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Commercial Division Blog

Current Developments in the Commercial Divisions of the
New York State Courts
Posted: August 28, 2016

An Interested Person May be Allowed to Intervene in Special Proceeding to Recover Debt

On August 19, 2016, Justice Kornreich of the New York County Commercial Division issued a decision in Wimbledon Financing Master Fund, Ltd. v. Bergstein, 2016 NY Slip Op. 31574(U), discussing the standard for intervention in a special proceeding to turn over funds to satisfy a judgment:

Under CPLR 1012, a non-party shall be permitted to intervene when the proposed intervenor’s rights are not adequately represented by the parties and will be prejudiced absent intervention. Under CPLR 1013, a court may permit intervention when the person’s claim and the main action have a common question of law or fact. CPLR 5227, moreover, provides that the court may permit any adverse claimant to intervene in the proceeding and may determine his rights in accordance with CPLR 5239, which states that, in an Article 52 proceeding, the court may permit any interested person to intervene.

The Second Department has held that CPLR 5227, which applies to intervention in a special proceeding seeking payment of debt owed to a judgment creditor, pre-empts the general intervention provisions set forth in CPLR 1012 and 1013. The Fourth Department recently issued a similar holding. The parties do not cite a First Department case to the contrary and, thus, this court is bound by this appellate standard.

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

Posted: August 27, 2016

Motion to Amend Denied for Failure to Show or Explain and Justify Changes

On August 17, 2016, Justice Sherwood of the New York County Commercial Division issued a decision in E&B Giftware, LLC v Mauer, 2016 NY Slip Op. 31569(U), denying a motion to amend, explaining:

In order to conserve judicial resources, examination of the underlying merit of the proposed amendment is mandated. Leave will be denied where the proposed pleading fails to state a cause of action, or is palpably insufficient as a matter of law. Thus, a motion for leave to amend a pleading must be supported by an affidavit of merit or other evidentiary proof. . . .

CPLR 3025(b) requires a motion to amend to be accompanied by the proposed amended or supplemental pleading clearly showing the changes or additions to be made to the pleading. Plaintiffs attach a copy of their Proposed Second Amended Complaint, but do not show the proposed changes in their moving papers. Plaintiffs attach a blackline to their reply papers, but this does not cure the defect. While Plaintiffs argue that this court allowed such a cure in Sher v. CMJ Holdings Corp., Scher had submitted an affirmation explaining the proposed changes to the complaint, fulfilling the statutory requirement and eliminating prejudice to the defendants. Such is not the case here. The affirmation provided by plaintiffs merely presented the PSAC without explanation. It speaks neither to the proposed changes not to their merits.

(Internal quotations and citations omitted).

Posted: August 26, 2016

Contract Claim Based On Oral Agreement Regarding Investment Upheld

On August 18, 2016, Justice Kornreich of the New York County Commercial Division issued a decision in Galopy Corp. International N.V. v. Deutsche Bank, AG, 2016 NY Slip Op. 31576(U), upholding a breach of contract claim based on an alleged oral agreement regarding an investment, explaining:

The doctrine of definiteness or certainty is well established in contract law. In short, it means that a court cannot enforce a contract unless it is able to determine what in fact the parties have agreed to. If an agreement is not reasonably certain in its material terms, there can be no legally enforceable contract.

. . . [T]he Court of Appeals has long cautioned against an overly rigid application of the definiteness requirement.

Applying these principles, and being mindful that the court must construe the complaint liberally, grant plaintiff every favorable inference, permit the plaintiff to remedy defects in the complaint and preserve inartfully pleaded, but potentially meritorious claims with supplemental affidavits, the court denies Deutsche Bank’s motion to dismiss Galopy’s breach of contract claim. It is of no moment that Deutsche Bank contends that the alleged oral agreement seems suspect or that, in light of the recorded conversations, Galopy’s allegations do not smack of plausibility. To dismiss a breach of contract claim, an essential element must be omitted from the complaint or the documentary evidence must utterly refute the claim’s viability. There is no requirement, in this court, that the allegations be plausible. On the contrary, pursuant to CPLR 3013 and 3014, plaintiff is merely required to satisfy a notice pleading standard.

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

NOTE: Schlam Stone & Dolan LLP is counsel for Plaintiff in this action.

