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Commercial Division Blog

Current Developments in the Commercial Divisions of the
New York State Courts
Posted: September 25, 2016

Claim Alleging Partial Performance of Oral Modification of Written Contract Adequate

On August 18, 2016, Justice Ramos of the New York County Commercial Division issued a decision in Obsessive Compulsive Cosmetics, Inc. v. Sephora USA, Inc., 2016 NY Slip Op. 51295(U), upholding a claim for breach of an oral modification to a written contract based on the partial performance of that modification, explaining:

When a written contract provides that it can only be changed by a signed writing, an oral modification of that agreement is not enforceable. However, complete and partial performance are exceptions to the requirement of a written modification:

When the oral agreement to modify has in fact been acted upon to completion, the same need to protect the integrity of the written agreement from false claims of modification does not arise. In such case, not only may past discussions be relied upon to test the alleged modification, but the actions taken may demonstrate, objectively, the nature and extent of the modification. Moreover, apart from statute, a contract once made can be unmade and a contractual prohibition against oral modification may itself be waived.

Where there is partial performance of the oral modification sought to be enforced, the likelihood that false claims would go undetected is similarly diminished. Here, too, the court may consider not only past oral exchanges, but also the conduct of the parties. But only if the partial performance be unequivocally referable to the oral modification is the requirement of a writing under (subdivision 1) section 15-301 (of the General Obligations Law) avoided.

. . .

In the instant case, OCC alleges that it produced products for the new and other existing locations pursuant to purchase orders from Sephora totaling $590,558.40 in reliance on Sephora’s vice president’s verbal representation that it would share in the fixture costs. OCC has sufficiently plead partial performance unequivocally referable to the alleged oral modification that Sephora would share in the fixture costs in light of allegations that OCC initially refused Sephora’s purchase orders and only agreed to produce new products after Sephora’s verbal representation was made with respect to sharing fixture costs. Further buttressing the contention that OCC’s performance is unequivocally referable to the oral modification is the fact that the Written Agreement is not a requirements contract, and thus, OCC had no contractual duty to expand the placement of its products at Sephora’s stores.

(Internal quotations and citations omitted) (emphasis added).

Posted: September 24, 2016

Broker Not Entitled to Commission Where Closing Was a Condition And There Was No Closing

On September 15, 2016, the First Department issued a decision in NRT N.Y. LLC v. Johnson, 2016 NY Slip Op. 06047, holding that a broker was not entitled to a commission because payment of the commission was contingent on closing, explaining:

The exclusive brokerage agreement unambiguously made the closing of title an express condition precedent to plaintiff broker’s right to its commission. No closing ever took place, either before or after the agreement terminated, which passed title to any buyer identified during the term of the agreement. Nor did the Board of Managers for the condominium take title. The closing on the sale of the apartment took place after the exclusive broker agreement expired and with an entity/person who was, in any event, a carve out under the agreement. Plaintiff is not entitled to a commission.

(Internal quotations and citations omitted).

Posted: September 23, 2016

If Defendant Fails to Make Prima Facie Case, Court Need Not Consider Plaintiff’s Opposition

On September 14, 2016, the Second Department issued a decision in Katz v. Beil, 2016 NY Slip Op. 05977, denying defendants’ motion for summary judgment for failure to show a prima facie entitlement to judgment, explaining:

In determining the individual defendants’ motion for summary judgment, the Supreme Court concluded that judgment as a matter of law was appropriate since there was no evidence that the individual defendants breached their fiduciary duty to the plaintiffs. As an alternative ground for its determination, the court concluded that there was no evidence that the individual defendants had engaged in self-dealing or other misconduct and that all of the conduct alleged in the amended complaint was therefore protected by the business judgment rule. As an additional alternative ground for granting summary judgment, the court determined that the plaintiffs could not prove that they were damaged by the challenged conduct of the individual defendants.

The Supreme Court’s application of the summary judgment standard constituted legal error. In the context of this pretrial motion for summary judgment, the individual defendants, as the moving parties, had the initial burden of proof. Accordingly, while the ultimate burden of proof at trial will fall upon the plaintiffs, a defendant seeking summary judgment bears the initial burden of demonstrating its entitlement to judgment as a matter of law by submitting evidentiary proof in admissible form. On a summary judgment motion, a moving defendant does not meet its burden of affirmatively establishing its entitlement to summary judgment by merely pointing to gaps in the plaintiff’s case; rather, it must affirmatively demonstrate the merit of its defense. It is equally well established that the motion should not be granted where the facts are in dispute, where conflicting inferences may be drawn from the evidence, or where there are issues of credibility.

. . .

