second Department had not addressed the jurisdictional question and that the First and Third Departments rendered conflicting decisions, the court turned to the decisions from the federal courts sitting in diversity which virtually all found that a payment guaranty is within the scope of services in New York to confer personal jurisdiction under CPLR § 302(a)(1). Based on those authorities, the court found no reason to exclude financial services from services that fall under CPLR § 302(a)(1) or distinguish between a payment and performance guaranty.
Summit Constr. Servs. Group, Inc. v Act Abatement, LLC, Supt Ct Westchester County, December 16, 2011, Scheinkman, J, Index No. 54085/11
Arbitration Provision in Shareholders Agreement Applies to Parties' Disputes Under Related Goods & Services Agreement: Russo v Time Moving & Stor., Inc.
In a November 30, 2011, decision by Justice Driscoll, the court denied defendants’ motion to dismiss and directed the parties to arbitration on all issues raised in plaintiffs’ complaint. Plaintiffs sued defendants alleging various breaches and fraudulent acts in connection with parties’ contractual relationship under a goods-and-services agreement and a shareholders agreement. The shareholders agreement contained a broad arbitration provision. Defendants moved to dismiss the complaint except as to claims arising out of out of the shareholders agreement, on which the parties should be compelled to arbitration. Plaintiffs opposed, arguing that their claims did not concern the actions of the shareholders. The court found that “the allegations regarding Defendants’ breach of, and fraud regarding, the Goods & Services Agreement bears a reasonable relationship to the subject matter of the Stockholders Agreement, which contains a broad arbitration provision.” Accordingly, the court denied defendants’ motion, stayed the entire action, and directed the parties to arbitration on all of plaintiffs’ claims.
Russo v Time Moving & Stor., Inc., Sup Ct, Nassau County, November 30, 2011, Driscoll, J., Index No. 10035/2011
Motion to Dismiss Granted Based on Findings of no Course of Conduct or Justifiable Reliance: Treeline 990 Steward Partners LLC v. Rait Atria, LLC
In a November 10, 2011 decision by Justice Bucaria, the court granted the defendants’ (the “RAIT” defendants) motion pursuant to CPLR 3211(a)(1), (a)(5), and (a)(7) to dismiss the amended complaint and the answer and interpleader complaint of the defendant/interpleader plaintiff 990 Stewart Avenue Investors, LLC (“SAI”), and because of that disposition, the court denied as moot SAI’s motion pursuant to CPLR 1006 for permission to pay certain monies into the court. SAI was formed by Plaintiff Treeline 990 Stewart Partners LLC (“Treeline”) and RAIT Atria, LLC (“RAIT”) to acquire certain property in Garden City. The Operating Agreement required all modifications thereto to be in writing. The property allegedly experienced revenue flow problems due to downturn in the economy, leading Treeline and the RAIT defendants to discuss a discounted buyout or some other modification of what Treeline claimed, and the RAIT defendants disputed, was a “loan”. Treeline alleged that the parties orally agreed that RAIT would accept a discounted payoff of the “loan,” which led Treeline to invest, to its detriment, further money into the property.
In granting the RAIT defendants’ motion to dismiss, the court found that: 1) the claim for breach of contract was precluded by General Obligations Law § 15-301(1) (written agreements expressly prohibiting oral modifications cannot be changed by oral executory agreements) because the memorandum offered by Treeline as written proof of the modification was insufficient because it made clear that all of the material terms were not then agreed to, and the requirement that modifications be in writing was not waived by an alleged course of conduct; and 2) Treeline’s claims for fraud and negligent misrepresentation could not be maintained because it “fail[ed] to allege a single fraudulent statement or negligent misrepresentation made by defendants on which [it] justifiably relied….” and, moreover, because all of the parties knew of the written modifications requirement, Treeline’s alleged detrimental reliance on oral representations could not have been justified.
Treeline 990 Stewart Partners LLC v Rait Atria, LLC, Sup Ct, Nassau County, November 10, 2011, Bucaria, J., Index No. 18904/2010
Defendant in Libel Action Not Subject to New York's Long Arm Jurisdiction: Peters v. Coutsodontis et al.
In a September 26, 2011 decision by Justice Kapnick the court granted a corporate defendant’s motion to dismiss for lack of personal jurisdiction. Plaintiff sued alleging that the individual defendant libeled him when he made allegedly defamatory statements about the plaintiff in litigation papers filed in a prior action between the plaintiff and the individual defendant. Plaintiff alleged those statements were attributable to the corporate entities and that they were liable for the individual defendant’s conduct.
One of the corporate entities moved to dismiss arguing that the court lacked personal jurisdiction over it, because it did not do any business in New York, did not own any property in New York and was not a party to the prior action. Plaintiff argued in opposition that the individual defendant and the corporate defendant conspired to damage plaintiff and cited certain conduct which was allegedly in furtherance of the conspiracy. The court rejected Plaintiff’s argument finding that plaintiff failed to meet his burden of demonstrating that the individual defendant and the corporate defendant conspired together with regard to the conduct at issue in the action: making allegedly defamatory statements about plaintiff in the prior action.
Peters v. Coutsodontis et al., Sup Ct, New York County, September 26, 2011, Kapnick, J, Index No. 600482/07.
Issue of Fact Exist, Complaint Sufficiently Supports Claim, Motion For Summary Judgment and to Dismiss Cause of Action Denied: Long Is. Med. v Lligam Assoc., Inc.
In a November 1, 2011 decision by Justice Driscoll, the court denied defendant TeamPositions Inc.’s motion for summary judgment dismissing the plaintiff’s complaint and to dismiss the second cause of action sounding in gross negligence. TeamPositions argued that it was neither a party to, nor an intended beneficiary of the contract (“Contract”), which lays at the heart of the action, because it was between the plaintiffs and Magill Associates, Inc. (“Magill”), the former identity of named-defendant Lligam Associates, Inc., so TeamPositions could not be held liable under it. At issue was a transaction that was labeled as an asset purchase agreement, through which the plaintiffs asserted TeamPositions acquired Magill’s business, including the Contract. While the purchaser of a corporation’s assets ordinarily does not become liable for the debts of its predecessor, an exception exists for de facto mergers, including where a transaction structured as a purchase of assets is deemed an attempt to fraudulently escape debt obligations. The court denied TeamPositions’ motion for summary judgment, finding that issues of fact existed regarding the application of the de facto merger doctrine, and therefore whether TeamPositions should be held liable under the Contract. On the gross negligence cause of action, TeamPositions argued that a breach of contract cannot be considered a tort unless a legal duty, existing independent of the contract, has been violated. TeamPositions asserted the plaintiffs failed to allege such a duty, but the court held that allegations in the complaint sufficiently supported such a conclusion. Therefore, the court denied the motion to dismiss this cause of action.
Long Is. Med. v. Lligam Assoc., Inc., Sup Ct, Nassau County, November 1, 2011, Driscoll, J, Index No. 005500 /10.
Immunity Doctrines Bar Suits By Carl Ichan: Icahn v Raynor
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
Commercial Building Not Subject to Residential Foreclosure Requirements: Meyerson Capital X, LLC v Kats
In an October 25, 2011 decision by Justice Hinds-Radix the court had to decide in the context of a foreclosure action whether a loan was a “home loan” or a loan against commercial property. The defendant moved to dismiss the complaint arguing, by way of his attorney’s affidavit, that the loan was a home loan and plaintiff failed to comply with the statutory requirements before foreclosing on the loan. Defendant submitted the contract of sale from when he brought the property, which was entitled “Residential Contract of Sale,” to support his argument. Plaintiff submitted in opposition the loan documents signed by plaintiff which stated that the loan was for business or commercial purposes and not for personal, family, consumer or household purposes. The court found, based on the loan documents signed by plaintiff, that the loan was not a “home loan” under the various statutes and denied plaintiff’s motion to dismiss.
Meyerson Capital X, LLC v Kats, Sup Ct, Kings County, October 25, 2011, Hinds-Radix, J, Index No. 8797/11.
Court Upholds Employer's Claims against Former Employee for Breach of Confidentiality and Non-Compete Provisions of Employment Agreement: Novus Partners, Inc. v Vainchenker
In a September 7, 2011 decision by Justice Fried, the court upheld the plaintiff’s breach of contract claim which alleged that the defendant former employee breached the confidentiality, non-compete, and non-solicitation provisions of his employment agreement. First, the court rejected the defendants’ argument that the claim failed because it did not allege damages with specificity. To survive a pre-answer motion to dismiss, a pleading need only state allegations from which damages attributable to the defendant’s conduct could be reasonably inferred, which the court found, the plaintiff did. The court also determined that the plaintiff, which provided research and analysis services to hedge funds, adequately pled that its client list was a trade secret and was thus “confidential information”, because the complaint specifically alleged that the plaintiff expended significant time and expense over years to develop its client list, took significant steps to protect its client data, and built its business with the intent not to make its existence known in the industry. Those allegations also adequately supported a claim for misappropriation of trade secrets. Turning to the non-compete provision, the court rejected the defendants’ argument that the provision was unenforceable because it lacked a geographic limitation, finding that the absence of such limitation does not automatically invalidate an entire non-compete, where the plaintiff sufficiently alleged that the former employee had access to its crucial business and the employer had a legitimate interest in preventing the employee from using that information to its detriment. Finally, the court concluded that the non-solicitation provision was overly broad because it prevented the former employee from soliciting any client, regardless of whether the employee had a relationship with that client during his employee, and therefore would prevent the employee from soliciting any hedge funds for fear that he might inadvertently solicit the plaintiff’s client.
Novus Partners, Inc. v Vainchenker, Sup Ct NY County, September 7, 2011, Fried, J, Index No. 650683/11
Employment Related Claims Survive Dismissal Based on Theory of Oral Contrat: Zentz v International Foreign Exch. Concepts, L.P.
