Commercial Division Holds That Russian Law Restrictions on Document Discovery Do Not Absolve Russian Party From Responsibility to Produce Documents
The Commercial Division regularly hears suits involving foreign parties, in part because contract parties, anywhere in the world, can choose to have a dispute heard by the Commercial Division as long as the transaction at issue concerns $1 million or more. However, the Commercial Division’s rules sometimes provide for more extensive discovery than would be allowed in a foreign party’s home country. And in some instances, the Commercial Division’s rules may even provide for discovery that would be illegal in the foreign party’s home country. Justice Andrew Borrok’s recent decision in Starr Russia Investments III B.V. v. Deloitte Touche Tohmatsu Ltd. provides an illustration of how the Commercial Division may navigate this thorny issue.
Commercial Division Rules that Arbitration Awardee Lacked Standing to Enforce Award Based on Collection Procedures Agreed to in the Underlying Contract
Arbitration is a creature of contract and, as such, enforcing an arbitral award requires strict adherence to the procedures set forth in the relevant agreements. This is true even where those procedures might preclude a party to the arbitration from taking steps to enforce its own award. In Zachariou v. Manios, Justice Andrea Masley of the Commercial Division dismissed an awardee’s enforcement action for lack of standing on the ground that the relevant arbitration agreement conferred exclusive authority over collecting and enforcing party distributions to a third-party trustee—and not to the plaintiff.
New York’s Chief Judge Janet DiFiore issued a press release on September 25, 2019 announcing proposed amendments to the New York State Constitution that would streamline and simplify the State’s Unified Court System. The Chief Judge’s proposal calls for the elimination of “New York’s complex maze of 11 separate trial courts” and would “replace it with a simplified three-level structure to make the courts easier to navigate, increase operational efficiency and reduce costs to litigants, among other potential benefits.” If successful, these structural changes would represent the first major Constitutional changes to court system organizations since reforms were passed over 40 years ago in 1977. These changes are also likely to affect the Commercial Division parts because, if adopted, they have the potential of increasing the overall efficiency of the state court system and the way judges are appointed to the Appellate Division. These reforms, in turn, would likely help shape the development of commercial law in the State.
There has been a new development in the Xerox and Fujifilm (“Fuji”) litigation: Justice Ostrager of the New York Commercial Division declined to (i) certify the putative class, (ii) approve the proposed class settlement, and (iii) award the class attorney’s fees pursuant to a memorandum of understanding that was reached by defendant Xerox and putative class plaintiffs. The material terms of this agreement—changes to the Xerox Board of Directors—already took effect prior to the Justice Ostrager ruling.
The final month of summer has seen a flurry of rulemaking activity with the Advisory Council”) proposing four changes to the Commercial Division Rules. The Office of Court Administration has requested public comment on each proposal, and we will provide an update if any of the proposed amendments are adopted.
Commercial Division Dismisses Shareholder Derivative Suit Because General News Reports and Articles Were Insufficient to Plead Demand Futility with Particularity
Before filing a shareholder derivative suit, the plaintiff must typically serve a pre-litigation demand upon the company’s Board of Directors, except in narrow circumstances where the demand may be futile. In Gammel v. Immelt, Justice Andrea Masley of the New York Commercial Division dismissed the shareholder derivative suit because the plaintiff did not meet the pre-litigation demand requirement and failed to plead with particularity the circumstances establishing the futility exception.
At her annual State of the Judiciary speech held on February 26, 2019 at Bronx County Supreme Court, Chief Judge Janet DiFiore announced that the Commercial Division will be expanding to Bronx County, effective April 1, 2019. On August 4, 2019, the Bronx County Supreme Court designated the Honorable Eddie McShan, who is a Supreme Court Justice from Bronx County, as the Commercial Division Justice presiding over the newly-created Part 32 beginning September 3, 2019. The Honorable Kenneth L. Thompson will handle the Alternative Dispute Resolution (“ADR”) component.
Commercial Division Prevents End-Run Around Rule Precluding Judicial Dissolution of Foreign Business Entities
In Matter of Raharney Capital, LLC v. Capital Stack LLC, the First Department held that New York courts lack subject matter jurisdiction over foreign company dissolution proceedings. Now, a recent Commercial Division decision rendered by Justice Saliann Scarpulla, Rosania v. Gluck, has clarified that the Raharney rule also applies to litigants’ attempts to obtain equitable relief associated with a judicial dissolution of a foreign business.
