A corporation that acquires the assets of another is generally not liable for the pre-existing liabilities of the acquired corporation. However, as the Commercial Division’s recent decision in 47 East 34th Street (NY), L.P. v. BridgeStreet Worldwide, Inc. demonstrates, there is an exception to this rule when the successor is deemed to be a mere continuation of the acquired corporation. In 47 East 34th Street, Justice Andrew Borrok relied on the mere continuation doctrine to deny a motion to dismiss claims asserted against a successor guarantor to a lease that had acquired the assets of the original guarantor through a consensual foreclosure.
NY Commercial Division BlogVisit the Full Blog
Patterson Belknap’s Commercial Division Blog covers developments related to practice and case law in the Commercial Division of the New York State Supreme Court. The Commercial Division was formed in 1993 to enhance the quality of judicial adjudication and to improve efficiency in the case management of commercial disputes that are litigated in New York State courts. Since then, the Division has become a leading venue for judicial resolution of high-stakes and every-day commercial disputes. This Blog reviews key developments in the Commercial Division, including important decisions handed down by the Commercial Division, appellate court decisions reviewing Commercial Division decisions, and changes and proposed changes to Commercial Division rules and practices. Our aim is to provide you with thoughtful and succinct analysis of these issues. The Blog is written by experienced commercial litigators who have substantial practices in the Commercial Division. It is edited and managed by Stephen P. Younger and Muhammad U. Faridi, who spearheaded the publication of the New York Commercial Division Practice Guide, which is part of Bloomberg Law's Litigation Practice Portfolio Series.
The Commercial Division recently ruled, in a case captioned as Hopkins v. Ackerman, that derivative claims on behalf of an LLC need to be brought before the LLC ceases to exist. In Hopkins, Justice Saliann Scarpulla granted a motion to dismiss several derivative claims involving now-cancelled Delaware LLCs because, under Delaware law, a cancelled LLC does not have the ability to bring legal claims. The Court also rejected the plaintiffs’ efforts to cast most of the claims as direct claims on behalf of a specific member in the LLCs.
Commercial Division Advisory Council Highlights the Benefits of the Commercial Division to the State of New York
The Commercial Division Advisory Council recently released a memorandum describing the benefits that the Commercial Division offers to the State of New York. The memorandum highlights the many advantages of having a dedicated business court for the state and business and legal communities. It is worth a read for any lawyer whose practice focuses on business disputes.
First Department Holds that Declaratory Judgment Against Creditor’s Principal Does not Preclude Claims By the Creditor Itself
Can a debtor obtain declaratory judgment shielding himself from liability to a creditor’s officers or associates personally and then use that judgment to preclude subsequent claims by the creditor itself? Not in the First Department, following the recent decision in Avilon Automotive Group v. Leontiev.[i] In Avilon, a unanimous panel reversed the res judicata-based dismissal of fraudulent transfer and other related claims arising from several Russian loan transactions because the claims by the creditors themselves were not the subject of a prior declaratory judgment concerning the debtor’s liability to the creditors’ representative.Avilon_Auto._Grp._v._Leontiev.pdf
When a defendant avoids the cost of developing its own technology by stealing proprietary information, can that defendant be required to re-pay the cost it saved as compensatory damages? Not under New York trade secret or unfair competition law. In E.J. Brooks Co. v. Cambridge Security Seals, a divided New York Court of Appeals announced – over a lively dissent – that compensatory damages for misappropriation of trade secrets and unfair competition are limited to the plaintiff’s own losses, and may not include the development costs avoided by defendants. The Court further held that an accompanying claim for unjust enrichment does not provide a basis to expand the recovery beyond the plaintiff’s own losses.
What legal standard applies to assess a corporate board’s refusal to pursue litigation in response to a shareholder’s demand to take “all necessary actions” to correct alleged director misconduct? In Solak v. Fundaro,[i] Commercial Division Justice Charles Ramos applied the business judgment rule to such a situation, holding that a request to take “all necessary actions” constitutes as a shareholder demand under Rule 23.1 of the Delaware Chancery Court Rules and that a derivative plaintiff must plead particularized facts showing gross negligence or bad faith to proceed with a derivative claim following a board’s refusal to take the demanded action.
New York recognizes conversion claims based on intangible property, such as electronically stored information or trade secrets. But does a conversion claim exist when the theft of the intangible property does not deprive the rightful owner of unfettered access to the property (i.e., when the owner retains an original or accurate duplicate of the information)? This was the question presented to the Commercial Division recently in MLB Advanced Media, L.P. v. Big League Analysis, LLC. In that case, Justice Shirley Werner Kornreich held that a conversion claim is not available unless the plaintiff’s use of or access to the property is disturbed.
A shareholder bringing a contested derivative claim in the Cayman Islands must seek leave from the court before proceeding. This litigation prerequisite -- imposed by Rule 12A of the Rules of the Grand Court of the Cayman Islands (“Rule 12A”) -- requires a prima facie factual showing, with the aim of protecting corporations from “vexatious or unfounded litigation.” But when a Cayman Islands-related derivative claim is brought in New York’s Commercial Division, does the same rule apply? The New York Court of Appeals recently answered “No,” holding in Davis v. Scottish Re Group Ltd. that Rule 12A is a procedural rule that does not apply to matters litigated in New York courts.