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Commercial Division Blog

Current Developments in the Commercial Divisions of the
New York State Courts
Posted: March 29, 2015

Court Explores Scope of One Motion Rule

On March 20, 2015, Justice Sherwood of the New York County Commercial Division issued a decision in SGM Holdings LLC v. Lisiak, 2015 NY Slip Op. 30411(U), applying the one motion rule.

In SGM Holdings, the plaintiffs opposed a motion to dismiss their amended complaint on, among other grounds, the basis of the one motion rule. The trial court agreed, in part, with the plaintiffs, explaining:

[P]laintiffs assert that the motion violates the one motion rule of CPLR 3211(e) which provides that at any time before service of the responsive pleading is required, a party may move to dismiss on one or more of the grounds set forth in subdivision (a), and no more than one such motion shall· be permitted. The rule precludes successive motions to dismiss where the party seeking dismissal could have sought dismissal in a prior CPLR 3211 motion but failed to do so. The one motion rule, however, does not bar a successive motion to dismiss that addresses causes of action made for the first time in an amended pleading. Additionally, challenges to the court’s subject matter jurisdiction are never waived, and therefore are not subject to the one motion rule.

(Internal quotations and citations omitted) (emphasis added). The court went on to examine the causes of action at issue in the motion. With respect to the plaintiffs’ fourth cause of action, the court held that the addition of new factual allegations did “not change the nature of the claim. It merely add[ed] factual details to the claim.” Because the court refused to dismiss that cause of action for failure to state a claim in response to the defendants’ initial motion to dismiss, the one motion rule prevented defendants from moving to dismiss that cause of action for the same reason in their second motion. However, the defendants also moved to dismiss the fourth cause of action on the ground of mootness. The court held that such a motion was a permissible notwithstanding the one motion rule because “[m]ootness is a challenge to the court’s subject matter jurisdiction which is never waived.” (Emphasis added).

Similarly, the defendants moved to dismiss the plaintiffs’ third and seventh causes of action on the grounds of mootness and seeking “an impermissible advisory opinion,” respectively. Those challenges, too, went to the court’s subject matter jurisdiction and thus were not barred by the one motion rule.

Posted: March 28, 2015

Affidavit Rebutting Process Server’s Affidavit Cannot be Conclusory

On March 24, 2015, Justice Whelan of the Suffolk County Commercial Division issued a decision in Bank of America, NA v. Simon, 2015 NY Slip Op. 50363(U), denying a motion to dismiss based on improper service.

In Bank of America, the defendant moved to dismiss on, among other grounds, “a purported lack of personal jurisdiction over defendant . . . due to improper service pursuant to CPLR 3211(a)(8).” The court denied the motion, explaining:

A process server’s affidavit of service constitutes prima facie evidence of proper service. Although a defendant’s sworn denial of receipt of service generally rebuts the presumption of proper service established by the process server’s affidavit and necessitates an evidentiary hearing, no hearing is required where the defendant fails to swear to specific facts to rebut the statements in the process server’s affidavits.

Here, the affidavit of service of the plaintiff’s process server constituted prima facie evidence of proper service pursuant to CPLR 308(2), and the affidavit submitted by the defendant Simon was insufficient to rebut the presumption of proper service.

(Internal quotations and citations omitted) (emphasis added). This decision illustrates the importance of providing real factual support for motions relating to jurisdiction and service and not just conclusory assertions.

Posted: March 27, 2015

Malpractice Defendants Seeking Summary Judgment Must Show that Plaintiff Cannot Prove its Claim

On March 18, 2015, the Second Department issued a decision in Smith v. Kaplan Belsky Ross Bartell, LLP, 2015 NY Slip Op. 02108, reversing a grant of summary judgment to lawyers accused of malpractice.

in Smith, the plaintiffs brought an action for, among other things, legal malpractice against the defendants, alleging that they were damaged by the defendants’ failure to seek a default judgment against the plaintiffs’ adversary in a lawsuit in which the defendants represented the plaintiffs. The trial court granted the defendants summary judgment. The Second Department reversed, explaining:

In order to prevail in an action to recover damages for legal malpractice, a plaintiff must establish that the defendant attorney failed to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession, and that the breach of this duty proximately caused the plaintiff to sustain actual and ascertainable damages. To establish causation, a plaintiff must show that he or she would have prevailed in the underlying action or would not have incurred any damages but for the attorney’s negligence. The defendants moving for summary judgment dismissing a legal malpractice claim against them have the burden of establishing, through the submission of proof in evidentiary form, that the plaintiff is unable to prove at least one of the essential elements of the cause of action.

