NY Commercial Division Blog

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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 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.

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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.

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The First Department Rules that Plaintiff Failed to Allege an Actionable Fiduciary Duty Claim

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.  

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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.

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Appellate Division Holds that Arbitrator Has Power to Dissolve Partnership

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.

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Commercial Division Justices Gather to Discuss Motion Practice

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.

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Sharply Divided Court of Appeals Upholds Waiver of Declaratory Relief by Commercial Tenants

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.

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New York Announces Statewide “Presumptive” Alternative Dispute Resolution Program

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.[1]  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.

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Commercial Division Decision Applies Issues Frequently Considered on Motions to Dismiss

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.

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The First Department Reconsiders Approval of a Class Action Settlement

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.

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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.

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Commercial Division Is Coming to the Bronx

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.  

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Commercial Division Dismisses Most Claims in Dispute Over Russian Oil Company

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.

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New Justice Assigned to Hear Commercial Division’s International Arbitration Matters

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.

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A Fond Farewell to Two of the Commercial Division’s Most Senior Judges

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.

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Under New York Law, an Accounting Does Not Equal a Books and Records Inspection

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.

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Two New Justices Appointed to the Commercial Division

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.

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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.

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The Commercial Division Is Rolling Out Cutting-Edge Courtroom Technology

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. 

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First Department Reverses Against Ending Fuji-Xerox Merger

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.[1]

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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.[1] 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.

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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. [1]

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Appellate Divisions Adopt Statewide Appellate Practice Rules

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. 

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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.

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Alter Ego Claim Survives Pre-Answer Motion to Dismiss on an Equitable Ownership Theory

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.

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Patterson Belknap Hosts Conversation about Litigation Practice in New York Courts with Court of Appeals Judge Michael Garcia and New York Practice author Professor Patrick M. Connors

On Wednesday, June 20, 2018, Patterson Belknap Webb & Tyler LLP welcomed Associate Judge Michael Garcia of the New York Court of Appeals, and Professor Patrick M. Connors, author of the New York Practice treatise, for a continuing legal education program on litigation practice in New York courts. Patterson Belknap partners Stephen P. Younger and Muhammad U. Faridi, authors of the New York Commercial Division Practice Guide, also participated with Mr. Younger moderating a discussion of New York practice issues and Mr. Faridi serving as a panelist.

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Commercial Division Allows Stockholder Challenge to Merger to Proceed Due to Allegations that the Special Committee Had a Conflict of Interest

On May 9, 2018, Judge Barry R. Ostrager of the Commercial Division denied a motion to dismiss a shareholder complaint in the Matter of Handy & Harman Ltd. Stockholder Litig., No. 654747/2017, 2018 BL 172083 (Sup. Ct. May 9, 2018), concluding that a plaintiff shareholder had sufficiently alleged that the Board’s Special Committee was conflicted when it recommended a merger transaction.[i]

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Commercial Division Enjoins Xerox-Fujifilm Deal Resulting In Resignation of Xerox’s CEO

On April 27, 2018, Justice Barry Ostrager of the Commercial Division enjoined a no-cash transaction that would have granted Fujifilm (“Fuji”) a 50.1% controlling interest in Xerox.  Just days after the Court’s decision an agreement was reached whereby the CEO of Xerox, Jeff Jacobson, and six other current Xerox board members would step down from their positions, ceding control of the company to representatives of investors Carl Icahn and Darwin Deason. Shortly thereafter, Xerox reversed course, indicating publically that Jacobson would stay on as CEO.[1] However, ultimately Xerox entered into a settlement agreement with Icahn and Deason resulting in the resignation of Jacobson and the scuttling of the Fuji Deal.

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The Commercial Division Reaffirms that Permissive Forum Selection Clauses Do Not Preclude Litigating in a Different Court

Attorneys drafting forum selection clauses were reminded of the distinction between permissive and mandatory forum language in Justice Andrea Masley’s recent decision, Duncan-Watt et al. v. Rockefeller et al., No. 655538/2016, 2018 BL 138448 (Sup. Ct., N.Y. Cty. Apr. 13, 2018). In Duncan-Watt, the Commercial Division ruled on Defendants’ motion to dismiss by holding that the dispute resolution clause in the parties’ licensing agreement failed to select Australian courts as the exclusive forum in which to litigate any disputes.  As a result, the Court concluded that the contractual language at issue only reflected the parties’ consent to jurisdiction in Australia—not that the dispute had to be litigated there.[1]

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Court of Appeals Rules: What the “Value of His Interest in the Partnership” Means under New York Partnership Law

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.

