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.
On December 16, 2022, Acting Chief Administrative Judge Amaker announced amendments to Commercial Division Rule 16, Motions in General, effective January 3, 2023.[i] The amendments provide for the following:
[i] Administrative Order 286/22, N.Y.S. Unified Court Sys. (Dec. 16, 2022), https://www.nycourts.gov/LegacyPDFS/RULES/trialcourts/AO%20286%20Rule%2016%20Commercial%20Division.pdf.
On October 11, 2022, the Commercial Division Justice for Bronx County, Justice Gomez, issued a decision on a motion to dismiss in Chen v Fox Rehab. Servs., P.C., 175 N.Y.S.3d 713, 2022 NY Slip Op 50986(U) (Sup. Ct. Bronx Cnty. Oct. 11, 2022). Justice Gomez dismissed nine of ten claims brought by the plaintiffs—for failures to state causes of action—and separately dismissed most of the claims brought by an out-of-state plaintiff—for lack of personal jurisdiction. However, the Court did not dismiss the plaintiffs’ breach of contract claim, despite the defendants’ introducing of documentary evidence aimed at defeating that claim.[i] The decision provides a unique example of a pre-answer motion to dismiss based on documentary evidence.
[i] Chen, 2022 NY Slip Op 50986(U) at 15.
One of the most significant pieces of legislation to emerge from the New Deal, the Securities Act 1933 (“the 1933 Act”), imposes a disclosure requirement for registration statements and other securities offerings. The 1933 Act provides that when a registration statement “contain[s] an untrue statement of a material fact or omit[s] to state a material fact required to be stated therein or necessary to make the statements therein not misleading,” investors who purchase those securities have a cause of action to sue in both law and equity. U.S. Code, 15 U.S.C. § 77k. Earlier this October, the Commercial Division considered whether this provision requires biopharmaceutical companies to disclose results from ongoing clinical trials in their securities offerings. See In re Akebia Therapeutics, Inc. Sec. Litig. v. XXX, No. 654373/2021, 76 Misc.3d 1221(A), 175 N.Y.S.3d 715, 2022 WL 9688356 (N.Y. Sup. Ct. October 17, 2022). The Commercial Division gave a mixed response. The court granted a motion to dismiss the complaint, but left open the possibility that pharmaceutical companies might have a duty to disclose results from ongoing clinical trials, if those companies knew about the results and such clinical results constituted “material facts” within the meaning of the 1933 Act. We discuss the Commercial Division’s decision below.
More than two years into the Covid-19 pandemic, the Commercial Division Advisory Council (“CDAC”) has proffered an amendment to the Commercial Division Rules that reinforces a court’s authority to order virtual proceedings even as many offices are resuming in person operations. In particular, CDAC has proposed an amendment to Commercial Division Rule 36 (“Rule 36”), which currently allows virtual evidentiary hearings and bench trials upon consent of all parties. The amendment would explicitly authorize courts to order virtual evidentiary hearings and bench trials without the consent of the parties, “upon a motion showing good cause, or upon the court’s own motion”.[1]
The onset of the COVID-19 pandemic in the Spring 2020 brought immense market uncertainty, which in turn placed serious strain on contractual relationships. Amid that strain, a question on the minds of many commercial parties was the extent to which the underlying contract contained a termination option or other safety valve that could be exercised to relieve a party of the weight of its obligations. While much has already been written on the subject, a recent decision by Commercial Division Justice Joel M. Cohen adds an interesting angle to the discussion: whether a counterparty may unilaterally extinguish a termination option for market disruption by actions deemed to be “off-market.” In Cascade Funding LP – Series 6 v. Bancorp Bank,[1] Justice Cohen answered that question in the negative.
In Salesmark Ventures, LLC v. Jay Singh, JJHM Trading Corp.[1], Justice Joel M. Cohen dismissed, inter alia, the plaintiff’s claim to pierce the corporate veil of the defendant and impose personal liability on the defendant’s sole principal. Underlying the dispute is a contract to purchase millions of synthetic nitrile gloves during the outbreak of COVID-19.
[1] INDEX NO. 651394/2021, 2022 BL 127452 (Sup. Ct. N.Y. Cty. Mar. 11, 2022)
In our recent article What Rejected Renren Settlement Means for Investor Suits, we analyzed Justice Andrew Borrok’s decision rejecting a proposed $300 million settlement between Renren, Inc. (“Renren”) and minority shareholders in In re: Renren Inc. Derivative Litigation.[i] The article noted certain unresolved issues following Justice Borrok’s rejection of the settlement, including two issues that have been raised in recent rulings or filings: (1) the proper record date to be used to determine the minority shareholders who are entitled to potential recoveries, and (2) whether a prejudgment attachment order imposing restrictions on defendants’ transfer or sale of assets in an amount up to $560 million will remain in place.