First Department Confirms Award of Attorney’s Fees, But Vacates Damages Award for Counterclaim as Non-Arbitrable
On July 2, 2019, the First Department, in a unanimous decision written by Justice Dianne T. Renwick, reversed a decision of former Commercial Division Justice Eileen Bransten confirming an arbitration award. The First Department concluded that the arbitrator’s award of attorney’s fees was not in manifest disregard of New York law, but that the arbitrator did not have jurisdiction over counterclaims brought by a related-third-party pursuant to an agreement that did not contain an arbitration clause. The opinion provides a helpful review of New York law regarding both the award of attorney’s fees in arbitration and on jurisdictional objections to arbitration.
Last month, the First Department in Madison Sullivan Partners LLC v. PMG Sullivan St., LLC, 2019 N.Y. Slip Op. 04460 (June 6, 2019), affirmed the decision of former Commercial Division Justice Shirley Werner Kornreich that the Plaintiff in a LLC dispute failed to sufficiently allege a breach of fiduciary duty claim. The case concerned the parties’ relationship in a joint venture to develop Manhattan real estate as a mixed use project that was formed using several LLCs. In a detailed amended complaint, the Plaintiff alleged that Defendants collected monthly sums for work on a construction project for the venture, when Defendants were not actually working on the construction project but instead pursuing their own ventures.
Commercial Division Advisory Council Highlights the Benefits of the Commercial Division to the State of New York
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.
In Hoffman v. AT&T Inc., Justice Ostrager of the Commercial Division recently denied a motion to stay a securities class action in favor of a subsequently filed and more comprehensive action brought in the Southern District of New York (SDNY). In doing so, he asserted the Commercial Division’s role in securities litigation following the U.S. Supreme Court’s decision in Cyan, Inc. v. Beaver Cty. Emps. Ret. Fund, 138 S. Ct. 1061 (2018).
New York’s International Arbitration Center Hosts Welcome Reception for Commercial Division’s New International Arbitration Justice
On June 11, 2019, the New York International Arbitration Center (“NYIAC”) and members of New York’s international arbitration bar held a reception to welcome Justice Saliann Scarpulla of the New York County Commercial Division. Earlier this year, Justice Scarpulla assumed responsibility for the Commercial Division’s specialized international arbitration part and, in that role, will hear all international arbitration matters coming before the Court.
In Matter of Capital Enterprises Co. v. Dworman, the Appellate Division, the First Department held that an arbitrator has broad discretion to order the dissolution of a New York general partnership, so long as the issue of dissolution was within the scope of the arbitration clause and the question of whether to dissolve the partnership was properly before the arbitrator. In so doing, the First Department affirmed an order issued by Commercial Division Justice Jennifer G. Schecter which confirmed an arbitration award that had ordered a dissolution of a partnership.
On Wednesday June 5, 2019, all eight of the New York County Commercial Division justices participated on a panel for the New York State Bar Association’s Commercial and Federal Litigation Section on “Motion Practice Before the Commercial Division.” Motion practice is one of the most frequently used aspects of practice in the Commercial Division. The format was an informal question and answer session on motion practice, moderated by the Section’s Past Chair, Robert Holtzman.
Commercial Division Holds That Electronic Communications Between Out-of-State Defendant and New York-Based Company Can Support the Exercise of Personal Jurisdiction Over Defendants in New York
In High Street Capital Partners, LLC v. ICC Holdings, LLC, Justice Joel M. Cohen of the Commercial Division denied defendants ICC Holdings, LLC (“ICC”) and related entities’ (collectively, “Defendants”) motion to dismiss plaintiff High Street Capital Partners, LLC’s (“High Street”) action for breach of contract for lack of personal jurisdiction and forum non conveniens. The court’s decision addressed issues of whether electronic communications between an out-of-state defendant and a New York-based company are sufficient to satisfy the requirements of New York’s long-arm statute and render New York a convenient forum.
In a closely watched appeal, the Court of Appeals affirmed by a 4-3 vote that a waiver contained in a commercial lease of the right to bring a declaratory judgment action is enforceable and not contrary to public policy. The case, 159 MP Corp. v. Redbridge Bedford, LLC, No. 26, was not brought in the Commercial Division, but will have a significant impact on the drafting and enforcement of commercial leases.
On May 14, 2019, the New York State Unified Court System announced that it will begin rollout and implementation of a “presumptive” alternative dispute resolution (“ADR”) program. Under the new program, parties in civil cases will be referred to either mediation or some other form of ADR as an initial step for most lawsuits filed in New York State courts. The “presumptive” ADR program will apply to a broad range of civil cases, including commercial disputes.