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Cost-Effective and Time-Efficient Commercial Litigation in New York's Commercial Division

In a new, practical, on-demand CLE webcast from our partner Bloomberg BNA, Commercial Division Blog authors Stephen P. Younger, Muhammad U. Faridi, and Benjamin F. Jackson provide in-house counsel and litigators in private practice with advice on how to litigate commercial disputes in New York state court with an eye...
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Commercial Division Rejects Disclosure-Only Settlement

On February 8, 2018, Justice Shirley Werner Kornreich of the Commercial Division rejected a disclosure-only class action settlement in City Trading Fund v. Nye, 2018 BL 44689 (Sup. Ct. Feb. 08, 2018).  The settlement provided for additional disclosures to shareholders in a proxy statement plus $500,000 in attorneys’ fees and expenses for plaintiffs’ counsel.  As discussed below, the Commercial Division’s rejection of this disclosure-only settlement is one of the first applications of the First Department’s new standard for reviewing such settlements of merger challenge litigations. 

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First Department Affirms that an LLC’s Operating Agreement Trumps Delaware Law

A unanimous panel of the Appellate Division, First Department recently affirmed a ruling by the Commercial Division dismissing causes of action against the ACE Group International LLC (“AGI”) brought by the estate of the deceased majority owner of AGI, Alexander Calderwood (the “Estate”).  The decision in Estate of Alexander Calderwood v. ACE Group International LLC, No. 650150/15 (App. Div. 1st Dep’t Dec. 14, 2017), primarily rested on the principle of Delaware business law that parties are free to set the terms of a limited liability company’s operations through contract.  As a result, the panel rejected the Estate’s arguments that provisions in Delaware’s Limited Liability Company Act (“LLC Act”) overrode contrary terms of AGI’s operating agreement (“LLC Agreement”), and affirmed the dismissal of the Estate’s claims.

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Special Proceeding Seeking a Judicial Decree to Dissolve an LLC

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.

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Second Department Affirms Commercial Division Decisions Leaving Withdrawing LLC Members Without Compensation for Their Membership Interests or Derivative Standing

In Matter of Jacobs v. Cartalemi, No. 2016-05041, 2017 BL 435890 (2d Dep’t Dec. 6, 2017) (“Jacobs I”), a unanimous Appellate Division, Second Department panel affirmed an order by Westchester County Commercial Division Justice Linda S. Jamieson denying compensation to a withdrawing LLC member.  The court held that a provision of an LLC operating agreement governing the sale of membership interests superseded the default rule of New York Limited Liability Company (“LLC Law”) § 509, entitling a member to “the fair value of his or her membership interest” upon withdrawal from the LLC.  Jacobs I was decided along with two related appeals in which the panel also dismissed various derivative claims brought by the former minority member of Westchester Industrial Complex, LLC against the company and its majority member, applying the continuous ownership rule to find that the minority member lost standing to bring derivative claims upon his withdrawal from the company. See Jacobs v. Cartalemi, No. 2016-07813, 2017 BL 436813 (2d Dep’t Dec. 6, 2017) (“Jacobs II”); Jacobs v. Westchester Indus. Complex, LLC, No. 2016-07817, 2017 BL 436677 (2d Dep’t Dec. 6, 2017) (“Jacobs III”).

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Top 10 New York Commercial Division Cases and Developments of 2017

In 2017, the New York Commercial Division continued to implement new rules and refine existing rules in order to streamline litigation in the court.  The year also saw some key decisions by the Commercial Division as well as appellate courts reviewing Commercial Division cases that developed an area of commercial law or applied existing law to a new or interesting set of facts.  We covered all of these developments in this blog.  We present here brief summaries of the most salient Commercial Division rule changes and cases from 2017 with links to our blog posts that provide more in-depth coverage.

