In a recent decision, Justice Lawrence S. Knipel in the Commercial Division ordered an attorney to comply with a non-party subpoena and disqualified the same attorney from representing her client in the action pursuant to the Advocate-Witness Rule of the New York Rules of Professional Conduct due to the fact that the lawyer was likely to be a witness on a significant issue of fact in the case. Vanderbilt Brookland LLC v. Vanderbilt Myrtle Inc., No. 500522/2014, 2016 BL 433294 (Sup. Ct. Dec. 23 2016).
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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.
Commercial Division Trial to Address Collateral Call and Dispute Resolution Provisions of ISDA Agreements
In a case with potentially broad implications for participants in the leveraged loan and derivatives markets, Justice Eileen Bransten will conduct a bench trial starting next week in the long-running dispute between a prominent Greenwich-based hedge fund, BDC Finance L.L.C. (“BDC”) and Barclays Bank PLC. The case, BDC Finance LLC v. Barclays Bank PLC, Index No. 650375/2008, involves a derivatives transaction that—like more than 90% of derivative transactions around the world—is governed by the industry standard forms promulgated by the International Swaps and Derivatives Association (“ISDA”). Following years of litigation and a trip to the New York Court of Appeals, the trial will focus, in large measure, on a relatively narrow question of contractual interpretation: are parties to an ISDA agreement held to its literal terms?
Investor’s Relocation to New York after Structuring a Financing Deal in Hong Kong Does Not Provide a Basis for Suit Against Swiss Bank UBS in New York, Holds Commercial Division
In Ace Decade Holdings Ltd. v. UBS AG, No. 653316/2015, 2016 BL 413780 (N.Y. Sup. Ct. Dec. 7, 2016), Justice Eileen Bransten of the Commercial Division dismissed a $500 million fraud suit brought by an investment holding company incorporated in the British Virgin Islands, Ace Decade Holdings Ltd. (“Ace Decade”), against the Swiss Bank UBS AG for lack of personal jurisdiction and inconvenient forum. Justice Bransten found no basis to exercise jurisdiction over UBS for alleged fraud in connection with a financing deal negotiated in Hong Kong to purchase shares of a firm listed on the Hong Kong Stock Exchange. Justice Bransten further held that, even if the court could exercise jurisdiction over UBS, the causes of action lack a substantial nexus with New York and, thus, dismissal is also warranted based upon the doctrine of forum non conveniens.
On October 27, 2016, Chief Judge Janet DiFiore delivered a much awaited opinion in Justinian Capital SPC v. WestLB. 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.” Under New York law, champerty is prohibited. 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.” 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.” Put simply, at least $500,000 of the transaction must not be contingent on the litigation in order to fall within the safe harbor.
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.
This week’s Latin lesson: in pari delicto potior est conditio defendentis means that if both parties are in the wrong, then the defendant’s position is stronger.
Rival Talent Managers’ Dispute Over American Idol Winner Phillip Phillips Stays “Home” at the California Labor Commission, Holds Commercial Division in Stay Decision
When the winner of the 11th season of American Idol, Phillip Phillips, sang “I’m going to make this place your home” on his 2012 breakout single, “Home,” he may have been predicting the petition that he would later file with the California Labor Commission (“CLC”). In that petition, Phillips sought to void the talent management agreement that he was required to sign with 19 Entertainment, Inc. – one of the now-bankrupt companies behind production of American Idol – in order to participate as a semifinalist on the show. Following a September 23, 2016 decision by Commercial Division Justice Salinan Scarpulla staying 19 Entertainment’s suit against Phillips’ new talent manager pending resolution of the California proceeding, the CLC may be “home” for 19 Entertainment’s fight over Phillips for the foreseeable future.
Commercial Division Reaffirms Distinction Between Direct Versus Derivative Claims Under Delaware Law
When can a shareholder bring a direct claim in the Commercial Division against a corporate officer under Delaware law? On September 29, 2016, in Southern Advanced Materials LLC v. Abrams, No. 650773/2015, 2016 BL 331371 (Sup. Ct. N.Y. Cnty.), Justice Saliann Scarpulla of the Commercial Division ruled on a corporate officer’s motion to dismiss breach of contract and fraudulent inducement claims brought by a plaintiff shareholder. In her ruling, Justice Scarpulla articulated the distinction between direct and derivative claims under Delaware law, and applied that law to four contract and fraud claims brought by a shareholder against corporate officer. Justice Scarpulla’s opinion provides guidance to litigants addressing shareholder claims against corporate officers in the Commercial Division.
Talking Shop in the Courtroom: Courts Set a High Bar for Using Industry Custom to Interpret Contracts
Industry jargon becomes second nature to those in the industry. Wall Street knows “poison pills” and Silicon Valley knows “burn rates.” But what is second nature to industry insiders may be entirely foreign to others, and courts have set a high bar for allowing industry custom to color their interpretation of contracts. Two recent decisions of the New York Commercial Division underscore the danger of relying on custom and usage to supply meaning to contract terms. See Lehman Bros. Holdings Inc. v. IVC WH HG II, LLC, No. 652178/2012, 2016 N.Y. Misc. LEXIS 3215 (N.Y. Sup. Ct. Aug. 31, 2016) and IFC v. Carrera Holdings Inc., No. 601705/2007, 2016 N.Y. Misc. LEXIS 2640 (N.Y. Sup. Ct. June 29, 2016).
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.
Commercial Division Rejects Attempt to Dismiss Two Alleged Verbal Agreements Despite Written Agreement’s Requirement that Contract Cannot Be Changed Except Upon Written Agreement of Parties
On August 18, 2016, in Obsessive Compulsive Cosmetics, Inc. v. Sephora USA, Inc., No. 652074/2015, 2016 BL 307244 (N.Y. Sup. Ct. Aug. 18, 2016), Justice Ramos handed down an order that allowed a plaintiff to proceed with claims for breach of two verbal agreements that were purportedly made after the parties had executed a written agreement stating that the contract cannot be changed except by written agreement of both parties.
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