In an October 20, 2011 decision by Justice Demarest addressing the defendants’ motion to dismiss, the court upheld the majority of the plaintiff’s complaint predicated on the defendants’ alleged failure to pay Trader Commissions owed to the plaintiff during the course of his employment as a portfolio manager. The court rejected the defendants’ argument that the commissions constituted a discretionary bonus under the employee handbook, upon finding that the gravamen of the claim was that the defendants breached an oral contract to pay the commissions as part of plaintiff’s compensation package, which was properly pled as a claim for breach of contract. The court upheld the claims sounding in quantum meruit, because whether there was a bona fide oral contract was in dispute and, therefore, the plaintiff was not required to elect his remedies. The court also upheld the plaintiff’s claims for violation of Labor Law § 191(2) because, it concluded, if there was a valid oral contract providing for payment of a nondiscretionary Trader Commission, those commissions could satisfy the statutory definition of “wages” and support the claim. The court also found that the plaintiff stated a claim for breach of fiduciary duty by alleging that the defendants failed to pay him dividends owed a shareholder. However, the court dismissed the derivate claim for breach of fiduciary duty asserted against the CEO and Chairman of the Board of Directors, alleging that he misappropriated corporate funds, engaged in self-dealing, and diverted corporate assets. Noting the strictly enforced BCL § 626 requires a plaintiff asserting a derivative claim to be a shareholder at the time he brings the action, the court found that the plaintiff was stripped of his shareholder status when the defendant repurchased his shares and this lacked standing.
Zentz v International Foreign Exch. Concepts, L.P., Sup Ct. Kings County, October 20, 2011, Demarest, J, Index No. 229542/10
LLC Member not Entitled to File Notice of Pendency against Property Owned by LLC: Born To Build, LLC v Saleh
In a September 20, 2011, decision by Justice Warshawsky, the court denied plaintiff-contractor’s motion for an order directing the clerk of court to accept and file a notice of pendency and granted defendant-owners’ corresponding motion to preclude the filing of the notice. The court also denied plaintiff’s request for injunctive relief but otherwise denied defendants’ motion to dismiss the complaint under CPLR 3211 [a] [1] based on documentary evidence. Plaintiff performed $2.5 million of construction services for which it was not paid, obtained a judgment, and sought recovery in connection with certain real property owned by defendants. Plaintiff claimed to have acquired an interest in the limited liability company that owned the property and attempted to file a notice of pendency against the property. The court held, however, that under LLCL § 601 membership interest in an LLC “is personal property and does not give a member interest in specific property of the limited liability company” and decided the parties’ lis pendens motions accordingly. The court then denied defendants’ motion to dismiss based on a sworn statement from the LLC member from whom plaintiff allegedly acquired his interest, finding that “the documentary evidence is convincing, but not conclusive on the subject of relationship between [the owners of the property].”
Born To Build v Saleh, Sup Ct, Nassau County, September 20, 2011, Warshawsky, J., Index No. 9558/2011
No Duplication of Claims, Reasonable Reliance Determination Benefitted by Discovery, Jury Waiver Provision Valid: Ambac Assur. Corp. v. DLJ Mtge. Capital, Inc.
In an October 7, 2011 decision by Justice Kornreich, the court granted plaintiffs’ motion for leave to reargue; denied defendants’ motion to dismiss plaintiff’s fraudulent inducement claim; and granted defendants’ motion to strike plaintiff’s demand for a jury trial. Plaintiff’s motion to reargue followed an order dismissing its fraudulent inducement claim and striking its demand for jury trial. The action arose out of the securitization of a pool of over two thousand second lien, residential mortgage loans, which had been transferred to a trust. Plaintiff entered a contract with DLJ Mortgage Capital, Inc, the sponsor of the transaction, whereby it issued a policy guaranteeing certain payments of the securities. Defendant Credit Suisse Securities (USA), LLC served as the underwriter.
The court held that the First Department’s recent decision in MBIA Ins. Corp. v. Countrywide required the granting of plaintiffs’ motion to reargue. There, the First Department established that a fraudulent inducement claim is not duplicative of a breach of contract claim solely because “some of the allegedly false representations are also contained in the agreements as warranties and form the basis of the breach of contract claim.”
The court denied defendant’s motion to dismiss the fraudulent inducement claim, holding that although plaintiffs’ reliance on Credit Suisse’s allegedly fraudulent misrepresentations was most likely unreasonable as a matter of law, determining reasonable reliance requires a fact-intensive inquiry that “would benefit from a complete record created after the parties’ discovery.” As to plaintiffs’ demand for a jury trial, the court found that jury wavier provision in the Insurance and Indemnity agreement between plaintiffs and DLJ was controlling. The court held that the provision was broad enough to cover the fraudulent inducement claim and plaintiffs did not expressly challenge it. Further, because their fraudulent inducement claim depended, in part, on the warranties contained in the agreement, the court held that plaintiffs had effectively affirmed its validity.
Ambac Assur. Corp. v DLJ Mtge. Capital, Inc., Sup Ct, New York County, October 7, 2011,Kornreich, J, Index No. 600070/10.
"Piercing the Corporate Veil" Is Not An Independent Cause of Action; Ersail v. Pour et al.
In an August 3, 2011 decision by Justice Driscoll the court granted a motion to dismiss claims against an entity seeking to pierce the corporate veil and against that entity’s purported “controlling officer.” The litigation arose from a mortgage transaction which was the subject of a companion foreclosure suit. This litigation – brought by the mortgagee – brought claims against various individuals and entities sounding in breach of fiduciary duty, negligence, fraud and unjust enrichment. The complaint only stated a cause of action for “breach of the corporate veil” against one of the defendant entities and then stated a claim against that entity’s “controlling officer” by “imputing” to that person the entity’s purported wrongful conduct. The court dismissed both claims holding that there was no independent claim for “piercing the corporate veil” and that there were no allegations of wrongful conduct by the entity (or its principle) supporting liability against the purported “controlling officer.”
Ersail v. Pour et al., Sup Ct, Nassau County, August 3, 2011, Driscoll, J, Index No.20835/10.
Nevada Wins Over New York As More Convenient Forum: Matter of Harbin Shareholders' Litig.
In an August 19, 2011 decision by Justice Emerson concerning a shareholder dispute, the court granted the defendants’ motion to dismiss the complaint alleging claims for breach of fiduciary duty and aiding and abetting breach of fiduciary duty based on forum non conveniens. Upon balancing the relevant factors, the court found that the ends of justice and the convenience of the parties would best be served if the litigation proceeded in Nevada because: (1) five consolidated Nevada state court actions asserting similar breach of fiduciary duty claims were previously filed and already pending against the defendants as well as other members of the corporation’s board of directors; (2) the defendant corporation was incorporated in Nevada and therefore Nevada law applied to the breach of fiduciary duty claims; (3) the corporation lacked a substantial nexus to New York because its principal place of business was China, its only physical presence in the state was a home office maintained by its Secretary and VP of Finance, it had no other officers, directors or employees in New York, and its corporate records did not reflect that any of its stockholder meetings were held in New York.
Matter of Harbin Shareholders Litig., Sup Ct Suffolk County, August 19, 2011, Emerson, J, Index No. 35327-10.
RICO Claims Dismissed, Malicious Prosecution Claims Cannot Form Predicate Act: The Auto Collection et al v. Pinkow et al.
In an October 7, 2011 decision by Justice Demarest the court dismissed a RICO claim because after two years of discovery plaintiffs were still unable to prove the essential elements of their claim. The dispute arose from sales of luxury automobiles which were to shipped from the United States to the Soviet Union and Eastern Europe. One of the plaintiffs in this action, The Auto Collection, was a named defendant in over a half-dozen other cases where it was alleged that The Auto Collection took money for the cars but failed to deliver them and went out of business. The Auto Collection’s action claimed that the plaintiff purchasers in the other actions were engaged in a conspiracy to defraud The Auto Collection by, among other things, commencing baseless lawsuits against The Auto Collection.
This motion involved four of the defendants against whom The Auto Collection brought, among other things, RICO claims. The court granted those defendants’ motion to dismiss the RICO claim because: (i) plaintiffs’ allegations of predicate acts are “merely, artfully pleaded claims for malicious prosecution and cannot form the basis of a RICO claim”; (ii) plaintiffs failed to demonstrate any interstate communications because all of the alleged communications took place in New York; and (iii) the witness tampering claim under RICO alleged acts involving state court proceedings and RICO witness tampering only applies to federal proceedings.
The Auto Collection et al v. Pinkow et al., Sup Ct, Kings County, October 7, 2011, Demarest, J, Index No. 7847/09
Court Lacks Personal Jurisdiction Over New Jersey Recruiter: KForce Inc. v Foote
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
Court Orders Parties to Arbitrate Based on Broad Arbitration Clause in Shareholders Agreement: Box Export & Import, Inc. v Karakus
In a September 15, 2011 decision by Justice Demarest, the court granted the defendant’s motion to stay the action pending arbitration upon finding that the plaintiff’s claims for breach of fiduciary duty, conversion, unjust enrichment, violations of the BCL, and claims concerning stock ownership were arbitrable under the broad arbitration clause set forth in the parties’ shareholders agreement which provided that “any controversy relating to the Shareholders Agreement shall be resolved exclusively by arbitration.” The court rejected the plaintiff’s opposing argument that the arbitration clause conflicted with another provision in the shareholders agreement which permitted the parties to seek a declaratory judgment in a suit at law. Despite testimony from the drafter of the shareholders agreement that the declaratory judgment provision was included to resolve disputes outside the scope of the arbitration, including the issue of stock ownership, the court held that the issue of stock ownership was covered by the agreement and resolvable by arbitration. The court also rejected the plaintiff’s argument that the action should proceed in the court because the relief requested was equitable in nature, finding that the arbitrators have broad authority and the plaintiff failed to present any reason why an arbitrator would lack the authority to resolve the claims asserted in the complaint. The court denied the motion to dismiss the complaint pursuant to CPLR § 3211(a)(5), on the grounds that dismissal under that provision is available only after arbitration is concluded and an award is issued.