In Arco Acquisitions, LLC v. Tiffany Plaza LLC, Justice Elizabeth Hazlitt Emerson of the Suffolk County Commercial Division granted defendants’ motion to dismiss Arco’s lawsuit, which alleged that defendants committed fraud in the sale of commercial real estate by misrepresenting incoming rent to inflate the value of the property.[1] The Court found that the parties’ contract provided that Arco assumed all responsibility to investigate the property’s leases and tenancies, and held that the contractual disclaimer precluded Arco from claiming that it entered into the agreement due to fraudulent representations about the rent roll.
On October 19, 2021, Chief Administrative Judge Marks announced the new Commercial Division Rule 36, Virtual Evidentiary Hearing or Non-Jury Trial, effective December 13, 2021.
On October 4, 2021, Chief Administrative Judge Lawrence K. Marks promulgated Rule 35 of the Rules of Practice for the Commercial Division to require corporate entities litigating or seeking to intervene in cases to submit statements disclosing any corporate parent or publicly held companies that are sufficiently invested in the party or proposed intervenor.
In a recent decision in Amos Fin. LLC v. Crapanzano, et al., the New York Supreme Court, Rockland County, addressed one of the new Uniform Rules that went into effect on February 1, 2021—Uniform Rule 202.8-g(a). Uniform Rule 202.8-g(a) provides that any party moving for summary judgment must “annex[] to the notice of motion a separate, short and concise statement, in numbered paragraphs, of the material facts as to which the moving party contends there is no genuine issue to be tried.” Although it is derived from Commercial Division Rule 19-a, Uniform Rule 202.8-g differs from the Commercial Division Rule, which provides only that for a motion for summary judgment, “the court may direct” that the moving party annex such a statement to its motion.
Forum selection clauses are a common feature of commercial arrangements, allowing contracting parties to opt out of default procedural rules and determine ex ante which state will have jurisdiction over any future dispute arising from the agreement and even the particular venue where that dispute must be resolved. But as parties are often reminded, opting out of these default principles—whether jurisdiction or venue, or both—requires clarity and specificity.
Does an assignment by a co-songwriter of that co-songwriter’s rights in exchange for a performance and use royalty entitle the co-songwriter to a share of the sale proceeds when the rights are later sold by the other co-songwriter to a third party? No, according to Justice Barry Ostrager’s recent decision in Levy v. Zimmerman. In his decision, Justice Ostrager dismissed a suit filed by the estate of songwriter Jacques Levy in the New York County Commercial Division seeking a share of the more than $300 million in proceeds from the sale by Bob Dylan of his song catalog to Universal Music Group. In dismissing the case, Justice Ostrager ruled that a 1975 contract unambiguously limited Levy’s rights to a 35% royalty on the performance and use of the ten songs he co-wrote with Dylan in the early 1970s.
In Certain Underwriters at Lloyd’s v. AT&T Corp.,[1] Justice Cohen of the New York County Commercial Division Court granted a motion for partial summary judgment and determined that Nokia, through its predecessor Lucent, had the right by assignment to seek coverage under certain insurance policies issued to AT&T that contained anti-assignment clauses. Although the general rule in New York is that such anti-assignment clauses are enforceable, this decision highlights how it can be more challenging to bar assignment in the special context of an insurance policy.
In In re Renren, Inc. Derivative Litigation, Justice Andrew Borrok of the New York County Commercial Division granted Plaintiffs’ order to show cause for prejudgment attachment against certain assets of defendants Oak Pacific Investment (“OPI”), Renren SF Holdings Inc. (“Renren SF”), and Renren Lianhe Holdings (“Renren Lianhe”) (collectively, “Defendants”). The opinion addresses whether allegations of defendants’ improper sale of assets for less than fair market value to frustrate a future judgment warrant a preliminary injunction or prejudgment attachment pursuant to CPLR § 6201.