In considering a motion to dismiss related to a real estate development joint-venture gone bad, a recent decision by Justice Andrea Masley in 3P-733, LLC v Davis (No. 650800/2018 [N.Y. Sup. Ct., N.Y. Cty., April 2, 2019]) highlights several issues that frequently arise at the motion to dismiss stage in the Commercial Division.
On April 11, 2019, the First Department unanimously affirmed a decision issued by Justice Shirley Werner Kornreich, formerly of the Commercial Division, which denied the plaintiffs’ motion for final approval of a class action settlement in City Trading Fund v. Nye (2019 NY Slip Op 02789). This was the second time the Appellate Division had considered Justice Kornreich’s denial of approval of a settlement in this case, having reversed her prior denial of preliminary approval of the settlement in November 2016 and remanding the case for a fairness hearing in order to review the settlement terms.
Commercial Division Decision Illustrates Potential Issues that May Arise in CPLR Article 52 Turnover Order Proceedings
A party seeking to enforce a judgment against an asset of a judgment debtor that is held by a third party may petition for a turnover order through a special proceeding provided for by CPLR Article 52. Justice Saliann Scarpulla’s recent decision in The Wimbledon Fund, SPC (Class TT) v. Weston Capital Partners Master Fund II, LTD (Wimbledon) illustrates several of the potential issues that may arise during such a proceeding.
Commercial Division Decision Spotlights the Limits of the “Automatic Renewal Doctrine” for Contracts
In Mountain & Isles, LLC v. Gillz, LLC, Justice Masley of the Commercial Division provided a useful reminder of the continuing vitality of New York’s “automatic renewal doctrine” for contracts and its limitations.
At her annual State of the Judiciary speech held on February 26, 2019 at Bronx County Supreme Court, Chief Judge Janet DiFiore announced that the Commercial Division will be expanding to Bronx County, effective April 1, 2019. The Chief Judge explained that this expansion was in recognition of the Bronx’s ongoing economic resurgence and the growing number of commercial cases being filed there. There has not yet been any announcement as to the jurisdiction of this new part or which judges will be assigned to it.
Beginning in April 2019, the First Department has changed its practice to assign panels of four justices for oral argument, as opposed to five justices as has been the traditional practice of the court. This change is the result of three ongoing vacancies on the First Department that have remained unfilled by Governor Cuomo. The Presiding Justice of the First Department, Hon. Rolando Acosta, explained that the move to four justice panels is necessary because there are not enough judges to hear all the pending appeals. Aware that four justice panels could create a two-to-two split, Presiding Justice Acosta explained that a fifth judge can be brought in to issue a decision if needed. Parties can preserve their right to reargue or submit the case to a fifth justice by making a statement on the oral argument record. This change will likely remain in place until new judges are appointed to the court.
In Magomedov et al. v. Lebedev et al., an opinion dated February 19, 2019, Justice Saliann Scarpulla of the Commercial Division dismissed most claims related to a Russian oil joint venture as time-barred under the statute of limitations. The case also raises the issue of waiver of personal jurisdiction by bringing related lawsuits within New York.
On Monday February 26, 2019, four retired Justices of the Commercial Division, New York County – Justices Ellen Bransten, Shirley Kornreich, Charles Ramos, and Melvin Schweitzer – took the stage at the New York City Bar to discuss the past, present and future of the Commercial Division, as well as their own experiences on the court. The discussion was moderated by retired Justice Carolyn Demarest of the Commercial Division, Kings County.
Following Justice Charles Ramos’s retirement from the Commercial Division at the end of last year, commercial practitioners have awaited an announcement reallocating responsibility for the Division’s international arbitration matters. Since 2013, all international arbitration cases filed in the Commercial Division—including those arising under CPLR Article 75 and the Federal Arbitration Act, 9 U.S.C. § 1 et seq.—had been assigned to Justice Ramos as part of an effort to establish a dedicated part specializing in the international arbitration field.
Non-Party to Arbitration Agreement Successfully Petitions the Commercial Division to Avoid Being Compelled to Join Arbitration
Arbitration is a matter of contract and, as such, non-parties generally cannot be compelled to arbitrate under agreements that they have not signed or agreed to. In IQVIA RDS Inc. v. Eisai Co. Ltd., the Commercial Division recently highlighted two exceptions to this general rule. Although the Court ultimately found neither exception to be applicable, the case raises important issues that merit attention.
On December 5, 2018, New York’s Chief Administrative Judge, Lawrence K. Marks, issued an administrative order amending Commercial Division Rule 3(a), which addresses alternative dispute resolution (“ADR”). This new amendment encourages opposing counsel to work together to select a mediator for commercial cases, including by consulting rosters of neutral mediators provided by Commercial Division courts.
