A. Robert Quirk, Associate

The issues related to the bringing of claims involving a cancelled LLC were addressed in the Commercial Division’s recent decision in Hopkins v. Ackerman.  In November 2019, Justice Saliann Scarpulla dismissed most of Hopkins’s and his co-plaintiffs’ claims as derivative, and therefore unable to be brought on behalf of a cancelled LLC.  We covered that decision here.  Following that decision, Hopkins sought leave to bring additional direct claims, but Justice Scarpulla’s recent decision rejected all but one of the proposed claims—a breach of fiduciary duty claim based on allegations that Hopkins was frozen out of decision-making and membership rights.  The other claims were rejected as derivative because they concerned the alleged failure to distribute the LLCs’ assets, a harm felt equally by all members.  Justice Scarpulla also reaffirmed her earlier ruling that a challenge to an LLC’s cancellation status (which could re-open the door to derivative claims) must be brought in Delaware, where the entities were established and cancelled.

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.

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.

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,[1] 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.

New York recognizes conversion claims based on intangible property, such as electronically stored information or trade secrets.[1]  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.[2]  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.