If a party hires an investment advisor that goes on to allegedly systematically abuse its role by engaging in self-dealing in violation of its contractual obligations and fiduciary duties, when does the applicable statute of limitations period begin? Does the wrongdoing give rise to a single claim with a single statute of limitations period starting at the first incident of self-dealing, or does each individual incident of self-dealing give rise to multiple new claims, each with a new statute of limitations period? In other words, is there just one wrong, with continuing effects, or a series of wrongs? And what is the effect of a contractual provision that imposes ongoing obligations on the statute of limitations inquiry? These questions are not only conceptually challenging. When that investment advisor accused of malfeasance has been managing a multi-billion dollar portfolio for many years, the consequences for when the advisee can bring a timely claim in New York State are significant.
In the wake of the COVID-19 pandemic (“COVID”), a common question that arises is whether commercial leases are enforceable when COVID and subsequent governmental responses frustrate the purpose of the lease or render its performance impossible. There is not a one-size-fits-all answer, as the answer will turn on the underlying facts, but the lack of a contractual force majeure provision in the lease will not bar the use of common law defenses. This is evidenced in a recent Bronx County Commercial Division decision by Justice Eddie J. McShan in 1877 Webster Ave. Inc. v. Tremont Ctr., LLC.
Can the purchasers of promissory notes containing non-New York forum-selection clauses enforce the notes in the Commercial Division? Not without an extraordinary showing as to why the clauses should be set aside, according to Commercial Division Justice Elizabeth Emerson’s recent decision in Stein v. United Wind, Inc. In Stein, Justice Emerson granted a motion to dismiss an action to enforce promissory notes where the notes designated Delaware as the exclusive forum for any disputes arising in connection with the notes.
In Hawk Mountain LLC v. RAM Capital Group LLC, the First Department held that, under New York General Obligations Law (“G.O.L.”) § 17-101, an acknowledgment of a debt tolled the limitations period for an action to recover a debt owed on a promissory note, even though the acknowledgment did not specifically mention the note at issue or the precise amount due on the note. This decision clarifies that “there is no requirement that an acknowledgement of a debt pursuant to [G.O.L.] § 17–101 leave no room for doubt as to the nature and quantum of the debt to be acknowledged.”
In a recent decision in SL Globetrotter L.P., Global Blue Group Holding AG v. Suvretta Capital Management, LLC, Toms Capital Investment Management LP, Justice Peter Sherwood declined to dismiss plaintiffs’ breach of contract claims, which arose out of a dispute over investment, through a special purpose acquisition vehicle (“SPAC”), in a new public company.[1] The opinion sheds light on the interpretation of conditions precedent in a contract, particularly when they deal with the consistency of relevant financial information.
In Morse v. LoveLive TV US, Inc., a recent decision by Justice Robert R. Reed of the New York County Commercial Division, the Court denied a defendant’s motion to dismiss, holding that where it is impossible or futile to obtain a judgment against a defunct corporation that has defaulted on debts by “informal dissolution,” creditors can maintain an action directly against the directors of that company.
On February 11, 2021, the New York State Unified Court System issued Virtual Bench Trial Protocols and Procedures (“Protocols and Procedures”) in light of the ongoing Covid-19 pandemic. While “Virtual Bench Trials are, in all respects, identical to In-Person Courtroom Bench Trials[,]….certain modifications are necessary regarding the presentation of testimonial, documentary, and physical evidence in order to safeguard accuracy and ensure reliability.”
Hon. Margaret Anne Pui Yee Chan and Hon. Melissa A. Crane have been assigned to the Commercial Division of Supreme Court, New York County.
Judge Chan’s assignment to the Commercial Division follows an eight-year stint as an Acting Supreme Court Justice in the Civil Term for New York County, beginning in 2013. Prior to her designation to the Supreme Court, Judge Chan had served as a Civil Court Judge in New York County, where she began her judicial career in 2007.
In Farro v. Schochet, the Second Department recently held that §1002 of the NY LLC Law restricted a dissenting member’s remedy to an appraisal for the fair value of his interest in the business after a freeze-out merger. Thus, the Court reduced the legal remedies for a minority LLC member that lacked protections in the operating agreement against the merger.
Good news for lawyers preparing for trial in New York’s Commercial Division—you can finally delete that old copy of WordPerfect. An upcoming amendment to the rule governing pre-trial memoranda, exhibits, and requests to charge makes a few changes that trial-ready attorneys should note.
Over the past several months, many disputes have arisen over whether the COVID-19 pandemic or government responses to it provide, depending on the jurisdiction, an impossibility or impracticability defense for nonperformance under a contract. Now, we are beginning to see a flood of decisions addressing that defense.
