Category: Remedies and Damages

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.

Suppose a property owner hires a general contractor for a time-sensitive project.  The general contractor in turn hires a subcontractor.  After the project hits some snags and delays, the property owner tries to move things along by assuring the subcontractor that it will get paid for certain additional tasks that the owner requests.  However, the subcontractor never enters into a formal written agreement covering the additional work.  If the subcontractor is not fully paid for the work, can it successfully sue the property owner, the general contractor, or both for contractual or quasi-contractual damages?  A recent decision by Justice Andrea Masley of the Commercial Division in Corporate Electrical Technologies, Inc. v. Structure Tone, Inc., suggests that in certain circumstances, the answer is yes: the subcontractor can recover from the property owner or the general contractor for the additional work, even absent a written contract covering that work, based on the parties’ course of conduct.

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. 

In Rebecca Broadway LP v. Thibodeau, Justice Andrea Masley of the Commercial Division denied plaintiff Rebecca Broadway Limited Partnership’s (“RBLP”) motion to set aside a damages verdict after it prevailed at trial against Defendant Marc Thibodeau (“Thibodeau”) on claims for breach of contract and tortious interference with business relationships.[1] The case raised issues of whether a jury’s damages verdict is supported by a rational interpretation of the trial evidence and the circumstances under which a retrial solely on the issue of damages is appropriate.

The New York Court of Appeals, in Congel v. Malfitano,[1] recently ruled that the “Poughkeepsie Galleria Company” (the “Partnership”) was not an at-will partnership and that therefore Defendant Marc Malfitano’s (the “Defendant”) unilateral dissolution of the partnership breached the partnership agreement.  In addition, under Section 69 of the New York Partnership Law, the Court sustained the Appellate Division’s valuation of the Defendant’s partnership interest, including application of a minority discount.  The Court modified the order on appeal, holding that the Second Department erred in awarding legal fees in contravention of the American Rule on attorneys’ fee awards.

In Advanced 23, LLC v. Chambers House Partners, LLC, No. 650025/2016, 2017 BL 462831 (NY. Sup. Ct. Dec. 15, 2017), Justice Saliann Scarpulla of the Commercial Division ruled that Advanced 23, LLC (“Advanced”) and David Shusterman’s (“Shusterman” and collectively, “Petitioners”) petition for judicial dissolution of Chambers House Partners, LLC (“CHP”) needed to be held in abeyance pending an evidentiary hearing on whether Shusterman had breached his duties under the Operating Agreement. Advanced 23 confirms that although a corporate deadlock is not an independent ground to dissolve an LLC, the court must still examine whether the managers’ disagreement breaches the managers’ obligations under the LLC operating agreement.

In Del Forte USA, Inc. v. Blue Beverage Group, Inc. et al., No. 518454/2016, 2017 BL 253248 (Sup. Ct. Jul. 17, 2017), New York Commercial Division Justice Sylvia G. Ash denied plaintiff Del Forte’s preliminary injunction motion that sought, pursuant to N.Y. Debtor and Creditor Law (“DCL”) § 279, to enjoin defendant Blue Beverage from selling 60% of Blue Beverage’s shares to co-defendant Kuzari Group for $5 million unless $500,000 is placed in escrow and a receiver is appointed.  As an alternative form of relief, Del Forte sought, pursuant to CPLR § 6201, to attach at least $500,000 from the asset sale to satisfy a judgment that might be rendered in Del Forte’s favor.

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.

In a pair of recent decisions, Justices Shirley W. Kornreich and Lawrence K. Marks of the Commercial Division ruled that creditors could proceed on their fraudulent conveyance claims seeking reversal of asset transfers made by debtors under New York’s Debtor and Creditor Law (“DCL”).  The decisions highlight two basic theories of fraudulent conveyance claims permitted by the DCL:  intentional fraud claims, which require a showing that the debtor made the transfer with the intent defrauding its creditor, and constructive fraud claims, which do not require a showing of fraudulent intent.