Box Export & Import, Inc. v Karakus, Sup Ct Kings County, September 15, 2011, Demarest, J, Index No. 8738/11
Plaintiff Fails to Maintain Claims for Fraud or Recision of Contract: Hampton Transp. Ventures, Inc. v JD Transp., LLC
In an August 8, 2011 decision by Justice Whelan, the court dismissed the majority of the plaintiff’s claims against corporate and individual parties, which arose out of two agreements in which the plaintiff purchased certain assets and liabilities of a bus transportation business and formed a separate joint venture limited liability company for the purpose of providing advertising rights. The court granted the defendants’ the motion to dismiss three separate causes of action sounding in contract against defendant JD Transportation on the grounds that the plaintiff expressly agreed in the asset purchase agreement that any damages for breach of contract would be limited to indemnity and the court found that there was no special relationship between the parties nor any public policy which imposed liability upon the company. The court further determined that the allegation that JD Transportation’s breach was willful was insufficient to set aside the unambiguous limitation of liability provision. The court also dismissed the claim for indemnity only against individual defendant Douglas Slayton on the grounds that he was not a signatory to the asset purchase agreement and there were no allegations that he acted personally or in his individual capacity. The court denied, however, the motion to dismiss the indemnity claim against JD Transportation. The court dismissed the fraud claim on the grounds that the plaintiff suffered no actionable harm from the purported false statements and because the plaintiff expressly and unconditionally waived non-compliance with those obligations forming the basis of the fraud claim. Dismissing the fraudulent inducement claim, the court found the complaint merely alleged an intent not to disclose, rather than a material misrepresentation of a known fact that is meritorious, which is necessary to state a claim for fraud in the inducement. Those same allegations, the court ruled, were equally insufficient to state a claim for fraudulent concealment because there was no allegation that the defendants had a duty to disclose. The court dismissed the cause of action for breach of fiduciary duty because it found that the transaction at issue was nothing more than an arm’s length business arrangement between sophisticated parties which does not create a fiduciary relationship or give rise to any fiduciary duties. The court also dismissed the claims seeking recision of the joint venture agreement because they were barred by res judicata. The court found the plaintiff could have raised those claims during its arbitration proceeding initiated by one of the defendants pursuant to the joint venture agreement. Finally, the court dismissed the unjust enrichment claim because it could not stand in light of the asset purchase agreement which covered the same subject matter.
Hampton Transp. Ventures, Inc. v JD Transp., LLC, Sup Ct, Suffolk County, August 8, 2011, Whelan, J, Index No. 35625-10
Court Upholds Allegations of Officer Misconduct after Resignation Finding that Fiduciary Duties Survive the Fiduciary Relationship: First Games Publ. Network, Inc. v Afonin
In an August 12, 2011, decision by Justice Bransten, the court denied defendant-former officer’s motion to dismiss plaintiff-computer game developer’s action for breach of contract and breach of fiduciary duty.
Plaintiff developed an internet-based computer game and hired a consulting company to help develop the software for the game. Plaintiff sought to purchase the software company, but after plaintiff and defendant entered into a confidentiality agreement in which defendant agreed not to use plaintiff’s intellectual property for his own benefit or the benefit of third parties, the company was sold to a third party in which defendant had an alleged and undisclosed interest. Defendant resigned shortly thereafter. Plaintiff brought this action alleging that defendant had breached the confidentiality agreement, as well as his fiduciary duties to plaintiff, after learning that the software company was using its intellectual property to develop a similar game.
On defendant’s motion, the court rejected his argument that he was the rightful, registered owner of the game’s domain name because he allegedly re-registered and sought to auction off the domain name after executing the confidentiality agreement. The court also rejected defendant’s interpretation of the agreement as not strictly prohibiting conflicts of interest and otherwise found that plaintiff sufficiently pleaded the elements of a cause of action for breach of contract. As to defendants claims for breach of fiduciary duty, the court held that the heightened pleading requirement of CPLR 3016 “does not require a plaintiff to have perfect knowledge of the facts underlying its claim at the initial stage of a litigation” and that “New York law has recognized duties that outlive the fiduciary relationship” and therefore upheld plaintiff’s allegations in support of its claims despite having alleged misconduct on the part of defendant well after he had resigned.
First Games Publ. Network, Inc. v Afonin, Sup Ct, New York County, August 12, 2011, Bransten, J., Index No. 650092/2010
Derivative Claims Brought on Behalf of an LLC Cannot Be Intermingled with Individual Claims: Waxman Real Estate LLC v Sacks
In a September 7, 2011, decision by Justice Fried, the court granted in part defendant-LLC members’ motion to dismiss and denied their motion to compel arbitration. The court also denied plaintiff-investors’ cross-motion for injunctive relief under CPLR 6301, as well as for an order under LLCL 414, removing the defendants from a real estate investment company. In the action, plaintiffs alleged that defendants misled them into forming the company by, among other things, grossly misrepresenting the costs of the development project for which the company was formed. The court rejected defendants’ argument 1) that plaintiffs’ action was barred by an exculpation clause in the operating agreement because it depended on the resolution of fact issues regarding whether defendants’ alleged conduct was “objectionable” – an express exception to the exculpatory clause in the agreement; 2) that plaintiffs’ waived their status as fiduciaries in the operating agreement because such a clause “does not bar a claim based on LLC Law § 409” regarding the duties of managing members; and 3) that plaintiffs’ consented to arbitration of disputes among the members of the company in the operating agreement because the conduct alleged constituted “material decisions” – an express exception to the arbitration clause in the agreement. The court also rejected defendants’ argument that plaintiffs failed to state a derivative claim because the complaint alleged sufficient harm to the company and reasons supporting the futility of a demand but nonetheless dismissed plaintiffs’ derivative claims (without prejudice) because, as with corporations and partnerships, such claims cannot be intermingled with individual claims. The court otherwise 1) granted defendants’ motion to dismiss plaintiffs’ unjust enrichment claim on the basis of the existence of an enforceable written contract because “plaintiffs d[id] not contest this claim in their opposition papers”; and 2) denied plaintiffs’ cross-motion for injunctive relief because of issues of fact as to their success on the merits and because LLCL 414 “does not authorize a court to remove an LLC manager.”
Waxman Real Estate LLC v Sacks, Sup Ct, New York County, September 27, 2011, Fried, J., Index No. 652057/2010
Court Finds Insurance Broker Had Legitimate Interest in Protecting Goodwill and Upholds Breach of Contract Action Concerning Non-Compete: Group Health Solutions, Inc. v Smith
In an August 5, 2011 decision by Justice Bransten, the court denied the defendants’ motion to dismiss the breach of contract claim which alleged that defendant Smith, a former employee of the plaintiff insurance broker, breached a non-compete agreement by soliciting the plaintiff’s clients after he was terminated for cause. The court found that an employer’s legitimate interest in protecting its relationships and goodwill developed with its clients was a basis for enforcing a non-compete, where the employer, rather than the employee, expended effort and time building and maintaining the relationships with its client base. The court held the plaintiff need not show a misappropriation of trade secrets or confidential information in order for the non-compete to be upheld. Affording the complaint the most liberal construction, the court also sustained the breach of contract claim against defendants Smith Benefit Partners, of which Smith was a general partner, and Vanguard Benefit Solutions LLC, which Smith owned and/or controlled because the pleadings alleged that the individual defendant solicited its clients through those entities and the non-compete agreement provided that Smith would not, directly or indirectly, assist or be employed by any other party soliciting or accepting any insurance business.
Group Health Solutions, Inc. v Smith, Sup Ct NY County, August 5, 2011, Bransten, J, Index No. 650540/2010
Court Find Actions Not "Model" Behavior and Sustains Unfair Competition and Breach of Fiduciary Duty Claims: Men Women NY Model Mgt., Inc. v Ford Models, Inc.
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.
Suit Among Minnesota Companies Brought Under Operating Agreement Governed by Minnesota Law Should Be Litigated in Minnesota: Noah's Ark Processors, LLC v Parente
In a May 6, 2011, decision by Justice Driscoll, the court granted defendants’ motion to dismiss based on forum non conveniens. Plaintiff meat processors/distributers sued various other processors/distributers under an LLC operating agreement and in connection with other allegations of unfair competition, misappropriation, and interference with contractual relations. Virtually every party in the lawsuit was a business entity from the fine State of Minnesota, and the operating agreement under which the plaintiffs were suing was governed by Minnesota law. Defendants moved to dismiss for lack of personal jurisdiction and forum non conveniens. Because most of the parties lacked contacts with New York, including property ownership and business affiliations, and/or were Minnesota entities, the court granted defendants’ motion under CPLR 327. Specifically, the court found that because plaintiffs’ principal place of business and books and records were in Minnesota, and because their suit primarily was based on an agreement that was to be governed exclusively by Minnesota’s Limited Liability Company Act, the court concluded that the matter should be litigated in Minnesota.
Noah’s Ark Processors, LLC v Parente., Sup Ct, Nassau County, May 6, 2011, Driscoll, J., Index No. 12835/2010
Fraudulent Conveyance Claims Brought Under Debtor and Creditor Law Satisfied the Statutory Requirements and Survived Motion to Dismiss: K.B.K. Huntington Corp. v James Anthony Cleaners
In a May 16, 2011 decision by Justice Warshawsky, the court denied the defendants’ motion to dismiss the complaint pursuant to CPLR § 3211(a)(7), upon finding that the plaintiff adequately pled causes of action pursuant to the Debtor and Creditor Law. The crux of the plaintiff’s complaint, which sought to recover monies from a previously awarded judgment for unpaid rent against the defendant corporation, was that during the pendency of the action, the wife of the corporation’s principal formed a new entity and transferred the corporations’ assets thereto, rendering the defendant corporation incapable of paying the judgment. In denying the motion, the court determined that the plaintiff properly pled the causes of action for fraudulent conveyances under sections 276, 273-a, 273, and 275 of the Debtor-Creditor law, because the complaint alleged that the defendants transferred the funds in order to hinder or delay the plaintiff from collecting on its judgment and rendered the defendant unable to satisfy the judgment, and were not subject to the heightened pleading requirements of CPLR §3016(b). The court also found that, while there is no separate cause of action for piercing the corporate veil, it held that dismissal of the allegations regarding veil-piercing—that the defendants abused the corporate form in order to perpetrate a fraud upon the plaintiff—was not required because those facts were sufficient to entitle the plaintiff to the relief sought on its other claims.
K.B.K. Huntington Corp. v James Anthony Cleaners, Inc., Sup Ct, Nassau County, May 16, 2011, Warshawsky, J, Index No. 005150/08
Terminated Employee Cannot State Claim Against Employer for Failure to Pay Discretionary Bonus: Barber v Deutsche Bank Securities, Inc.