Corporate Officer Escapes Corporate-Capacity Fraud Claims in Alleged Ponzi Scheme Case in Commercial Division
Coast-to-Coast-Energy-Inc-v-Ga.pdfIn corporate fraud suits, it is common for plaintiffs to file claims against executives in their capacity as corporate officers. However, to succeed on a corporate-capacity claim, a plaintiff must be able to show that the corporate veil should be pierced so as to hold an officer personally liable for the corporation’s legal obligations. This issue is illustrated by the Commercial Division’s recent decision in Coast to Coast Energy, Inc. v. Gasarch.
The arrival of the new year is a bittersweet time for the Commercial Division as it bids farewell to two of its most senior judges: Justice Charles E. Ramos and Justice Eileen Bransten. Notably, both will be staying on to serve the Court as Judicial Hearing Officers.
First Department Holds that Declaratory Judgment Against Creditor’s Principal Does not Preclude Claims By the Creditor Itself
Can a debtor obtain declaratory judgment shielding himself from liability to a creditor’s officers or associates personally and then use that judgment to preclude subsequent claims by the creditor itself? Not in the First Department, following the recent decision in Avilon Automotive Group v. Leontiev.[i] In Avilon, a unanimous panel reversed the res judicata-based dismissal of fraudulent transfer and other related claims arising from several Russian loan transactions because the claims by the creditors themselves were not the subject of a prior declaratory judgment concerning the debtor’s liability to the creditors’ representative.Avilon_Auto._Grp._v._Leontiev.pdf
A recent case out of the New York Commercial Division demonstrates that the remedy of an accounting can be confused with the right of a shareholder or LLC member to inspect books and records. In Atlantis Management Group II LLC v. Nabe, Index No. 651598/2017, 2018 BL 366555, at *4–5 (Sup. Ct., N.Y. Cty. Oct. 1, 2018), Justice Saliann Scarpulla granted partial summary judgment on the plaintiff’s claim for an accounting. Nonetheless, in accordance with the plaintiff’s request for relief, the Court only ordered that the defendants turn over existing books and records.
Commercial Division Issues Verdict for Plaintiffs Following Bench Trial in Family Feud Over the Palm Restaurant
On November 13, 2018, Justice Masley issued a decision following a bench trial in Ganzi v. Ganzi, which concerns a family feud over the Palm Restaurant empire. Ganzi provides a vivid illustration of the importance of observing corporate formalities, the need to be vigilant for self-dealing when shareholders hold ownership interests in multiple intertwined businesses, and, of course, the pitfalls of mixing family and business.
Commercial Division practitioners have had their eye on upcoming vacancies on the Division’s bench for some time. As we have reported in the past, two new justices, Hon. Andrea Masley and Hon. Jennifer G. Schecter, joined the Division in the last year. The Bar has been eagerly awaiting word as to who would fill two additional vacancies that will open up at the end of this year.
Commercial Division Holds that Failure to Request Rationale for Arbitration Award Makes It Virtually Unreviewable on Manifest Disregard Ground
Parties to arbitration proceedings at times decide to forego a written decision by the arbitration panel explaining the basis for their arbitration award. While doing so may reduce the costs of arbitration and can provide other strategic advantages, it also makes it more likely that the Commercial Division will find the award unreviewable. This point is exemplified by the recent decision by Justice Charles E. Ramos of the Commercial Division in NSB Advisors, LLC v. C.L. King & Associates, Inc.
To commence a special proceeding to compel arbitration in New York, pursuant to CPLR § 7503(a), a party must be “aggrieved by the failure of another to arbitrate.” In KPMG LLP v. Kirschner, Justice Barry R. Ostrager recently ruled that to be “aggrieved,” and thereby have standing, a party must be subject to litigation before filing a special proceeding to compel arbitration. According to the Court, a subsequently filed litigation or the risk of potential litigation is not sufficient to confer standing.
As was recently reported in the New York Law Journal, New York is investing in courtroom technology for the Commercial Division in order to keep up with the demands of commercial trials. These efforts are designed to make trials more cost-effective and efficient for litigants, as well as easier for the judges and jurors to follow.
On October 16, 2018, the Appellate Division, First Department lifted several injunctions granted by the Commercial Division that had restrained a proposed merger deal between Xerox and Fujifilm (“Fuji”), and dismissed the Xerox shareholders’ actions against Fuji.