[C]ontrary to the Supreme Court’s conclusion, the individual defendants failed to establish, prima facie, their entitlement to judgment as a matter of law dismissing the amended complaint insofar as asserted against them. Since the individual defendants failed to sustain their prima facie burden, we need not consider the adequacy of the plaintiffs’ submissions in opposition to that motion.

(Internal quotations and citations omitted) (emphasis added).

Posted: September 22, 2016

Assignee Lacked Standing; Assignment of Right to Pursue Remedies on Notes Did Not Transfer Claims

On September 15, 2016, the First Department issued a decision in Cortlandt St. Recovery Corp. v. Hellas Telecom., S.à.r.l., 2016 NY Slip Op. 06051, holding that a plaintiff lacked standing to assert claims because the assignment of the right to pursue remedies under notes did not constitute the assignment of claims, explaining:

The [IAS] court correctly found that plaintiff Cortlandt Street Recovery Corp. lacks standing to bring the claims in Index Nos. 651693/10 and 653357/11 because, while the assignments to Cortlandt for the PIK notes granted it “full rights to collect amounts of principal and interest due on the Notes, and to pursue all remedies,” they did not transfer “title or ownership” of the claims.

The court correctly found in Index No. 653181/11 that Cortlandt lacks standing because the party that gave it the assignment to sue on the subordinated notes did not have the authority to assert or assign such claims, having never obtained status to sue as a holder of definitive notes or otherwise. While that party has the court-ordered right to the issuance of definitive notes that would give it the right to sue or assign to Cortlandt its right to sue, and the issuer of the subordinated notes violated the indenture and the court order by not issuing such notes, the court correctly declined, on the facts alleged, to use the doctrine of substitute performance to alter the terms of the indenture so as to remedy this situation.

(Internal citations omitted).

Posted: September 20, 2016

Constructive Eviction Claims Survive Motion to Dismiss

On September 6, 2016, Justice Singh of the New York County Commercial Division issued a decision in 384 Columbus Ave. Associates, LLC v. 101 W. 78th, LLC, 2016 NY Slip Op. 31671(U), declining to dismiss a constructive eviction claim, explaining:

A cause of action for constructive eviction is governed by a one-year statute of limitations contained in CPLR § 215. The Statute of Limitations of this claim begins to run at such time that it is reasonably certain that the tenant has been unequivocally removed with at least the implicit denial of any right to return. The date that tenant was evicted cannot be determined on the record before this court as a matter of law.

Landlord argues that tenant was evicted in November 2014, when the scaffolding was erected and the lease was allegedly breached. However, by the landlord’s own admission, tenant was allowed to continue using the space as a restaurant until the surrender agreement was executed, on December 21, 2015. As there is an issue of fact as to when the eviction occurred, defendant’s motion to dismiss is denied.

Defendant also argues that ev~n if the Statute of Limitations is not met, the motion to dismiss should still be granted based upon the unreasonable delay of tenant to vacate the premises. A constructive eviction exists where, although there has been no physical expulsion or exclusion of the tenant, the landlord’s wrongful acts substantially and materially deprive the tenant of the beneficial use and enjoyment of the premises. To be an eviction, constructive or actual, there must be a wrongful act by the landlord. Here, landlord erected a hoist in front of tenant’s entrance at some point during 2015, which also allegedly caused tenant to lose its sidewalk cafe business. Tenant also alleges that the excessive noise, vibrations, odors and dust entering the premises as a result of the reconstruction work violated tenant’s right to quiet enjoyment. In taking all of the plaintiffs’ allegations as true, there is a viable cause of action that there was a wrongful acted committed by the landlord. Therefore, in this preliminary stage, plaintiff has adequately pleaded that defendant has breached the lease.

Second, a constructive eviction requires an abandonment of the premises without unreasonable delay. A delay in vacating the premises which is due to the tenant’s efforts to resolve the dispute without litigation of a constructive eviction claim is a reasonable excuse.

(Internal quotations and citations omitted).

Posted: September 19, 2016

Promissory Note’s Reference to Sales Contracts Does Not Defeat Summary Judgment

On September 6, 2016, Justice Oing of the New York County Commercial Division issued a decision in Kardemir Ithalat Ihracat Ltd. Sti. v. Uniwire Trading LLC, 2016 NY Slip Op. 31681(U), holding that a promissory note’s reference to the terms of related sales contracts did not preclude the grant of summary judgment in lieu of complaint, explaining:

In their effort to present triable issues of fact, defendants argue that they preserved the right to contest any sums due under the Sales Contracts because the note is meant to supplement the sales contracts. Specifically, defendants point out that the note, while providing that New York law governs over disputes and that plaintiff is entitled to seek judgment in the New York judicial system, also provides that the arbitration clause of all previous contractual dealings (sales contracts) shall also remain in effect, calling for arbitration in Switzerland.