In a July 14, 2011 decision by Justice Schweitzer, the court granted the defendants’ motion to dismiss the complaint which alleged that after the plaintiff agreed to a temporary two-year assignment in defendant Deutsche Bank Securities, Inc.’s Honk Kong office based on an oral promise that he would receive comparable compensation, his employment was terminated one year after he began working in Hong Kong and he was not paid a discretionary bonus for that year. The complaint alleged breach of contract, breach of the implied covenant of good faith and fair dealing, and breach of New York Labor Law § 193.
The court first rejected the defendants’ arguments that the claims were barred by the statute of frauds, finding that the plaintiff’s employment was at-will, because the plaintiff’s offer letter specifically provided that the plaintiff could be terminated at any time without cause, and therefore, was without the proscription of the statute of frauds concerning one-year performance. The court similarly rejected the defendants’ reliance on a no-oral-modification clause in the plaintiff’s offer letter, because it found that the plaintiff’s acceptance of the temporary assignment was partial performance “unequivocally referable” to the oral compensation promise which equitably estopped the defendants from relying on the clause. However, the court dismissed the complaint because the defendants’ oral promise was superseded by the offer letter and assignment contract entered into thereafter, and the court found that neither contract referred to the discretionary bonus to which an employee has no enforceable right.
Determining the plaintiff’s employment was at-will, the court also dismissed the claim for breach of the implied covenant of good faith and fair dealing on the grounds that New York law does not recognize such covenant in at-will employment relationships, and because it found that an employer’s decision not to pay a purely discretionary bonus did not amount to a breach of the implied covenant, where the employee has no enforceable right under such plan.
Finally, the court dismissed the claim under the NY Labor Law on the grounds that the discretionary bonus was not “wages” under the statute because it depended in part on the financial success of the employer and was paid at the employer’s sole discretion.
Barber v Deutsche Bank Securities, Inc., Sup Ct NY County, July 14, 2011, Schweitzer, J, Index No. 100653/11
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
Court Holds Class Action Challenging Bank's Practices Regarding Gift Card Fees Was Not Preempted by Federal Law: Sheinkin v Simon Prop. Group, Inc.
In a June 28, 2011 decision by Justice Warshawsky, the court denied the defendants’ motion to dismiss a class action which alleged that the defendants engaged in deception and wrongful business practices when it charged monthly “dormancy fees” and an “account closure fee” for purchased gift cards. The defendants specifically asserted that the causes of action for breach of contract, breach of the implied covenant of good faith and fair dealing, indebtedness, unjust enrichment, and violation of GBL § 349 were preempted by federal regulation of banks chartered under the National Bank Act. The court disagreed, noting that several federal courts already addressed that very issue and held that nothing in the federal law preempted general statutes prohibiting deceptive practices. Finding that the National Bank Act does not exclusively regulate national banks and that federal law only preempts those state laws that specifically conflict with the National Bank Act, the court held that the class action complaint alleged claims predicated on state law of general applicability and there was no reason to conclude that GBL § 349 would interfere with the Office of the Comptroller of Currency’s regulation of banking operations.
Sheinkin v Simon Prop. Group, Inc. Sup Ct, Nassau County, June 28, 2011, Warshawsky, J, Index No. 022038/10
Court Finds Plaintiff Corporation is Beyond the Reach of the BCL and Permits Action Seeking Prejudgment Attachment to Proceed: Top Apex Enters. Ltd. v Cayton
In a June 28, 2011 decision by Justice Emerson, the court denied the defendants’ motion to dismiss the complaint pursuant to BCL §1312(a) which bars an action against a foreign corporation doing business in New York without authority. The plaintiff sought an order of prejudgment attachment pursuant to CPLR § 6201, alleging that the defendants diverted the plaintiff’s accounts receivables and refused to give an accounting of or return the funds. In denying the motion to dismiss, the court found that the defendants failed to establish that the plaintiff was “doing business” in New York because its connection to the State was limited to soliciting orders from and delivering goods to buyers, which does not constitute “doing business” within the meaning of the BCL. The court further determined that where a foreign corporation’s contacts were merely for the purpose of soliciting business and are incidental to the sale and delivery of goods, the corporation is engaging in interstate commerce and beyond the jurisdiction of the BCL.
Top Apex Enters. Ltd. v Cayton, Sup Ct, Suffolk County, June 28, 2011, Emerson, J, Index No. 42013-10.
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
Claim for Real Estate Broker's Commission Survives Motion to Dismiss: Eastern Consol. Props., Inc. v. Extell Dev. Co.
In a March 24, 2011 decision by Justice Fried, the Court decided defendant’s motion to dismiss plaintiff’s complaint seeking recovery of real estate brokerage commission. Specifically, defendant claimed that the breach of contract claim should be dismissed pursuant to CPLR 3211(a)(1) based on documentary evidence, and that the unjust enrichment and quantum meruit claims were duplicative of the contract claim.
Plaintiff and defendant Extell entered into a brokerage commission agreement in which Extell agreed to pay plaintiff either 3% of the purchase price or $371,800 in connection with Extell’s purchase of air rights to certain property on West 25th Street in New York City. The initial proposed transaction never closed. Years later, the air rights were ultimately sold to a third party, the Sabet Group, who later in turn sold to Extell in 2010. Plaintiff claims it is now owed a commission on the sale, which Extell disputes.
Construing the complaint liberally, the Court concluded that plaintiff sufficiently plead a breach of contract claim. The Court reasoned that the commission agreement did not identify who the seller of the property had to be in order to entitle plaintiff to a commission. The Court rejected Extell’s attempt to establish plaintiff was not entitled to a commission based upon certain documents from the initial proposed transaction that did not close. The Court did, however, dismiss both the unjust enrichment and quantum meruit claims on the ground that there was an enforceable contract between the parties, which supersedes such claims.
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Legal Malpractice Claims for Failing to Enter Default Judgment Survive Motion to Dismiss: Smith v. Kaplan Belsky Ross Bartell, LLP
In a May18, 2011 decision by Justice Bucaria, the Court considered various motions and cross-motions in a legal malpractice action. The case arose out of an earlier case plaintiffs brought against an accounting firm for negligent misrepresentation. Defendant accounting firm defaulted, but plaintiffs’ law firm (defendants in the current action) failed to enter a default judgment for over three years. Ultimately, the Appellate Division reversed the order of the trial court judge, and dismissed the complaint as abandoned pursuant to CPLR 3215(c). Plaintiffs thereafter brought the instant action for legal malpractice. Defendants moved to dismiss.
Considering the allegations as true for purposes of the motion, the court granted the motion to dismiss of one of the individual attorneys, on the ground that one could not infer that he was involved in the failure to move for a default judgment. The court denied the motion to dismiss as to the remaining defendants.
The court denied plaintiffs’ cross-motion for summary judgment on the legal malpractice claim, concluding that plaintiffs failed to sustain their burden to show the merits of their underlying claim. However, the court did grant plaintiffs leave to replead to add more detail of plaintiffs’ reliance on the financial statements.
Finally, the court denied plaintiffs’ motion to compel production of documents relating to other complaints or disputes he law firm had with other clients. The court reasoned that, “[i]n view of the relatively routine nature of an application for a default judgment, it is unclear how evidence of other derelictions on Jacobs’ part is material or necessary to the prosecution of the malpractice action.”
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Failure to Join Corporation as Indispensable Party Warrants Dismissal of BCL § 619 Petition: Lindkvist v Honest Ballot Assoc.
In a decision dated May 24, 2011 by Justice Sherwood, the court dismissed a petition brought by shareholders of a residential housing cooperative pursuant to BCL § 619 challenging the election of directors. The court found that dismissal was warranted under CPLR § 3211(a)(10) because the petitioners failed to notify or join the corporation which was a necessary and indispensable party, whose rights were tied to the corporate shareholders and would be prejudiced if the matter proceeded in its absence. The court rejected the petitioners’ attempt to join the corporation through an amended petition because the petitioners failed to seek leave of court before filing the amended pleading, as required under CPLR § 401. Finally, the court held that dismissal of the petition was also warranted because the petition was barred by the four month statute of limitations set forth in BCL § 619 and the petitioners could not avail themselves of the “relation back” doctrine because they never timely sought or obtained court permission to amend the petition and, therefore, did not cure their mistake in failing to join the corporation.
Lindkvist v Honest Ballot Assoc., Sup Ct, New York County, May 16, 2011, Sherwood, J, Index No. 113590/10
Court Drops Affirmative Defenses In Mechanics Lien Action for Construction of Stairs: Model Iron Works, Inc. v. Tiago Holdings, LLC
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
Court Grants Motion to Strike Phrase "Sham Small Group Companies" from Pleading as Gratuitous and Designed to Inflame: AJS Agency, Inc. v Empire HealthChoice, HMO, Inc.
In a March 29, 2011, decision by Justice Driscoll, the court granted in part and denied in part plaintiffs’ motion to dismiss defendant’s third-party summons and counterclaims. Plaintiffs-insurance brokers sued defendant-insurer for wrongful termination under insurance producer agreements between them. Defendant counterclaimed and impleaded a number of additional third-party defendants by way of summons, alleging that plaintiffs and the impleaded parties conspired fraudulently to obtain commissions under the agreements. Plaintiffs argued that defendant’s pleading was improper because the impleaded parties were not directly liable to defendant for the damages plaintiffs were seeking to recover, and because New York law does not recognize a claim for civil conspiracy. The court denied plaintiffs’ motion to dismiss the third-party summons and counterclaims in their entirety because the claims against the impleaded parties alleging an improper insurance scheme sufficiently involved plaintiffs to be asserted against all of them. The court also denied plaintiffs’ motion to dismiss defendant’s counterclaim for conspiracy to commit fraud because it was based on alleged misrepresentations that defendant allegedly relied upon in procuring the insurance policies, and because defendant’s allegations of conspiracy sufficiently connected plaintiffs to the overall scheme. The court, however, granted plaintiffs’ motion to strike the phrase “Sham Small Group Companies” under CPLR 3024 [b] because the word “Sham” was used “gratuitous[ly]” and was “solely designed to inflame the reader or listener.”