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New High-Tech Courtroom Opens in Westchester County Commercial Division

The Westchester County Commercial Division has launched a new state-of-the-art courtroom at the White Plains Courthouse.  The Integrated Courtroom Technology (ICT) part is outfitted with high-tech features designed to ease the handling of complex commercial cases and enhance the presentation of evidence.

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Commercial Division Considers Default Clawback Provisions for Confidentiality Stipulations

The advent of large electronic productions has propelled a proposal to adopt new language in the standard confidentiality order used in the Commercial Division.  This proposal is designed to protect parties against inadvertent disclosure of privileged information.  On November 15, 2017, the Administrative Board of the Courts issued a request for public comment on a proposal to amend Commercial Division Rule 11-g to include sample “privilege claw-back” language.  The proposal was spearheaded by a Subcommittee of the Commercial Division Advisory Council.  Comments on this proposal must be received by January 16, 2018.

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Preliminary Hurdle for Cayman Derivative Claims Does Not Bar Suit in New York

A shareholder bringing a contested derivative claim in the Cayman Islands must seek leave from the court before proceeding.  This litigation prerequisite -- imposed by Rule 12A of the Rules of the Grand Court of the Cayman Islands (“Rule 12A”) -- requires a prima facie factual showing, with the aim of protecting corporations from “vexatious or unfounded litigation.”  But when a Cayman Islands-related derivative claim is brought in New York’s Commercial Division, does the same rule apply?  The New York Court of Appeals recently answered “No,” holding in Davis v. Scottish Re Group Ltd. that Rule 12A is a procedural rule that does not apply to matters litigated in New York courts.

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Large Complex Case List Piloted in the New York Commercial Division

As reported in this blog on July 24, 2017, the Administrative Board of the New York Unified Court System has been considering a proposal to pilot a “Large Complex Case List” in the New York County Commercial Division.  On October 23, 2017, the Chief Administrative Judge of the Courts formally adopted the Large Complex Case List as a pilot program for the Commercial Division of the Supreme Court of New York County.

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New Commercial Division ADR Rule

On October 11, 2017, Chief Administrative Judge Lawrence Marks amended Rules 10 and 11 of Section 202.70(g) (“Rules of Practice for the Commercial Division”) with respect to Alternative Dispute Resolution (“ADR”).

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Leaving the Contractual Term “Voting Power” Undefined Could Be Risky Business

What does the contractual term “voting power” mean?  Does it refer only to the power to elect corporate directors, or does it refer to the power to vote on any fundamental matter of corporate governance?  Is voting power an attribute of stock, or is it something that shareholders possess?  Commercial Division Justice Marcy Friedman’s recent decision in Special Situations Fund III QP, LP. v. Overland Storage, Inc.,suggests that the contractual term “voting power” could conceivably bear any of these meanings, depending on context and the parties’ intent—which suggests that leaving this term undefined in a contract could be risky business.  Any attorney who regularly drafts stock purchase agreements, voting agreements, or other contracts that use the term “voting power” would do well to take note of this recent Commercial Division decision.

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The Second Department Suggests That “Any Lawful Business” Clauses May Be Effectively Meaningless in LLC Dissolution Cases

In actions brought by minority members to dissolve an LLC, a key inquiry is whether the LLC’s managers are unable or unwilling to permit or promote the LLC’s “stated purpose.”  In many cases, an LLC’s operating agreement provides that the LLC’s “stated purpose” is “any lawful business.”  As a result, one might think that the central question in many judicial dissolution cases would end up being whether the LLC is engaged in lawful business.  Not necessarily.  Recently, in Mace v. Tunick,[1] the Second Department suggested that an “any lawful business” purposes clause is insufficient to conclusively refute an allegation that an LLC was formed for a particular purpose.  Mace could therefore be read to eliminate some of the protections against litigation that would be provided for by an “any lawful business” clause.