Posted: August 25, 2016

Arguments of Interest in the Court of Appeals in September

Upcoming oral arguments in the Court of Appeals of interest to commercial litigators include:

  • Utica Mutual Insurance Company v. Style Management Associates, APL-2015-00169 (to be argued Tuesday, September 13, 2016) (“Subrogation–Right of subrogation–Whether the Style Management defendants were entitled to summary judgment dismissing the complaint as against tem upon the ground that they were not the general contractor on the underlying renovation project even though one of those defendants was listed as the contractor on the work permit.”). See the Second Department decision here.
  • Justinian Capital SPC v. WestLB AG, APL-2015-00231 (to be argued Wednesday, September 14, 2016) (“Contracts–Breach or performance of contract–Fraud–agreement to purchase notes—whether plaintiff’s purported purchase of notes from nonparty bank was sufficient basis for plaintiff to avail itself of the Safe Harbor provision of the champerty statute (Judiciary Law section 489 [1])–if not, whether plaintiff’s acquisition of the notes was champertous.”). See our previous posts on the trial court decision here ; the First Department decision here; and the Court of Appeals’ decision granting leave to appeal here.
Posted: August 24, 2016

“Made Whole Rule,” Which Limits An Insurer’s Recovery in Subrogation Claim, Does Not Apply to Salvage Recovery

On August 8, 2016, Justice Oing of the New York County Commercial Division issued a decision in Potemkin Cadillac-Buick-Chevrolet-Geo, Ltd. v. Specialty Mar. Ins. Co., 2016 NY Slip Op. 31507(U), holding that the “made whole rule,” under which an insurance carrier cannot recover from a third-party on a subrogation claim until the insured has first been fully compensated for the injury, does not apply to salvage recovery for property damage.

In Potemkin, the plaintiff (a car dealership) suffered a $9 million loss to its inventory during Hurricane Sandy. The policy only provided $7 million in coverage, and the carrier, pursuant to a provision of the policy, required that the insured provide it with storm-damaged vehicles to dispose of as salvage in an amount equal to the $7 million insurance payment. The plaintiff then sold the remaining vehicles for salvage, but was still left with an uncompensated loss of $900,000. It brought suit against the carrier to recover that loss, relying on the “made whole” doctrine, which limits an insurer’s ability to recover from a third-party tortfeasor until the insured has been fully compensated for the loss. See Fasso v. Doerr, 12 N.Y.3d 80, 87 (2009) (under the “made whole” rule, “the insurer may seek subrogation against only those funds and assets that remain after the insured has been compensated” in order to “assure[] that the injured party’s claims against the tortfeasor takes precedence over the subrogation rights of the insured”).

Justice Oing held that this doctrine did not apply in the context of a salvage recovery, explaining:

[T]he subrogation principle clearly permits an insurer to sue a third-party tortfeasor to recoup the amount of insurance payment it paid to the insured, and the made whole doctrine assures that the insured’s claim and recovery against the tortfeasor is superior to the insurer’s subrogation rights when the recovery from such tortfeasor is inadequate to fully compensate the insured for its loss.

Here, there is indisputably no third-party tortfeasor. Thus, invocation of the subrogation principle, contractual or equitable, in inapplicable to the instant facts. . . . Correlatively, the made whole doctrine is equally inapplicable. That doctrine governs the priority of the parties’ entitlement to the proceeds recovered from a third-party tortfeasor when the recovery is inadequate to compensate for the insured’s loss. Here, Hurricane Sandy is clearly not a third party that can be held legally responsible for the loss.

(Citations omitted).

Posted: August 23, 2016

Claims Against Insurer Dismissed Where Allegations Fail to Tie it to Policy at Issue

On August 11, 2016, Justice Oing of the New York County Commercial Division issued a decision in Chao Jiang v. Ping An Insurance, 2016 NY Slip Op. 31534(U), dismissing claims against an insurer where the allegations in the complaint failed to tie it to the policy at issue, explaining:

A breach of contract claim requires the existence of a contract, due performance by the plaintiff, breach of the contract by defendant, and damages resulting from the breach. Here, there was no contract between CNEP and ACE. Although generally speaking, one who is not a party to an agreement cannot be bound by it and sued for breach, a cause of action may be pleaded if there is a separate basis for the nonparty’s liability such as piercing the corporate veil or some plausible manifestation of an intent to be bound.

Although Wong negotiated the Primary Policy on behalf of Huatai Limited, the argument that Wong signed the Primary Policy as representative of ACE is undermined by the notation above Wong’s confirmatory signature that states he is signing for and on behalf of Huatai Insurance Company of China Limited. If Wong were signing in any other capacity, or, as plaintiff seems to imply, in his capacity as an officer of ACE, this notation would be either supplemented or unnecessary. There being no clear privity between ACE and CNEP, there can also be no contract except in extraordinary circumstances, which is absent here.

To the extent that plaintiff argues that ACE was acting as the agent of Huatai Group in the negotiation, and is somehow liable, the principle is well settled that an agent who acts on behalf of a disclosed principal cannot be simultaneously liable for a breach of contract absent unambiguous evidence of an intention to be bound. In addition, the very idea of joint liability of both principal and agent is inconsistent. Where the party contracts as an agent of a disclosed principal, he binds either his principal or himself but not both.