AJS Agency, Inc. v Empire HealthChoice, HMO, Inc., Sup Ct, Nassau County, March 29, 2011, Driscoll, J., Index No. 11440/10
Pending Appeal of Similar Action Leads to Dismissal Under CPLR 3211(a)(4): American Express Travel Related Services Co., Inc. v Zalmen Reiss Assoc.
In a May 17, 2011 decision by Justice Demarest, the court granted the defendant’s motion to dismiss pursuant to CPLR § 3211(a)(4) on the grounds that there was another action pending between the parties. Prior to the commencement of the instant action, American Express SE brought suit against the defendant for breach of contract, alleging that the defendant failed to pay monies owed to it under an agreement. The court granted the defendant’s motion to dismiss that action without prejudice and granted the plaintiff leave to replead. In the new pleading the plaintiff changed its name from American Express SE to American Express Travel Related Services Co, Inc. The court again dismissed the new complaint without prejudice, and the plaintiff appealed. In dismissing the action before it, the court determined that the complaint brought by American Express Travel Related Services Co. was identical to the previously dismissed action. The court rejected the plaintiff’s argument that the prior action was terminated under CPLR § 205, because the Court of Appeals had determined that a termination of an action occurs when appeals as of right are exhausted, and the plaintiff’s appeal was still pending. Exercising its discretion, the court stayed the entry of an order dismissing the action to permit the plaintiff to voluntarily withdraw the pending appeal and proceed with the current action if it desired. The court denied the defendant’s motion for sanctions, upon concluding that the plaintiff’s action of bringing the action before the previous action had been terminated did not rise to the level of frivolous conduct.
American Express Travel Related Services Co., Inc. v Zalmen Reiss & Assoc., Sup Ct, Kings County, May 17, 2011, Demarest, J, Index No. 1820/11
Shorter Period of Limitations in Contract Unreasonable Where Internal Dispute Procedure Deprived Plaintiff of Course of Action: Structural Contr. Servs., Inc. v URS Corp. - NY
In an April 4, 2011, decision by Justice Scheinkman, the court considered cross motions to dismiss and for summary judgment in connection with a waterproofing job at the former Shea and Yankee Stadiums. The parties, plaintiff-contractor and defendant-subcontractor, agreed to a shorter, six-month statute-of-limitations period within which to assert contract-related claims. The court found that the shorter period was reasonable with respect to plaintiff’s claims for breach of contract, account stated, and conversion and granted defendant’s motion to dismiss these claims as untimely. As to plaintiff’s claims based on defendant’s failure timely to submit plaintiff’s labor-rate disputes to the City of New York as required under the subcontracts, however, the court found that the shorter limitations period was unreasonable because plaintiff was contractually precluded from bringing its claims in the Supreme Court until it received an unfavorable disposition from the City. Thus, the shorter period of limitations as to these claims “unreasonably deprive[d] the plaintiff of a course of action.” The court otherwise found triable issues of fact with respect to the merits of plaintiff’s labor-rate disputes.
Structural Contr. Servs., Inc., Sup Ct, Westchester County, April 4, 2011, Scheinkman, J., Index No. 22579/09.
Sanctions Awarded Against Counsel Who Refused to Submit Opposition to Motion to Dismiss: Toikach v. Basmanov
In a February 25, 2011 decision by Justice Demarest the Court awarded sanctions against a lawyer who refused to submit opposition to a motion to dismiss, arguing that his service of an amended answer with counterclaims mooted the motion.
The motion in question was the plaintiff’s second motion to dismiss. Plaintiff’s first motion to dismiss was addressed to defendant’s answer with counterclaims. After receipt of the motion papers defendant served an amended answer with counterclaims. On the return date defendant argued that he did not need to oppose the initial motion to dismiss because the motion was mooted by his filing of an amended pleading – though he refused to even file this amended pleading in opposition to the motion to dismiss. The Court took the position that, while defendant may have had an opportunity to amend his pleading as of right, the “better rule” to follow would be the defendant’s submission of his amended pleading in opposition to the motion, so that the plaintiff could choose to either withdraw his motion or have it applied against the amended pleading. The Court found that the defendant’s refusal to submit the amended pleading in opposition to the original motion to dismiss was “gamesmanship” and necessitated the second motion to dismiss; and was frivolous conduct allowing the issuance of sanctions against defendant’s attorney in the form of costs and reasonable attorneys’ fees incurred in bringing the second motion to dismiss.
Toikach v. Basmanov, Sup Ct, Kings County, February 25, 2011, Demerast, J, Index No. 224/10.
Service of Process on Israeli Defendants Proper Under the Hague Convention: Sbarro, Inc. v Tukdan Holdings, Ltd.
In an April 28, 2011 decision by Justice Emerson, the court denied the defendants’ motion to dismiss the complaint for defective service of process on the grounds that the service was proper under the Hague Convention. The plaintiff personally served the defendants, an Israeli corporation and an Israeli resident, by mailing copies of the summons and complaint by registered mail to them in Israel. The court concluded that the service was in accordance with Article 10(a) of the Hague Convention which states that “provided the State of destination does not object, the present Convention shall not interfere with (a) the freedom to send judicial documents, by postal channels, directly to persons abroad” because the Second Department has interpreted the word “send” to be synonymous with “service” and the plaintiff’s method of service was permissible under Israeli law.
Sbarro, Inc. v Tukdan Holdings, Ltd., Sup Ct, Suffolk County, April 28, 2011, Emerson, J, Index No. 13016-10.
Court Dismisses CPLR 3213 Motion for Lack of Subject Matter Jurisdiction Based on Plaintiff's Failure to Serve and File Summons: Giaquinto v Long Island Rubbish Removal E. Corp.
In a May 2, 2011, decision by Justice Emerson, the court dismissed defendant’s motion for summary judgment in lieu of complaint for lack of subject matter jurisdiction. Defendant moved under CPLR 3213 but failed to serve and file the summons with its accompanying motion papers. Because it is the service and filing of the summons that invokes the court’s jurisdiction on a motion under CPLR 3213, and because the non-filing of papers required for the commencement of an action is a non-waivable defect under CPLR 2001, the court dismissed defendant’s action.
Giaquinto v Long Island Rubbish Removal E. Corp., Sup Ct, Suffolk County, May 2, 2011, Emerson, J., Index No. 14873/10.
Court Upholds Law on Brokers' Limited Duties Toward Insurers Finding No Special Relationship Between the Parties: Consolidated Bus Transit, Inc. v The Treiber Group
In an April 22, 2011 decision by Justice Schmidt, the court granted defendant-insurance brokers’ motion for summary judgment dismissing plaintiff-employers’ complaint. Defendants placed plaintiffs into a worker’s compensation self-insurance program that ultimately became insolvent, resulting in plaintiffs being assessed by the Worker’s Compensation Board more than $2.5 million as a participant in the program. Plaintiffs sued asserting claims based on, among other things, breach of fiduciary duty and fraud. The court dismissed the breach of fiduciary duty claims, finding no evidence of the requisite “special relationship” between the parties in that defendant received no compensation for insurance advice, had no exclusive contract with plaintiff, and was not otherwise delegated any special decision-making responsibility. The court also dismissed the fraud claims, finding that defendants’ alleged representations regarding the insurance program’s financial state constituted “representations of opinion or predictions for the future,” which are not actionable as fraudulent, and which, in any event, were made after plaintiffs’ decision to participate in the program.
Consolidated Bus Transit, Inc., et. al. v The Treiber Group, LLC, et. ano., Sup Ct, Kings County, April 22, 2009, Schmidt, J., Index No. 2825/09
Court Extends Judicial Comity to Decision by Canadian Court and Dismisses Complaint by Carl Ichan; Ichan v Lions Gate Entertainment Corp.
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
Law Firm Loses Bid to Maintain a Special Turnover Proceeding against Adversary Firm: Scher Law Firm v Flemming Zulack Williamson Zauderer LLP
In a March 22, 2011 decision by Justice Demarest, the court dismissed a special turnover proceeding commenced by one law firm against another pursuant to CPLR § 5225(b), on the grounds that the action was duplicative of other actions pending by the same plaintiffs who were represented by the petitioner firm, against the same parties, for compensation for the same alleged wrongs that served as the predicate for the relief sought in the special proceeding. The petitioner sought an order directing the respondent to turn over legal fees purportedly fraudulently conveyed to it by its client (Deutsch), who was adverse to petitioner’s client (Parklex Associates) in separate proceedings pending before the court. Although the court held that the petition stated a cognizable claim under CPLR § 5225(b), it dismissed the petition upon finding: (1) Deutsch’s right to the monies in question was the very issue being litigated in the other actions; (2) the petitioner could not prevail in the special proceeding without the court first adjudicating the merits of the defenses asserted in the other actions; and (3) the other actions pending would fully redress the petitioner if there was a determination that the respondent law firm wrongfully facilitated its client’s goal of hindering, delaying, or defrauding Parklex Associates from obtaining its rightful recovery.
Scher Law Firm v Flemming Zulack Williamson Zauderer LLP, Sup Ct, Kings County, March 22, 2011, Demarest, J, Index No. 22887/10
Out of State Depositions Not Necessary for Prosecution of Derivative Action Not Permitted and Complaint Dismissed: Lubel v Shiloach
In a March 2, 2011 decision by Justice Bucaria, the court denied the plaintiff’s motion pursuant to CPLR § 3108 to conduct an out of state deposition of a Maryland limited liability company which, the plaintiff alleged, had entered into an agreement with the defendants to compete against the company which the plaintiff and defendants owned. The court denied the application, finding that the discovery was not necessary to the plaintiff’s prosecution of her action because the gravamen of the complaint was that the defendants refused to cooperate with the plaintiff and provide her with store merchandise, not that they engaged in a competitive business. The court also denied the plaintiff’s motion for a preliminary injunction on the grounds that the plaintiff sought a mandatory injunction to compel the defendants to provide merchandise to a store in Plainview, NY which the plaintiff had not yet demonstrated was opened with the requisite authorization from the defendants.
The court then granted the defendants’ cross-motion to dismiss the complaint for failure to state a cause of action. Although the court rejected the defendants’ arguments that the complaint should be dismissed because there was another action pending in Kings County in which the defendants alleged that the plaintiff opened a New Jersey store without their consent, it found that, giving the plaintiff every possible favorable inference, it was clear that without the defendants’ consent to open the Plainview store, the defendants were not required to provide the plaintiff with merchandise for that very store.
