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.
On September 17, 2018, new statewide appellate practice rules took effect in an effort to harmonize the procedures governing appeals to New York’s four Appellate Divisions. Prior to the adoption of these new rules, the procedural aspects of appeals were governed by individual rules unique to each Appellate Division, which resulted in some significant differences in practice between these appeals courts.
On April 27, 2018, Justice Barry Ostrager of the Commercial Division enjoined a no-cash transaction that would have granted Fujifilm (“Fuji”) a 50.1% controlling interest in Xerox. Just days after the Court’s decision an agreement was reached whereby the CEO of Xerox, Jeff Jacobson, and six other current Xerox board members would step down from their positions, ceding control of the company to representatives of investors Carl Icahn and Darwin Deason. Shortly thereafter, Xerox reversed course, indicating publically that Jacobson would stay on as CEO.[1] However, ultimately Xerox entered into a settlement agreement with Icahn and Deason resulting in the resignation of Jacobson and the scuttling of the Fuji Deal.
Justice Charles Ramos of the New York Commercial Division partially vacated an International Chamber of Commerce (“ICC”) arbitration award in a major legal battle between artificial sweetener giants NutraSweet and Daesang. Daesang Corp. v. The NutraSweet Co., et al., No. 655019/2016, 2017 BL 164971 (N.Y. Sup. Ct. May 15, 2017). The partial vacatur sends what was a $100,766,258 award in favor of Daesang back to the arbitral tribunal.
Justice Shirley Kornreich recently issued one of the few New York state court decisions that address the Computer Fraud and Abuse Act (“CFAA”). Spec Simple, Inc. v. Designer Pages Online LLC, No. 651860/2015, 2017 BL 160865 (N.Y. Sup. Ct. May 10, 2017). The CFAA criminalizes both accessing a computer without authorization and exceeding authorized access and thereby obtaining information from any protected computer. Id. at *3 (citing 18 U.S.C. § 1030(a)(2)(C)). The CFAA also provides a civil cause of action to any person who suffers damage or loss because of a violation of the CFAA. Id. at *4 (citing 18 U.S.C. § 1030(g)). As discussed below, the decision provides a helpful look into the interpretation of CFAA claims in the future.
On January 6, 2017, Justice Charles E. Ramos of the Commercial Division issued an order enjoining two corporations from taking action in violation of a shareholders agreement of a third company. The case, Ciment v. SpanTran, Inc.,[1] involves a contentious shareholder dispute in which it was alleged that the shareholders agreement of one company covered governance issues concerning two other companies. Justice Ramos ruled that the third company’s shareholders agreement contemplated the acquisition of additional entities, and was thus likely to apply to the other two corporations—which had subsequently come under the ownership of the same shareholders.
On January 10, 2016, the New York Court of Appeals decided to hear a case that has significant consequence in the field of partnership dissolution. The case, Congel v. Malfitano, concerns the allegedly wrongful dissolution of a shopping mall partnership under Partnership Law § 69. In 2016, Justice Thomas A. Dickerson, writing for a unanimous Second Department panel, held that a former partner’s unilateral notice of dissolution was wrongful because under Partnership Law § 69(2)(1)(b) the partnership was not “at-will” given that the written agreement contained a “definite term.” The Second Department also ruled that it is appropriate to apply minority and goodwill discounts in determining the value of a defendant’s interest in a partnership. Finally, the Second Department concluded that an award of attorney’s fees was proper because the expenditures are only incurred because of the former partner’s wrongful conduct.
On October 27, 2016, Chief Judge Janet DiFiore delivered a much awaited opinion in Justinian Capital SPC v. WestLB.[1] Judge Leslie Stein wrote a dissenting opinion, which was joined by Judge Eugene Pigott, Jr. Justinian involves the issue of champerty, which, as the Court describes, is “the purchase of notes, securities, or other instruments or claims with the intent and for the primary purpose of bringing a lawsuit.”[2] Under New York law, champerty is prohibited.[3] However, the New York champerty statute provides for a safe-harbor when the purchased asset has an “aggregate purchase price of at least five hundred thousand dollars.”[4] Justinian clarifies that this safe harbor only applies when either the party pays “the purchase price or [has] a binding and bona fide obligation to pay the purchase price.”[5] Put simply, at least $500,000 of the transaction must not be contingent on the litigation in order to fall within the safe harbor.
On October 4, 2016, Justice Singh issued an order denying a defendant’s motion to dismiss a claim for breach of a restrictive covenant, finding that the covenant serves an acceptable purpose. See Tarro v. McOsker, No. 653880/15, slip. op. (N.Y. Sup. Ct. Oct. 4, 2016). The court also ruled that while it could not resolve a breach of fiduciary duty claim on a motion to dismiss, it would not entertain a new theory of duty that a plaintiff did not plead in his complaint.
On August 23, 2016, Justice Eileen Bransten of the New York Commercial Division issued a decision granting a motion for spoliation sanctions in a six-year-old dispute involving Covista Communications, Inc. and Oorah, Inc., two telecommunications companies. Oorah, Inc. v Covista Communications, Inc., 2016 N.Y. Misc. LEXIS 3104 (N.Y. Sup. Ct. Aug. 23, 2016). Justice Bransten’s opinion serves as an important reminder that parties must institute a litigation hold and exercise care when erasing documents, even as part of an unrelated transaction, when they are in litigation or reasonably anticipate litigation.