. . .

When there are minor references and no affirmative language making their respective payment obligations interdependent plaintiff’s right to payment can be ascertained from the face of the note itself, without resorting to extrinsic documents. Thus, contrary to defendants’ assertion, this dispute arises solely from the note. Indeed, adopting defendants’ reading of section 10, that the arbitration clause is intertwined with the note so as to require this dispute to be arbitrated, would render meaningless the second clause of section 10, which clearly provides that if defendants fail to make any payment plaintiff is entitled to seek judgment in the New York judicial system.

(Internal quotations and citations omitted).

Posted: September 18, 2016

Use of Unjustly Received Information Can be Basis for Unjust Enrichment Claim

On September 12, 2016, Justice Ostrager of the New York County Commercial Division issued a decision in Xaleron Pharmaceuticals, Inc. v. Actavis, Inc., 2016 NY Slip Op. 31708(U), refusing to dismiss an unjust enrichment claim based on the misappropriation of a business strategy, explaining:

To state a claim for unjust enrichment, a plaintiff must allege that (1) the defendant was enriched, (2) at plaintiff’s expense, and (3) that it is against equity and good conscience to permit the defendant to retain what is sought to be recovered. Further, a plaintiff cannot succeed on an unjust enrichment claim unless it has a sufficiently close relationship with the other party that could have caused reliance or inducement.

The basis of a claim for unjust enrichment is that the defendant has obtained a benefit which in equity and good conscience should be paid to the plaintiff.

The plaintiffs allegations that the defendants were unjustly enriched state a viable claim at the pleading stage. The plaintiff has alleged that, by reason of the plaintiff’s relationship with Meury, a senior executive at Allergan, the defendants acquired knowledge of the Strategy, which the defendants allegedly valued at $75 million. Although it is presently unknown whether a transaction between the plaintiff and Sanders will come to fruition, the plaintiff has made sufficient factual allegations to sustain a claim for unjust enrichment based on the use of unjustly received information that creates an unjust benefit.

(Internal quotations and citations omitted).

Posted: September 16, 2016

Late Notice Defense Not Waived as a Matter of Law by Failing to Include it in Disclaimer Letters

On September 15, 2016, the Court of Appeals issued a decision in Estee Lauder Inc. v. OneBeacon Insurance Group, LLC, 2016 NY Slip Op. 06012, holding that an insurer had not waived a late notice defense by not including it in its disclaimer letters, explaining:

Analyzing the circumstances under the common-law waiver standard, which requires an examination of all factors, defendants cannot be said to have waived their right to assert the late-notice defense as a matter of law by failing to specifically identify late notice in their disclaimer letters. Defendants identified the late-notice defense in early communications with plaintiff before relying on a reservation of rights in two disclaimer letters. Under common-law principles, triable issues of fact exist whether defendants clearly manifested an intent to abandon their late-notice defense.

(Internal quotations and citations omitted).

Posted: September 15, 2016

Fraudulent Conveyance Claim Against Arm’s Length Transaction OK Where Badges of Fraud Alleged

On September 8, 2016, the First Department issued a decision in 172 Van Duzer Realty Corp. v. 878 Education, LLC, 2016 NY Slip Op. 05957, holding that a plaintiff stated a claim for fraudulent conveyance despite that the complained of transaction was at arm’s length, explaining:

The cause of action for actual fraudulent conveyance under Debtor and Creditor Law § 276 is also adequately pleaded against Globe Institute, the Rabinovich defendants, and 878 LLC. Although the transaction was conducted at arm’s length, plaintiff has sufficiently alleged badges of fraud, i.e., circumstances so commonly associated with fraudulent transfers that their presence gives rise to an inference of intent, including (1) the parties’ structuring of the transaction so that the sole consideration promised to Globe Institute, aside from 878 LLC’s assumption of certain of Globe Institute’s liabilities, was a $1.35 million payment directly to its shareholders, the Rabinovich defendants, rather than to Globe Institute itself, (2) the exclusion of Globe Institute’s guarantee of the lease agreement from the list of assumed liabilities, although the parties knew that Globe Institute would be left as a corporate shell as result of the transaction and would therefore be unable to honor any future liabilities, (3) inadequate consideration, and (4) the transaction’s having been outside the usual course of business and hastily closed over the course of only a few days, while other potential buyers required a much longer due diligence period.

(Internal quotations and citations omitted) (emphasis added).