Lubel v Shiloach, Sup Ct, Nassau County, March 2, 2011, Bucaria, J, Index No. 020501/10
Purchase Price for Interests in Company Subject to Valuation Is Sufficiently Certain to Form Enforceable Contract: Nigro v Owen Logistics LLC
In a February 14, 2011, decision by Justice Bucaria, the court granted in part and denied in part defendants’ motion to dismiss. Plaintiff-buyer sued defendant-LLC members for breach of contract and specific performance in connection with the purchase of their interests in two logistics companies. Defendants moved to dismiss based on documentary evidence and failure to state a cause of action. The court rejected defendants’ argument that the parties’ agreement was insufficiently certain as to a material price term, finding that a purchase price of approximately a half million dollars subject to adjustment based on valuation by an accountant was reasonably certain, “particularly if the parties have agreed that fair market value is to be determined by appraisal.” The court also rejected defendants’ argument that plaintiff’s claim for unjust enrichment was duplicative of his breach of contract claim because plaintiff had yet to establish the existence of the alleged oral agreement. The court otherwise granted defendants’ motion as to plaintiff’s causes of action for 1) fraud because it was duplicative of plaintiff’s breach of contract claim; 2) negligent misrepresentation because plaintiff failed to allege the requisite “special or privity-like relationship”; and 3) conversion because plaintiff failed to allege the existence of a “specific identifiable fund.”
Nigro v Owen Logistics LLC, Sup Ct, Nassau County, February 14, 2011, Bucaria, J., Index No. 13054/10
*For a more detailed analysis of this decision and its impact, see our colleague Peter A. Mahler’s post at New York Business Divorce.
Court Finds Seinfeld Master of Children's Cookbook Domain and Dismisses Slander and Misappropriation Suit: Lapine v Seinfeld
Although not venued in the Commercial Division, in a February 23, 2011, decision by Justice Friedman, the court granted defendants’ motion to dismiss with prejudice. Plaintiff published a cookbook of healthy-food recipes for children. After defendant-publisher later released a similar cookbook written by defendant-Seinfeld’s wife, plaintiff brought suit alleging that defendant-publisher wrongfully used her idea for a cookbook about hiding nutritious ingredients in children’s favorite foods. The court dismissed plaintiff’s cause of action for misappropriation against defendant-publisher because she failed to plead a legally-sufficient relationship between the parties, her idea was not sufficiently novel, and because her cause of action, in any event, would be preempted by the Copyright Act. Plaintiff also sued defendant-Seinfeld for referring to her as, among other things, a “wacko” and “nut job” on David Letterman and E! News in connection with the lawsuit. The court also dismissed plaintiff’s cause of action for defamation, concluding that Seinfeld’s statements were expressions of opinion regarding the lack of merit of plaintiff’s claims and therefore not actionable.
Lapine v Seinfeld, Sup Ct, New York County, February 23, 2011, Friedman, J., Index No. 150051/10
Fraud Claim Based on Falsely Notarized Document Dismissed: Saleh Holdings Group, Inc. v Chernov
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
Evidence of Corporate Informalities and Fraudulent Transfer Bars Summary Judgment on Shareholder's Entitlement to Stock Certificate and Transferability of Shares: Tulino v Tulino
In a December 2, 2010, decision by Justice Bucaria, the court denied defendant-50% shareholder’s motion to dismiss but granted his motion to compel discovery. The court also denied plaintiff-50% shareholder’s motion for summary judgment but granted him leave to amend the complaint. Plaintiff entered into an agreement with a third party to sell his interest in defendant-corporation, and defendant refused to consent to the sale as required under the agreement. Plaintiff sought relief with respect to his entitlement to a stock certificate and the alienability of his shares, and defendant moved to dismiss. Notwithstanding the individual nature of plaintiff’s claims against the corporation, the court denied defendant’s motion to dismiss based on standing because the complaint did not confuse plaintiff’s derivative and individual rights. And notwithstanding the lack of any stock certificates, the court also denied defendant’s motion based on failure to state a claim because the corporation’s by-laws provided that its shares would be represented by certificates, justifying plaintiff’s proceeding to compel the corporation to issue certificates. The court, however, denied plaintiff’s motion for summary judgment based on evidence that the shareholders agreed informally that the corporation’s shares would be uncertified and that plaintiff’s sale of his interest to the third party would constitute a fraudulent transfer. Finally, the court granted defendant’s motion to compel discovery related to informal meetings of the directors or shareholders and granted plaintiff’s motion for leave to amend the complaint in his individual capacity.
Tulino v Tulino, Sup Ct, Nassau County, December 2, 2010, Bucaria, J., Index No. 007081/09
Claims by Joint Venturers Not Listed in LLC Operating Agreement Allowed to Proceed, Shapsis et al. v Kogan et al.
In a January 7, 2011 decision by Justice Demarest the court allowed claims by alleged joint venturers who were not parties to an LLC operating agreement to proceed. The litigation stemmed from a venture formed for the development of a commercial building. Two of the plaintiffs were not signatories to the operating agreement for the LLC which owned and developed the premises. Nevertheless, the court allowed their breach of fiduciary and ancillary claims proceed based on the allegations that those plaintiffs’ interest in the entity was held in the name third plaintiff.
The court, nevertheless, dismissed claims brought against the entities’ attorneys who were alleged to have breached their fiduciary duties a breach of contract claim against the attorneys. Both findings were premised on the lack of any allegations that the attorneys represented plaintiffs (rather than the LLC).
Shapsis et al. v. Kogan, et al, Sup Ct, Kings County, January 7, 2011, Demarest, J Index No. 38418/07
Court Dismisses Conversion and Civil Conspiracy Claims on Pre-Answer Motion: Bahiri v Madison Realty Capital Advisors, LLC
In a December 23, 2010, decision by Justice Fried, the court granted defendants’ motion to dismiss plaintiff’s conversion and civil conspiracy claims based on failure to state a cause of action. Plaintiff, a withdrawing member of defendant-LLC, alleged that defendants failed fully to redeem his membership interest and breached the related redemption agreement and promissory note by paying salaries to defendant-members instead. The court dismissed plaintiff’s conversion claim because he failed specifically to identify and segregate the funds allegedly converted and failed to demonstrate an immediate possessory right over the funds, “which simply represent[ed] damages in contract.” The court also dismissed plaintiff’s civil conspiracy claim as duplicative of his related fraudulent transfer claim, concluding that “a conspiracy to commit a tort is never itself a cause of action.”
Bahiri v Madison Realty Capital Advisors, LLC, Sup Ct, New York County, December 23, 2010, Fried, J., Index No. 650743/09
Unlicensed Foreign Bank Authorized to Pursue Foreclosure Action in New York Court: Greystone Bank v 15 Hoover Street, LLC
In a September 28, 2010, decision by Justice Driscoll in connection with a foreclosure action by plaintiff-mortgagee, a North Carolina bank, against defendant-mortgagor, a New York limited liability company, and on defendant’s motion to dismiss on grounds that plaintiff was a foreign corporation not licensed to do business in New York and failed properly to elect its remedy either at law or in equity, the court denied the motion as to plaintiff’s right to sue and granted the motion as to election of remedies. Specifically, the court held that § 200 of the Banking Law authorizes banks to maintain actions to enforce obligations arising out of mortgages given to secure loans made in New York. Concluding further that RPAPL § 1301 “preclude[s] a mortgagee who has elected foreclosure from commencing an action on the mortgage debt without leave of the court,” the court stayed plaintiff’s prosecution of a deficiency judgment based on a promissory note pending the outcome of the foreclosure action.
Greystone Bank v 15 Hoover Street, LLC, Sup Ct, Nassau County, September 28, 2010, Driscoll, J, Index No. 007223-10
Court Grants Motion for Summary Judgment in Lieu of Complaint Based on Guaranty: GSO RE Onshore LLC v Sapir
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
Affiant's Health Issues at the Time of Original Dismissal Motion Justify Submission of Evidence of Lack of Standing on Later Renewal Motion: Koenig v Koenig
In a September 17, 2010, decision by Justice Driscoll in connection with a post-dissolution derivative action on behalf of a microscope-servicing company, and on defendant’s motion for leave to renew his motion to dismiss for lack of standing based on an affidavit from the company’s receiver affirming that plaintiff failed to make a demand on the receiver, the court granted the motion and dismissed the complaint. The court found that health issues experienced by the receiver at the time the underlying motion to dismiss was made “constitute[d] a reasonable justification for the failure to submit his affidavit on the original motion.” Based on the receiver’s affidavit, the court concluded that the plaintiff lacked standing to bring a derivative action because he failed first to make a demand on the receiver and that such a demand would not have been futile because the receiver would have, among other things, provided an analysis of the plaintiff’s claims and attempted to mediate the dispute in order to preserve corporate assets.
Koenig v Koenig, Sup Ct, Nassau County, September 17, 2010, Driscoll, J., Index No. 021401/09
*For a more detailed analysis of this decision and its impact, see our colleague Peter A. Mahler’s post at New York Business Divorce.
Claim Over Employment Contract Proceeds Based On Possible Modification And Waiver: Gates v Long Is. Women's Health Care Assoc., P.C.
In an October 8, 2010 decision by Justice Driscoll the Court denied a motion to dismiss and granted a motion to amend. Plaintiff, a medical doctor, was a former employee of Defendants. Pursuant to Plaintiff’s employment contract during the term of her employment she was to maintain “occurrence” medical malpractice insurance, and Defendants were to pay for that insurance. It came to light that Plaintiff only had “claims made” medical malpractice insurance as opposed to “occurrence” medical malpractice insurance during the term of her employment. Plaintiff claimed that Defendants arranged for her malpractice insurance and that they breached the contract by not providing the “occurrence” coverage. Defendants argued that it was Plaintiff’s obligation to “maintain” the insurance coverage, and she breached the contract by not obtaining the proper insurance coverage.
Plaintiff brought suit for breaches of the employment contract, breach of the implied covenant of good faith and fair dealing, to hold the individual Defendants liable for this breach under BCL 603(a) (because she argued the malpractice insurance was part of her compensation) and to equitably estopp Defendants from denying that they were obligated to pay for occurrence insurance during the employment term. Plaintiff’s original complaint only alleged the breach of contract and BCL claims, she sought to amend her complaint to add the other claims.