In Black Diamond Aviation Group LLC v. Spirit Avionics, Ltd., the Commercial Division held that it would be inappropriate for a New York court to exercise personal jurisdiction over an aircraft maintenance and refurbishing company that had no presence or ties to New York other than turning over an aircraft to be serviced to the care of a New York airport at the plaintiff’s request.
In Sutton 58 Associates LLC v. Pilevsky, the New York Court of Appeals recently held in a 4-3 split decision that, under certain circumstances, bankruptcy law does not preempt a lender’s state law claims against third-party non-debtors for tortious interference with a contract between the lender and the debtor. This decision preserves a state forum for lenders asserting claims that: 1) involved “wrongful conduct by non-debtor defendants that occurred prior to the bankruptcy proceeding,” and 2) are “grounded in independent contractual obligations."
Recently, Justice Andrew Borrok of the Commercial Division denied a summary judgment motion in a dispute involving what is colloquially referred to as a “shotgun” or a “buy-sell” clause in agreements governing joint ventures and partnerships. See Seokoh, Inc. v. Lard-PT, LLC, Index No. 650983/2020, 69 Misc. 3d 1207(A) (Sup. Ct., NY Cty. Oct. 20, 2020).
In Fava v. Morgan Stanley Smith Barney, Inc., Justice Barry R. Ostrager of the New York County Commercial Division denied Petitioner Frank Fava’s (“Fava”) motion to vacate an arbitration award issued by the Financial Industry Regulatory Authority (“FINRA”), and granted Respondent Morgan Stanley Smith Barney, Inc’s (“Morgan Stanley”) request to confirm the award. The opinion addresses whether a party who objects to an arbitration panel’s jurisdiction but participates in arbitration may vacate an arbitral award on the ground that the arbitrators exceeded the scope of their authority.
Judge Leslie Stein and Judge Eugene Fahey were confirmed together and will retire together. The two judges have been part of a group of judges who have cast the deciding votes in many of the Court’s cases.
New York Business Corporation Law § 1104-a empowers a holder of 20% or more of a closely held corporation’s stock to petition for that corporation’s dissolution on the grounds that, inter alia, the controlling shareholders have committed “illegal, fraudulent or oppressive actions toward the complaining shareholders.”
On Monday, Chief Judge Janet DiFiore issued a statement on the latest developments affecting jury trials in New York City.
In a recent order, Justice Andrea Masley assigned a special discovery master to supervise discovery in Hindlin v. Prescriptions Songs LLC, et al., a “complex commercial action” with a “multitude of discovery issues[.]” The decision underscores the constraints placed on the Commercial Division in light of the ongoing pandemic and cuts to the budget of the state’s judiciary.
On Monday, just days after Justice Peter Sherwood and Justice Marcy Friedman announced their upcoming retirements from the bench, the Chief Administrative Judge announced the news that Justice Robert Reed—currently a New York Supreme Court Justice—will start receiving Commercial Division cases in the next few weeks.
On September 23, 2020, Chief Administrative Judge Marks amended Commercial Division Rule 11-g and the Division’s Standard Form Confidentiality Order (“SFO”) to allow parties to designate certain documents as highly confidential for attorney’s eyes only (“AEO”). Such a designation already exists in federal court, and it will be useful in the Commercial Division in matters involving particularly confidential issues such as the disclosure of confidential business information between competitors and disclosure of trade secrets.
On September 29, 2020, Chief Administrative Judge Marks amended Commercial Division Rule 6 to increase the font size of footnotes in briefs and affidavits from 10-point to 12-point. Additionally, it requires the use of a proportionally spaced serif typeface (e.g., Times New Roman, Baskerville, New Century Schoolbook) in all papers filed with the Court. With Commercial Division Rule 17 establishing a word limit rather than a page limit, increasing the font size of footnotes will have no impact on the length of briefs. Instead, a larger font size coupled with a proportionally spaced serif typeface will enhance readability and improve comprehension of long passages of text.
A common question in the wake of the COVID-19 outbreak has been whether the pandemic or governmental responses to the pandemic provide, depending on the jurisdiction, an impossibility or impracticability defense for nonperformance under a contract.
The answer to that question will, of course, turn on the facts underlying the nonperformance, as well as the law of the jurisdiction. Two recent decisions from New York are instructive on the contours of the defense of impossibility — the relevant defense under New York law.
As the country entered into an extended period of lockdowns this spring, there was widespread concern that the anticipated severe economic impact of the pandemic would lead to a wave of defaults and foreclosures in the commercial real estate market.