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Unless the U.S. Supreme Court Rules Otherwise, Waivers of Collective Actions Are Not Enforceable in New York

On July 18, 2017, the First Department partially reversed the Commercial Division’s decision in Gold v. New York Life Insurance Company, No. 653923/12, 2017 BL 247192 (App. Div. 1st Dep’t July 18, 2017), a case that presented the issue of whether employees can be compelled to waive collective actions against their employers pursuant to an arbitration clause.  In 2015, Justice O. Peter Sherwood of the New York Commercial Division had granted a motion to compel a former insurance agent to arbitrate his wage dispute with New York Life Insurance Co. (“N.Y. Life”).  In a decision by Justice Karla Moskowitz (who was a member of the Commercial Division before being appointed to the Appellate Division), the First Department answered an open issue in New York, holding that employers cannot be required to arbitrate such disputes as it “would run afoul of the National Labor Relations Act.”

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Commercial Division Rules that U.S. Treasury Secretary’s Access to a Company’s Detailed Financial Information in His Role as a Board Member Is Insufficient to Establish Liability for Fraud

Members of a company’s board who are also investors in the company often have access to detailed information about the company’s finances and its lending facilities.  But what happens when an investor-board member could, through access to the company’s financial information, potentially determine that funds from a lending facility are not being used for the purpose that the company and its agents had previously represented that they would be used for?  Is the investor-board member potentially liable for fraud merely on the basis of his access to or awareness of financial information about the company?  Justice Charles E. Ramos’s recent decision in RKA Film Fin., LLC v. Kavanaugh, No. 652592/2015, 2017 BL 222658, 2017 N.Y. Misc. LEXIS 2459, 2017 NY Slip Op 50846(U) (Sup. Ct. June 27, 2017), suggests that the answer may be no.  According to the Commercial Division, without personal involvement in the alleged fraud itself or a special duty to disclose to the plaintiff, an investor-board member is likely not liable for fraud to a plaintiff creditor.

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User’s Guide to Recent Revisions in the Commercial Division Rules

This guide contains a summary of important new rules and amendments to existing rules that have been enacted since our first and second User’s Guides were published:

Since its formation in 1995, the Commercial Division has seen an increase in the number and complexity of cases being filed. In response to this change, New York’s then Chief Judge created a Task Force on Commercial Litigation. In 2012, the Task Force issued a series of reform proposals aimed at better managing judicial resources, encouraging greater use of non-judicial personnel and alternative dispute resolution, and increasing engagement with the corporate and academic communities and the Bar. Thereafter, the Chief Judge formed a Commercial Division Advisory Council which has made various recommendations with respect to practice in the Commercial Division. From these recommendations, many new rules and amendments have been enacted.

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If You Don’t Hold the Bond, You Can’t Sue for Fraud

Commercial Division Justice Eileen Bransten recently concluded that plaintiff bondholders lacked standing to bring fraud claims against the bond obligor and trustee after having sold their interests in the bonds.  One William St. Capital Mgmt. L.P. v. U.S. Educ. Loan Tr. IV, LLC, No. 652274/2012, 2017 BL 1700030 (Sup. Ct. N.Y. Co. May 16, 2017), involved a group of investment firms that purchased $10 million in notes backed by government-guaranteed student loans from the U.S. Education Loan Trust IV (“ELT”).  The notes were part of a larger $30 million package.

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Commercial Division Rejects Third-Party Claim as Derivative in Trusts’ Suit Concerning Upper West Side Beaux-Arts Building

Asserting a claim on behalf of a trust in the Commercial Division can be risky, as the party asserting the claim must establish that the claimed injury is independent of any injury to the trust, and that they are therefore not simply bringing a derivative claim.  Recently, in 1993 Trust of Joan Cohen v. Baum, No. 150058/2015, 2017 NY Slip Op 30894(U), 2017 N.Y. Misc. LEXIS 1667 (May 2).  Justice Shirley Werner Kornreich dismissed as derivative a third-party claim brought by a former trustee of two trusts against an individual who allegedly provided deficient tax advice to the trusts.  The court ruled that the former trustee was owed no duty by the third-party defendant individually and could no longer prosecute claims that belonged to the trusts.  Justice Kornreich also rejected the former trustee’s contribution claim against the tax adviser and another entity, explaining that those entities’ alleged wrongdoing was unrelated to the former trustee’s alleged wrongdoing, and thus did not make them subject to liability to the plaintiff for damages for the same injury.[1]

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