Reviewing the Amended Complaint the Court found that Plaintiff stated viable causes of action, which should not be dismissed. The court held that the employment contract was not ambiguous as to Plaintiff’s obligation to “maintain” occurrence medical malpractice insurance; but the Amended Complaint alleged sufficient facts to sustain a dispute that the parties may have agreed to a modification, waived certain of the contract’s requirements, the parties are estopped from asserting their rights under the contract and/or the parties breached their duties of good faith and fair dealing with one another. The Court also found that Plaintiff’s BCL 603(a) cause of action was properly pled.
Gates v Long Is. Women’s Health Care Assoc., P.C., Sup Ct, Nassau County, October 8, 2010, Driscoll, J., Index No. 8617/10
Action Against Competitor Dismissed for Failure to Adequately Plead Business Tort Elements: Wayne Thomas Salon, Inc. v Moser
In an October 12, 2010, decision by Justice Kapnick in connection with an action between two hair salons in which plaintiff alleged various business torts relative to the resignation of a stylist from plaintiff’s salon and the subsequent hiring of that same stylist by defendant’s salon, and on defendant’s motion to dismiss for failure to state a cause of action, the court granted defendant’s motion as to each of plaintiff’s four causes of action. As to the first cause of action for tortious interference with prospective business relations, the court found that plaintiff failed to allege with the requisite specificity that defendant engaged in conduct amounting to an independent tort or crime and that defendant acted solely out of malice or by wrongful means. As to the second cause of action for tortious interference with economic relations, the court found that plaintiff failed to allege the existence of a valid contract between it and its former clients or that defendant knew about any such contracts. As to the third cause of action for unfair competition, the court found that plaintiff failed to allege that defendant misappropriated plaintiff’s labors by hiring one of its former employees or otherwise acted in bad faith. And as to the fourth cause of action for unjust enrichment, the court found that plaintiff failed to allege that it conferred a benefit upon defendant that would entitle defendant to recovery under such a theory.
Wayne Thomas Salon, Inc. v Moser, Sup Ct, New York County, October 12, 2010, Kapnick, J., Index No. 603632/09
Trystate Mech., Inc. v Tefco, LLC, Sup Ct, Kings County, October 6, 2010, Demarest, J, Index No. 7343/10
In an October 6, 2010 decision, Justice Demarest denied the defendant’s motion to dismiss the complaint which asserted that it could not be liable to the plaintiff under the theory of successor liability. The plaintiff had initially contracted with Chapeau Inc. whereby Chapeau agreed to provide electrical power and thermal energy through Cogen Systems at two Macy’s locations. The plaintiff brought suit against Tefco, alleging that it was entitled to be paid for project management services, labor, and equipment which the plaintiff provided Chapeau in connection with the Cogen Systems. Tefco moved to dismiss on the grounds that, under the general rule, a corporation that acquires the assets of another is not liable for its predecessor’s debts. The Court denied the defendant’s motion to dismiss, upon concluding that the plaintiff established that the asset purchase was a de facto merger and, therefore, an exception to the general rule because: (1) documents filed with the SEC showed that Chapeau and Tefco were under common ownership or a continuity of control; (2) Tefco’s succession to Chapeau’s assets was contemplated before the asset transfer because it was formed for the very purpose of acquiring all of the Cogen Systems; (3) Chapeau’s simultaneous Chapter 7 bankruptcy proceedings would result in a cessation of Chapeau’s ordinary business; (4) documents filed by Tefo indicated that it purchased Chapeau’s existing contracts in Chapeau including the specific contract at issue; and (5) the continuity of management between Chapeau and Tefco was undisputed. The Court similarly rejected Tefco’s argument that it did not assume any liability to the plaintiff after the date it executed an Assignment Agreement with Chapeau upon finding that Chapeau’s alleged liability to the plaintiff had already accrued and existed before the effective date of the Assignment Agreement.
Givati v Air Techniques, Inc., Sup Ct, Nassau County, Oct. 27, 2010, Driscoll, J, Index No. 000234/09
In an October 27, 2010, decision by Justice Driscoll in connection with plaintiff-consultant’s action against defendant-manufacturer for breach of contract, and on defendant’s motion to dismiss brought on by order to show cause on the ground that the court lacked jurisdiction to decide the case, the court denied defendant’s order to show cause, finding that the federal courts did not have exclusive jurisdiction to determine whether plaintiff was contractually entitled to certain patent royalties because plaintiff’s breach-of-contract action did not “arise under” the federal patent laws even though the validity of a patent was an issue in the case. The court concluded that because plaintiff’s action primarily involved interpretation of a contract, “and only peripherally involved questions concerning patents,” it merely raised “questions” arising under the patent laws and did not constitute a “case” arising under those laws.
CP Energy Group, Inc. v Windy Point Partners, LLC, Sup Ct, NY County, October 5, 2010, Fried, J, Index No. 650026/10
In an October 5, 2010, decision by Justice Fried in connection with plaintiff-consultant’s action for breach of contract against defendant-property owners under a consulting agreement to find a buyer for defendants’ property, and on defendants’ motion to dismiss the complaint under CPLR 3211 [a] [4] and CPLR 327, the court denied defendants’ motion, finding that the plain language of the jurisdiction clause in the parties’ consulting agreement was sufficiently particular and mandatory – i.e. “chose a particular forum, New York, and selected it ‘unconditionally and irrevocably’” – to be deemed a mandatory forum-selection clause rather than a permissive service-of-suit clause. Because contractual provisions for the selection of a forum for litigation are prima facie valid in New York, the court enforced the provision in the parties’ agreement and denied defendants’ motion.
Axios Prod., Inc v Time Mach Software, Inc, Sup Ct, Suffolk Count, October 4, 2010, Emerson, J, Index No 13825/10
In an October 4, 2010 decision by Justice Emerson, the Court granted a preliminary injunction to a software distributor enjoining the termination of a software licensing agreement. The software in question was developed by an Israeli’s company and licensed to a New York company for marketing, licensing and distribution. The parties entered into an initial agreement a number of amendments to include additional software. Pursuant to the initial agreement and each of the amendments if an agreement was to be terminated the party terminating the license had to specify which specific agreement and/or amendment was being terminated.
The software developer terminated the licenses and the New York distributor filed suit seeking a preliminary injunction barring the developer from enforcing the termination of the agreements. Before addressing the merits of the preliminary injunction motion, the Court found that the Israeli company was properly served with process pursuant to the Hague Convention and denied the developers motion to dismiss.
As to the preliminary injunction, the Court found that the developer had properly terminated two of the three software licenses in question because it had not referenced one of the agreements in its termination notice. Therefore, the Court granted the preliminary injunction as to that one program, finding that the New York distributor had demonstrated likelihood of success and irreparable harm.
Bohigan v Pearson, Sup Ct, New York County, October 15, 2010, Schweitzer, J., Index No. 650149/10
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.
Greenberg v Falco Constr. Corp., Sup Ct, Kings County, September 29, 2010, Demarest , J, Index No. 4267/10
In a September 29, 2010 decision by Justice Demarest, the Court granted a number of motions to dismiss, with leave to replead. The actions stem from a number of closely held corporations owned by two sisters and their mother. One of the sisters alleged that the other sister and her mother were improperly controlling the corporations and entering into “sweet heart” deals with other family owned entities which plaintiff did not own. Plaintiff also brought claims for adding and abetting breach of fiduciary duties against the accountants who were working of the entities and plaintiff individually
The Court granted the motions to dismiss (with leave to replead) the individual and derivative breach of fiduciary duties claims against plaintiff’s sister, mother and accountant, because these claims were intermingled. In dismissing these claims the Court stated that plaintiff could seek punitive damages on her breach of fiduciary duty claims if she was able to demonstrate that the breach involved a “high degree of moral turpitude” or “wanton or reckless disregard of” plaintiff’s rights. The Court also stated that in pari dilecto would not bar the claims against the accountant.
The Court also dismissed plaintiff’s inspection claim under BCL 624 because it was not brought by order to show cause.
UFC Aerospace Corp v Barnes, Sup Ct Suffolk County, October 12, 2010, Pines, J, Index No. 18565/10
In an October 12, 2010 decision by Justice Pines the Court denied a motion to dismiss for lack of personal jurisdiction or in the alternative to dismiss for forum non conveniens. The dispute arose after an employee of a New York corporation, who worked in Texas, allegedly breached his employment contract and solicited his former employer’s customers. When the employer sued the former employee moved to dismiss.
The Court denied the motion to dismiss because the employer demonstrated sufficient contacts with New York that New York would have personal jurisdiction over the defendant. In coming to this conclusion the Court noted that the defendant contracted with a New York company, traveled to New York for at least one company meeting, had regular, if not daily contract with the New York office, sold products which were shipped from New York and was paid salary and bonuses from the New York office. The Court also denied the motion based on forum non conveniens because the defendant failed to adequately demonstrate that New York would be an inconvenient forum for the dispute.
New York Packaging II, LLC v Peace Prod. Co., Sup Ct, Nassau County, Sept. 10, 2010, Warshawsky, J, index No. 006300/10
In a September 10, 2010, decision by Justice Warshawsky in connection with an action by plaintiff-manufacturer alleging various business torts against defendant-employee, and on defendant’s motion to dismiss under CPLR 3211 [a] [1] and [a] [2], the court 1) denied defendant’s motion based on documentary evidence, finding that the order slips reflecting a pre-existing relationship with plaintiff’s customers submitted by defendant “[did] not even remotely conclusively dispose of plaintiff’s claim”; 2) denied defendant’s motion regarding plaintiff’s claims for breach of fiduciary duty and aiding and abetting a breach of fiduciary duty, finding that the pleading was adequate despite the fact that “specifics [were] not included in the complaint” and that certain supporting allegations were “to say the least, minimal”; 3) denied defendant’s motion regarding plaintiff’s claim for unfair competition, finding that the pleading was sufficient “despite the apparent lack of an employment agreement with a non-compete clause”; 4) denied defendant’s motion regarding plaintiff’s claim for unjust enrichment; 5) granted defendant’s motion regarding plaintiff’s claim for fraud, finding that plaintiff failed to allege the various elements of a fraud claim under the heightened requirements of CPLR 3016; and 6) granted defendant’s motion regarding plaintiff’s claim for injunctive relief, finding that “[w]hen money damages can make the plaintiff whole, injunctive relief is not appropriate.” The court also struck plaintiff’s claim for punitive damages, finding that “[t]he allegations of the complaint fall far short of the high degree of moral culpability, or willful or wanton negligence indicating a conscious disregard for the rights of others.” Finally, the court struck plaintiff’s claim for attorney’s fees, finding that claims for breach of fiduciary duty and unjust enrichment are not among the exceptions to the general rule in New York that “each party is to bear its own legal expenses.”