In GMX Technologies, LLC v. Pegasus Capital Advisors, L.P., Justice Andrea Masley of the New York County Commercial Division denied Defendants Pegasus Capital Advisors, L.P. (“Pegasus”) and The Leiber Group Inc.’s (“Leiber”) (collectively, “Defendants”) motion to dismiss a claim for declaratory judgment seeking to bar Leiber from exercising a put option in connection with its membership interest in Plaintiff GMX Technologies, LLC (“GMX”). The opinion addressed whether a Delaware LLC member may exercise a put option when doing so would force the LLC into insolvency.
Recently, the Commercial Division rendered a split decision on a petition to stay an arbitration in Gol v. TNJ Holdings, Inc., Index No. 652304/2020, Doc. No. 75 (Sup. Ct., NY Cnty. Aug. 13, 2020). Based on an analysis of the relevant shareholder agreements and the positions taken by the parties in another litigation, Justice Joel M. Cohen denied the petition to stay arbitration as to the claims brought by the TNJ respondents, but granted the petition to stay arbitration as to the claims brought by the Kahlon respondents—the owners of TNJ.
The New York County Commercial Division saw a substantial increase in the number of new cases filed (i.e.,a total of 102 new cases) during the first four-week span after the New York courts re-opened for non-essential matters on May 25, 2020—as compared to both February 2020 (77 new cases), the last full month of filings prior to the crisis, and a comparable period between May 27 and June 23, 2019 (87 new cases).
When the funds invested by one victim of a Ponzi scheme are used to pay the scheme’s debts to an earlier investor, can the later investor recover those funds from the earlier investor through an unjust enrichment claim? Yes, if there is a sufficient connection between the parties, according to Commercial Division Justice Andrea Masley’s recent decision in JHAC LLC v. Advance Entertainment LLC. In JHAC, Justice Masley allowed unjust enrichment claims by one Ponzi scheme victim against other victims to proceed by holding that reliance and inducement are not elements of unjust enrichment in New York. All that is required to sustain the claim is a “connection” between the victims, and Justice Masley held that JHAC adequately pled such a connection.
In a recent decision in South College Street, LLC v. Ares Capital Corporation, Justice Schechter of the New York State Supreme Court, Commercial Division, dismissed petitioner’s New York Debtor and Creditor Law claims, which were premised on alter ego liability. The opinion addressed the types of allegations a plaintiff must make in order to successfully plead a veil-piercing claim.
On July 13, 2020, Governor Cuomo appointed four Supreme Court Justices to fill vacancies on the Appellate Division, First Department. The Governor elevated Justices Saliann Scarpulla, Manuel Jacobo Mendez Olivero, Martin Shulman and Tanya R. Kennedy, who represent the diversity of New York’s judicial system.
The reverberations from the collapse of Bernie Madoff’s massive Ponzi scheme continue to be felt in Manhattan’s Commercial Division. On May 20, 2020, Judge Joel M. Cohen issued a decision in Matter of FGLS Equity LLC, No. 157170/2019, 2020 WL 2557877, 2020 NY Slip Op 31476(U) (Sup. Ct., N.Y. Ctny., May 20, 2020), approving the liquidation plan of FGLS Equity LLC, which was founded by accountant Steven Mendelow as a feeder fund to Bernard L. Madoff Investment Securities (BLMIS). Mendelow, who passed away in 2016, was allegedly instrumental in funneling investors to the scheme. The decision is notable, not least because it may be the first New York case in which a court has been asked to pass judgment on an LLC plan of liquidation proposed by a liquidator appointed by the LLC’s members pursuant to its operating agreement.
Although New York City’s state court judges are now back in their chambers, in-person hearings have not yet commenced.
Administrative Judge Deborah A. Kaplan reported that her division has had success using “video-linked ‘virtual’ hearings for a wide range of matters.” In-person hearings will still be available when truly necessary. For example, this option may be available to self-represented litigants without access to the requisite technology.
A recent Commercial Division decision provides an example of a court rejecting “unrealistic and optimistic” business projections in determining the valuation of a petitioner’s shares in a corporation. In Magarik v. Kraus USA, Inc., Index No. 606128/2015, Doc. No. 252 (Sup. Ct., Nassau Cnty. Apr. 28, 2020), Justice DeStefano refused to credit the valuation made by the petitioner’s expert, which depended heavily on a set of projections that the corporation at issue made in the process of obtaining a loan.
In the 2001 film Zoolander, male model Derek Zoolander mused, while giving the “eugoogly” at the funeral for three deceased model friends, that a “model’s life is a precious, precious commodity.”
