On February 8, 2018, Justice Shirley Werner Kornreich of the Commercial Division rejected a disclosure-only class action settlement in City Trading Fund v. Nye, 2018 BL 44689 (Sup. Ct. Feb. 08, 2018). The settlement provided for additional disclosures to shareholders in a proxy statement plus $500,000 in attorneys’ fees and expenses for plaintiffs’ counsel. As discussed below, the Commercial Division’s rejection of this disclosure-only settlement is one of the first applications of the First Department’s new standard for reviewing such settlements of merger challenge litigations.
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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 advent of large electronic productions has propelled a proposal to adopt new language in the standard confidentiality order used in the Commercial Division. This proposal is designed to protect parties against inadvertent disclosure of privileged information. On November 15, 2017, the Administrative Board of the Courts issued a request for public comment on a proposal to amend Commercial Division Rule 11-g to include sample “privilege claw-back” language. The proposal was spearheaded by a Subcommittee of the Commercial Division Advisory Council. Comments on this proposal must be received by January 16, 2018.
As reported in this blog on July 24, 2017, the Administrative Board of the New York Unified Court System has been considering a proposal to pilot a “Large Complex Case List” in the New York County Commercial Division. On October 23, 2017, the Chief Administrative Judge of the Courts formally adopted the Large Complex Case List as a pilot program for the Commercial Division of the Supreme Court of New York County.
Unless the U.S. Supreme Court Rules Otherwise, Waivers of Collective Actions Are Not Enforceable in New York
On July 18, 2017, the First Department partially reversed the Commercial Division’s decision in Gold v. New York Life Insurance Company, No. 653923/12, 2017 BL 247192 (App. Div. 1st Dep’t July 18, 2017), a case that presented the issue of whether employees can be compelled to waive collective actions against their employers pursuant to an arbitration clause. In 2015, Justice O. Peter Sherwood of the New York Commercial Division had granted a motion to compel a former insurance agent to arbitrate his wage dispute with New York Life Insurance Co. (“N.Y. Life”). In a decision by Justice Karla Moskowitz (who was a member of the Commercial Division before being appointed to the Appellate Division), the First Department answered an open issue in New York, holding that employers cannot be required to arbitrate such disputes as it “would run afoul of the National Labor Relations Act.”
A specialized list for blockbuster commercial cases in New York’s Commercial Division is under consideration. If designated as a Large Complex Case on the “Large Complex Case List,” the case will be subject to enhanced case management procedures designed to efficiently handle the matter. The proposal is subject to public comment. The Administrative Board of the Courts has requested that comments be submitted by Tuesday, July 25, 2017. If the proposal is adopted, the Large Complex Case List will be piloted in New York County.
Commercial Division Justice Eileen Bransten recently concluded that plaintiff bondholders lacked standing to bring fraud claims against the bond obligor and trustee after having sold their interests in the bonds. One William St. Capital Mgmt. L.P. v. U.S. Educ. Loan Tr. IV, LLC, No. 652274/2012, 2017 BL 1700030 (Sup. Ct. N.Y. Co. May 16, 2017), involved a group of investment firms that purchased $10 million in notes backed by government-guaranteed student loans from the U.S. Education Loan Trust IV (“ELT”). The notes were part of a larger $30 million package.
Fraud and Fraudulent Conveyance Claims for $686 Million Allowed To Proceed Against Hedge Fund in Long-Running Dispute over Failed Securitization
On March 13, 2017, Justice Marcy Friedman of the New York Commercial Division denied a motion for summary judgment seeking to dismiss claims of fraud, breach of the covenant of good faith and fair dealing, and fraudulent conveyance brought against a hedge fund, Highland Capital Management, and related entities. The case, UBS Securities LLC v. Highland Capital Management, No. 6500097/09, 2017 BL 98450 (Sup. Ct. Mar. 13, 2017), is a long running dispute arising from a failed securitization of collateralized loan obligations (CLOs) and credit default swaps (CDS) that dates to the early days of the Great Recession. The denial of summary judgment means that the next step in this eight-year long saga will be a jury trial where $686 million in damages will be at stake.
First Department Confirms Hedge Funds Did Not Act in Bad Faith and Affirms Multi-Million Dollar Judgment Against CDS Counterpart
In Good Hill Master Fund L.P. v. Deutsche Bank AG, No. 600858/10-2188B, 2017 BL 19363 (App. Div. 1st Dep’t Jan. 24, 2017), the First Department unanimously affirmed a judgment entered in the Commercial Division of over $90 million, a large portion of which included prejudgment interest at 21%. The judgment followed a nonjury trial before Justice O. Peter Sherwood of the New York County Commercial Division. The case was brought by two hedge funds against Deutsche Bank in connection with Credit Default Swap (“CDS”) agreements. The First Department rejected the bank’s arguments that the hedge funds acted in bad faith by renegotiating the terms of the underlying securitized notes to the detriment of their CDS counterparty, Deutsche Bank.
When employees resign, the scope of the trade secret doctrine often defines the relationship between former employers and their employees. Trade secret misappropriation claims frequently overlap with other claims arising out of the employment relationship, such as for breach of contract, unfair competition and breach of confidentiality obligations, and also with other doctrines that protect intangible information, such as trademark and copyright law. In S.A.S.C.O. Trading, Inc. v. Pamnani, Case No. 655441/2016, 2016 BL 375946 (N.Y. Sup. Ct. Nov. 1, 2016), Justice O. Peter Sherwood of the Commercial Division analyzed whether a clothing company’s customer lists, manufacturer and supplier lists, and clothing designs were subject to trade secret protection and in the case of the clothing designs, also copyright or trademark protection.
In GSMC II 2006-GC6 Bridgewater Hills Corporate Center, LLC v. Lexington Realty Trust, Case No. 653117/2015, 2016 BL 378261 (N.Y. Sup. Ct. Nov. 2, 2016), Justice Jeffrey K. Oing of the Commercial Division denied a motion to dismiss an action to recover a loan guaranty on a defaulted loan of $14,805,000.
A recent decision from the New York Commercial Division decided whether arbitration could be avoided in an investment firm-employee dispute. In CF Notes, LLC v. Weinstein, No. 652206/2015, 2016 BL 352970 (N.Y. Sup. Ct. Oct. 13, 2016), Justice Saliann Scarpulla, of the Commercial Division, compelled a nonsignatory to arbitrate pursuant to a FINRA arbitration agreement. The decision relates to how financial securities firms structure bonuses to employees and to how nonsignatories may be compelled to arbitrate pursuant to arbitration agreements signed by their affiliates.