Anglo Irish Bank Corp. Ltd. v Ashkenazy, Sup Ct., NY County, Aug. 4, 2010, Fried, J, Index No. 103006/10
In an August 4, 2010 decision by Justice Fried, the court granted the plaintiff’s motion for summary judgment in lieu of a complaint pursuant to CPLR § 3213 based on the defendants’ non-payment of a guaranty. The court found there was no genuine issue of fact because the plaintiff undisputedly established that: (1) the defendants executed an absolute and unconditional guaranty promising to pay all of the liabilities of a non-party under a note given by that non-party in favor of the plaintiff bank; (2) the defendants waived any right to notice of default under the note; (3) the plaintiff was not required to take action against the third-party before exercising its rights under the guaranty; (4) the non-party defaulted under the note; and (5) neither the third-party nor the defendants made the requisite payments.
The court also denied the defendants’ motion to dismiss the complaint which argued that the plaintiff lacked the capacity to sue because it was a foreign banking institution that could only foreclose on property, and because there was a prior action pending in Florida. The court rejected both arguments finding: (1) the Banking Law does not contain the defendants’ asserted restriction, but rather permits a foreign banking corporation which maintains an office in New York (as the plaintiff does) to enforce obligations it acquired in the transaction of business outside of the state; (2) dismissal was not required under CPLR § 3211(a)(4) because the Florida action was not between the same parties for the same cause of action; and (3) RPAPL §1301(3) was inapplicable because the property securing the note was located outside of New York.
Barneli & Cie S.A. v Dutch Book Funds, SPC, Ltd.. Sup Ct NY County, Aug. 9, 2010, Bransten, J, Index No. 600871/08
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.”
Owssom Bldrs., LLC v J&F Refrig, A.C. & Heating, Inc., Sup Ct, Kings County, Aug. 5, 2010, Demarest, J, Index No. 22146/08
In an August 5, 2010 decision by Justice Demarest, the court dismissed an action for breach of contract and failure to comply with NYC building codes brought by a general contractor and owner of the premises against a subcontractor, because all of the claims were barred by the doctrines of collateral estoppel and res judicata. The court noted that the subcontractor had previously brought an action against the general contractor for breach of contract and negligence relating to the same job alleged in the matter at bar. The general contractor asserted counterclaims which the court had dismissed. The general contractor and the owner of the premises then commenced a new action against the subcontractor which, the court found, were the same allegations as the previously dismissed counterclaims.
First the court found that all of the general contractor’s claims were (1) barred by collateral estoppel they were identical to its prior insufficient counterclaims, and (2) barred by res judicata because the new allegations could have been raised in that prior action. Second, the court rejected the owner’s argument, that it had independent standing to sue, based on the general rule that a subcontractor is in privity with the general contractor and not the owner of the premises, even if the owner benefits from the contractor’s work. Additionally, because the owner was in privity with the general contractor, the owner was barred by the same collateral estoppel and res judicata principles as the general contractor.
The court then awarded the subcontractor attorney’s fees under 22 NYCRR § 130-1.1, finding that the plaintiff’s “continued efforts to relitigate issues from a prior action” when they were on notice that they claims had already been decided, constituted frivolous conduct.
Pugach v. HBO Pictures, Inc., Sup Ct, Queens County, Feb. 19, 2009, Kitzes, J, Index No. 17741/08
In a decision dated February 19, 2009, Justice Kitzes dismissed plaintiffs’ causes of action for breach of contract and fraud, stemming from an agreement with defendant Shoot the Moon Productions in which, in consideration for $2,000, plaintiffs granted Shoot the Moon an option to purchase motion picture, television, and radio rights to their life stories. The court dismissed the breach of contract claim finding that it was refuted by plaintiffs’ admissions and documentary evidence submitted by defendants that Shoot the Moon exercised its option to purchase plaintiffs’ life stories and paid plaintiffs the amount stated under the terms of the agreement. The court further ruled that to the extent plaintiffs argued that Shoot the Moon was required to separately exercise its options and tender additional payment to obtain the rights to a feature film following the documentary, that argument failed due to the clear and unambiguous contract, which did not call for any additional payment until fifteen days after the principal photography of a subsequent production was completed. The court also dismissed the fraud claim, finding that: (1) plaintiffs could not, as a mater of law, rely on an alleged oral misrepresentation, which conflicted with the clear provisions of the written agreement; and (2) one plaintiff’s inability to read the contract due to blindness did not establish fraud by the defendants, but rather, the plaintiff’s own negligence where there was no allegation that the contract was misread or misrepresented to her.
Finally, the court dismissed plaintiffs’ cause of action for legal malpractice asserted against the attorneys who represented Shoot the Moon in preparing and drafting the contract with plaintiffs, on the grounds that absent an attorney-client privilege, plaintiffs cannot state a claim for legal malpractice against defendants’ attorneys as no separate duty to plaintiffs was owed.
Wong v. Moy, Sup Ct, NY County, Apr. 13, 2009, Kapnick, J, Index No. 601048/08
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.
Century-Maxim Construction Corp. v. One Bryant Park LLC et al., NY Slip Op 50858(U), 23 Misc 3d 1120[A] [April 7, 2009, 2009 Sup Ct Westchester County]
In an April 7, 2009 decision, Justice Scheinkman partially granted defendants’ motion to dismiss a complaint arising out of a contract for concrete for a 520story skyscraper in New York City. The concrete contractor sued for damages on multiple bases, including breach of contract; quantum meruit; account stated rescission; and attorneys fees.
The Court partially granted the motion to dismiss because the claims either failed to state a cause of action or were contradicted by the documentary evidence (in this case the contract underlying the parties’ agreement).
The Court did not dismiss part of plaintiff’s account stated claim (which it allowed the plaintiff to replead in a more cogent manner). The Court also allowed the plaintiff the opportunity to replead a separate and distinct cause of action for rescission and a separate and distinct claim for quantum meruit (the viability of which would rest upon plaintiff’s success on his rescission claim).
Comverse Technology, Inc. v. Alexander and Sorkin, Supreme Court, New York County Index No. 600142/08 (Nov. 3, 2008)
In a November 3, 2008 decision, Justice Ramos denied a motion to dismiss an unjust enrichment claim based upon the statute of limitations. The plaintiff brought claims against its former CEO and Chair of its Board of Directors (Alexander) and a former director, corporate secretary and General Counsel (Sorkin) based upon an alleged stock option back-dating scheme.
Justice Ramos denied Sorkin’s motion to dismiss the unjust enrichment claim, finding that while the last act of misconduct arguably occurred more than six-years before the commencement of the action, that Sorkin’s misconduct was the direct cause of the long delay in the commencement of the action and therefore he was equitably estopped from asserting a statute of limitations defense.
Wong v. Moy, 2009 NY Slip Op 50777(U), 23 Misc3d 1114(A) [Sup Ct NY County]
Industry: Construction
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 construction 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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Gray & Assoc., LLC v. Speltz & Weis, LLC et al., Supreme Court, New York County Index No. 150446/07 (February 2, 2009)
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.
Pugach v. HBO Pictures, Inc., 2009 NY Slip Op 30489(U) [Sup Ct Queens County 2009]
Industry: Entertainment
In a decision dated February 19, 2009, Justice Kitzes dismissed plaintiffs’ causes of action for breach of contract and fraud, stemming from an agreement with defendant Shoot the Moon Productions in which, in consideration for $2,000, plaintiffs granted Shoot the Moon an option to purchase motion picture, television, and radio rights to their life stories. The court dismissed the breach of contract claim finding that it was refuted by plaintiffs admissions and documentary evidence submitted by defendants that Shoot the Moon exercised its option to purchase plaintiffs’ life stories and paid plaintiffs the amount stated under the terms of the agreement. The court further ruled that to the extent plaintiffs argued that Shoot the Moon was required to separately exercise its options and tender additional payment to obtain the rights to a feature film following the documentary, that argument failed due to the clear and unambiguous contract, which did not call for any additional payment until fifteen days after the principal photography of a subsequent production was completed. The court also dismissed the fraud claim, finding that: (1) plaintiffs could not, as a mater of law, rely on an alleged oral misrepresentation, which conflicted with the clear provisions of the written agreement; and (2) one plaintiff’s inability to read the contract due to blindness did not establish fraud by the defendants, but rather, the plaintiff’s own negligence where there was no allegation that the contract was misread or misrepresented to her.
Finally, the court dismissed plaintiffs’ cause of action for legal malpractice asserted against the attorneys who represented Shoot the Moon in preparing and drafting the contract with plaintiffs, on the grounds that absent an attorney-client privilege, plaintiffs cannot state a claim for legal malpractice against defendants’ attorneys as no separate duty to plaintiffs was owed.
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General Electric Capital Corp. v. New York Medscan, LLC, 2008 NY Slip Op 33174(U)
In an action for damages resulting from alleged defaults on a lease of cancer-detection equipment, and on Defendant-lessee's motion to dismiss, the Supreme Court, New York County, Ramos, J. denied Defendant's motion to dismiss under CPLR 3211 [a] [1] on documentary evidence, holding that the documents submitted in support of Defendant's motion did not "utterly refute" Plaintiff-lessor's allegations that Defendant failed to make timely payments and that material changes in Defendant's financial condition and business operations constituted defaults under the lease. The court held that the lease agreements, as well as Defendant's intent-to-purchase and surrender-of-equipment letters, were insufficient to refute Plaintiff's allegations but noted that "cashed checks or bank statements," as well as "financial statements and other business records," would have been sufficient to defeat Plaintiff's claims.