Commercial Division Holds That Fiduciary Duties Limit LLC Majority Members’ Ability to Adopt Amendments Aimed at Freezing Out Minority Members
Many LLC operating agreements expressly require the consent of all members to adopt or amend the operating agreement. However, some LLC operating agreements do not contain such provision, and instead simply require the consent of members holding a majority of the member interests. But such agreements do not simply allow majority members to make any amendments that they may see fit, as shown by the Commercial Division’s recent decision in Yu v. Guard Hill Estates, LLC. There, Justice Scarpulla explained that even amendments expressly authorized by an operating agreement can still give rise to breach of fiduciary duty claims if they are adopted for an illegitimate purpose.
So ruled Justice Andrea Masley of the Commercial Division in a recent summary judgment motion in the case Frenk v. Solomon, Index No. 650298/2013, holding that a standardized form release signed by the plaintiff’s mother in 1973 to settle a case primarily involving one piece of artwork barred the plaintiff’s present suit to recover other pieces of art that were believed lost at the time of the 1973 settlement.
Commercial Division Holds That Venue Is Proper Even Though Plaintiff Is Wrong About Defendants' Residence
In 2017, the New York legislature amended CPLR 503(a) to provide for venue in “[(1)] the county in which one of the parties resided when it was commenced; [(2)] the county in which a substantial part of the events or omissions giving rise to the claim occurred; or, [(3)] if none of the parties then resided in the state, in any county designated by the plaintiff.” Before the amendment, CPLR 503(a) did not provide for venue based on where the events or omissions giving rise to the claim occurred.
First Department Rules that Arbitrators Did Not Manifestly Disregard the Law and Confirms Arbitration Award
On September 27, 2018, in a widely followed arbitration case, a unanimous panel of the Appellate Division, First Department concluded that the New York County, Commercial Division (Ramos, J.) erred when it partially vacated an arbitration award on the ground that the arbitrators’ disregarded the law. As a result, the Appellate Division confirmed the arbitration award. 
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.
First Department Shifts Burden to Attorney Resisting A Deposition But Requires that Information Be Otherwise Unavailable
In an opinion in Liberty Petroleum Realty, LLC v. Gulf Oil, L.P., dated August 2, 2018, the Appellate Division, First Department reversed the Supreme Court’s protective order prohibiting the deposition of an attorney in a commercial case.[i]
New Commercial Division Rule Encourages Pre-Trial Evidentiary Hearings or Immediate Trial on Dispositive Issues
On July 25, 2018, Chief Administrative Judge of the Courts, Lawrence K. Marks, issued an administrative order promulgating Rule 9-a of the Commercial Division Rules. See 22 N.Y.C.R.R. 202.70. The Rule, entitled “Immediate Trial or Pre-Trial Evidentiary Hearing,” encourages parties to move for a pre-trial evidentiary hearing or immediate trial on factual issues that could resolve a material part of the case.
Commercial Division Finds Foreign Corporations Lack Sufficient Contacts with New York for Personal Jurisdiction
On July 5, 2018, Justice Saliann Scarpulla of the Commercial Division granted a motion to dismiss by All Nippon Airways, Co. Ltd., ANA Aircraft Technics, Co., Ltd., ANA Base Maintenance Technics, Co., Ltd., ANA Holdings, Inc., and All Nippon Airways Co., Ltd. (collectively “ANA”) in Kyowa Seni, Co. v. ANA Aircraft Technics Co.[i], ruling that the Court lacked both general and specific jurisdiction over ANA.
On July 19, 2018, Chief Administrative Judge of the Courts, Lawrence K. Marks, issued an administrative order promulgating a new subdivision of Rule 11-e of the Commercial Division Rules. Rule 11-e governs Responses and Objections to Document Requests, and the newly added subdivision specifically addresses the use of technology-assisted review in the discovery process.
Since high net worth individuals often operate and own assets through LLCs and other business entities, including foreign corporate entities, a plaintiff must satisfy the requirements of a veil-piercing claim in order to attach assets owned by such entities. Failing to do so could frustrate a plaintiff’s ability to satisfy a judgment, as illustrated by Commercial Division Justice Barry Ostrager’s recent decision in Pacific Alliance Asia Opportunity Fund L.P. v. Kwok Ho Wan.
On July 2, 2018, Justice Barry R. Ostrager of the Commercial Division denied a motion to dismiss by UMG Recordings, Inc. (“Universal”), an alter ego theory of liability against it in Aspire Music Group, LLC v. Cash Money Records, Inc., concluding that Aspire sufficiently alleged that Universal was the equitable owner of Cash Money to survive the pre-answer motion to dismiss.
- Page 1 of 3