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

Posted: August 22, 2016

Publicity Agent’s Negative E-Mails Constitute Breach of Covenant of Good Faith and Fair Dealing

On August 18, 2016, the First Department issued a decision in Rebecca Broadway L.P. v. Hotton, 2016 NY Slip Op. 05839, holding that a publicity agent’s e-mails disparaging its client breached the covenant of good faith and fair dealing.

In Rebecca Broadway, the defendant, a publicity agent, sent e-mails to a potential investor in a theatrical production that “made various highly negative allegations about” the agent’s client “and urged the potential investor not to back” the production.

The trial court held that the plaintiff was “entitled to summary judgment as to liability on its claim for breach of contract against the publicity agent.” The First Department affirmed, explaining:

The surreptitious and anonymous emails that the agent sent to the prospective investor — whose identity had been the producer’s confidential information — apparently were intended to sink the project, and accomplished that goal. The publicity agent thus destroyed or injured the right of the producer to receive the fruits of its contract with the agent. That contract had been intended to facilitate the very theatrical production that the agent sabotaged by means of his emails, which he had only been able to send by misusing the producer’s confidential information. This is the very definition of a breach of the covenant of good faith and fair dealing that the law of New York implies in every contract.

(Internal quotations and citations omitted).

NOTE: Schlam Stone & Dolan LLP represented the plaintiff in this action.

Posted: August 21, 2016

Claims Not Subject to Arbitration Stayed Pending Arbitration of Related Claims

On August 16, 2016, Justice Oing of the New York County Commercial Division issued a decision in Moyal v. Sullo, 2016 NY Slip Op. 31559(U), staying claims not subject to arbitration pending the arbitration of related claims, explaining:

That branch of Sulla’s and Moyal’s motion seeking an order from this Court staying litigation of the Circle Press-related cross claims and counterclaims pending arbitration of the V12 LLC claims is appropriate. The determination in the arbitration proceeding could have a significant effect on the outcome of the related claims, and the specter of inconsistent findings in the absence of a stay is very real. Under these circumstances, those cross claims and counterclaims that are not subject to arbitration are stayed pending final resolution of the underlying arbitration.

(Internal citations omitted).

Posted: August 21, 2016

Service on Corporate Officer Found Insufficient When Officer Was Adverse Party

On August 11, 2016, Justice Kornreich of the New York County Commercial Division issued a decision in Som v. Peter Som, Inc., 2016 NY Slip Op. 31539(U), holding that service on a corporation’s CEO was insufficient service of the corporation when the CEO was suing the corporation, explaining:

[T]he court cannot recognize plaintiffs attempt to serve defendant by delivering a copy of the summons and summary judgment motion to himself. The court has discretion to invalidate service based on a case’s particular circumstances. It is true that delivering a summons to a corporation’s CEO will normally suffice as service on the corporation. The Court of Appeals has held that in general, a corporate officer’s position is such as to lead to a just presumption that notice to them will be notice to the corporation. Nevertheless, in this case, plaintiffs interests as defendant’s CEO necessarily conflict with plaintiffs interests as the sole individual suing defendant in this lawsuit. The court cannot reasonably assume that service on plaintiff himself constitutes effective notice to defendant. The court finds that plaintiffs self service does not give rise to a presumption of notice to defendant, and that plaintiff’s service is inadequate.

(Internal quotations and citations omitted).

Posted: August 20, 2016

Law Firm Records Ordered Produced Under Crime-Fraud Exception

On August 11, 2016, Justice Bransten of the New York County Commercial Division issued a decision in Fragin v. First Funds Holdings LLC, 2016 NY Slip Op. 31537(U), ordering the production of privileged documents under the crime-fraud exception, explaining:

The central issue on this motion is whether the documents that Moses and Singer seeks to shield under the attorney-client privilege are nonetheless discoverable pursuant to the crime-fraud exception. The crime-fraud exception encompasses a fraudulent scheme, an alleged breach of fiduciary duty or an accusation of some other wrongful conduct. A party seeking to invoke the crime-fraud exception must demonstrate that there is a factual basis for a showing of probable cause to believe: (1) that a fraud or crime has been committed and (2) that the communications in question were in furtherance of the fraud or crime. Fragin has made this requisite two-part showing.

Fragin has demonstrated facts adequate to support a conclusion by probable cause that the asset transfer between FFH and Principis, executed around the time of Fragin’s investment, was a fraudulent conveyance under DCL § 276.

. . .

The seventeen documents produced in camera for the Court’s review likewise contain communications made in furtherance of the alleged fraudulent conveyance and fraud. By this, the Court does not find for the purpose of this motion that Moses & Singer attorneys knowingly participated in Mezei’s allegedly fraudulent conduct. Such a showing is not required. Instead, the documents demonstrate work by Moses & Singer attorneys at Mezei and Cohen’s behest, and on Mezei and Cohen’s behalf, in furtherance of the asset transfer, which as addressed above, satisfies the first prong of the crime-fraud exception test.

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