Commercial Division Reiterates Broad Scope of ERISA Preemption and Difficulty of Pleading Breach of Fiduciary Duty and Conversion Claims Alongside Breach of Contract Claims
The Commercial Division’s decision in Rockmore v. Plastic Surgery Associates, LLP[i] demonstrates the broad scope of ERISA preemption and the difficulty of pleading breach of fiduciary duty and conversion claims alongside breach of contract claims. In Rockmore, Albany County Supreme Court Justice Richard M. Platkin dismissed several claims brought by the departing member of a partnership of physicians. The core claims—which concerned the funding of the partnership’s defined benefit plan—were preempted by ERISA. Separately, Justice Platkin also dismissed breach of fiduciary duty and conversion claims as duplicative of a claim alleging a breach of the operative Partnership Agreement.
[i] Rockmore v. Plastic Surgery Assocs., LLP, 2020 BL 478175, 69 Misc. 3d 1222(A), 135 N.Y.S.3d 259 (Sup. Ct. Albany Cnty. Dec. 2, 2020).
Commercial Division Holds that Reliance and Inducement are Not Required Elements of Unjust Enrichment
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.
The Commercial Division recently ruled, in a case captioned as Hopkins v. Ackerman, that derivative claims on behalf of an LLC need to be brought before the LLC ceases to exist. In Hopkins, Justice Saliann Scarpulla granted a motion to dismiss several derivative claims involving now-cancelled Delaware LLCs because, under Delaware law, a cancelled LLC does not have the ability to bring legal claims. The Court also rejected the plaintiffs’ efforts to cast most of the claims as direct claims on behalf of a specific member in the LLCs.
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.
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.
New York recognizes conversion claims based on intangible property, such as electronically stored information or trade secrets. But does a conversion claim exist when the theft of the intangible property does not deprive the rightful owner of unfettered access to the property (i.e., when the owner retains an original or accurate duplicate of the information)? This was the question presented to the Commercial Division recently in MLB Advanced Media, L.P. v. Big League Analysis, LLC. In that case, Justice Shirley Werner Kornreich held that a conversion claim is not available unless the plaintiff’s use of or access to the property is disturbed.