. . .

The defendants failed to establish their prima facie entitlement to judgment as a matter of law dismissing the cause of action alleging legal malpractice. While the defendants argue that the plaintiffs could not have recovered on their action against Want & Ender because the plaintiffs were not in privity or near privity with Want & Ender, their submissions failed to eliminate all triable issues of fact with respect to this issue. In support of their motion, the defendants submitted, inter alia, the deposition testimony of the plaintiffs, who testified as to when and how they relied on the improperly prepared financial reports, and explained why they believed that the accountants knew or should have known that the plaintiffs would be relying on the prepared financial reports. Since the defendants failed to establish their prima facie entitlement to judgment as a matter of law dismissing the cause of action alleging legal malpractice, that branch of the defendants’ motion should have been denied, regardless of the sufficiency of the papers submitted in opposition.

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

Posted: March 26, 2015

Plaintiff Not Required to Plead its Standing to Make a Claim

On March 18, 2015, Justice Whelan of the Suffolk County Commercial Division issued a decision in HSBC Bank USA, NA v. Symons, 2015 NY Slip Op. 50339(U), discussing the requirement to plead standing in a mortgage foreclosure action.

In HSBC Bank, the plaintiff, which already had been granted judgment by default in a mortgage foreclosure action against the defendant, moved “for an order granting it leave to amend its complaint to add the allegation that the plaintiff or plaintiff’s agent was in possession of the note at the commencement of the action.” Plaintiff’s justification for the motion was that it wanted “in an abundance of caution to clarify the plaintiff’s compliance with pleading requirements” by specifically alleging that it owned the note and mortgage at the time it commended the action. The court denied the motion, explaining:

Contrary to the contentions of counsel, neither equity nor case law warrant the granting of this motion and there are no statutory or other pleading requirements mandating that the plaintiff allege that it or its agent is the owner of the note and mortgage at the time of the commencement of this action. For it is well established that entitlement to a judgment of foreclosure is established, as a matter of law, where the plaintiff produces both the mortgage and unpaid note, together with evidence of the mortgagor’s default. This standard is, however, enlarged to include a demonstration that the plaintiff is possessed of the requisite standing to pursue its claims where, and only where, the defense of standing is due and timely asserted by a defendant possessed of such defense.

The last stated rule is discernible from the general precept that the standing of a plaintiff is not an element of his or her claim. This is particularly evident in the mortgage foreclosure arena wherein recent appellate case authorities have repeatedly held that a lack of standing is merely an affirmative defense which must be timely raised by a defendant possessed of such defense or it is waived. . . . .

Recent appellate case authorities have repeatedly instructed that once a standing defense has been waived, it may not be resurrected by its assertion in opposition to a motion for summary judgment. Nor may it be used in support of an untimely motion to dismiss pursuant to CPLR 3211. Nor may a waived standing defense be asserted by a party in default in support of an application to vacate such default under CPLR 5015(a)(1).

(Internal quotations and citations omitted) (emphasis added). This decision shows the importance of timely pleading lack of standing as an affirmative defense if the facts warrant.

Posted: March 25, 2015

Stipulation of Settlement Not Enforceable if Not Properly Memorialized

On March 18, 2015, the Second Department issued a decision in De Well Container Shipping Corp. v. Mingwei Guo, 2015 NY Slip Op. 02090, reversing a trial court order enforcing a settlement that was not fully memorialized.

In De Well Container Shipping Corp., the parties entered into an agreement in principle to settle their disputes. The Second Department reversed a trial court order enforcing that agreement, explaining:

Absent the formalities required by statute, a stipulation of settlement is not enforceable. Pursuant to CPLR 2104, an agreement between parties or their attorneys relating to any matter in an action, other than one made between counsel in open court, is not binding upon a party unless it is in a writing subscribed by him or his attorney or reduced to the form of an order and entered. The stipulation must be definite and complete, and all material terms must be included.

In this case, the alleged written stipulation of settlement dated May 16, 2012, entitled “Agreement in Principle,” was not signed by all the parties to the litigation, and the agreement did not state that the two signatories to the agreement intended to bind all the parties to the agreement’s terms. Further, as a material term of the agreement at issue was contingent upon the parties’ executing a formal agreement, the agreement constituted a mere agreement to agree, which is unenforceable.

(Internal quotations and citations omitted) (emphasis added). Sometimes, we litigators make the same types of errors that business people make that create so much business for us. Until you meet the requirements for memorializing a settlement in CPLR 2104, there is no settlement.

Posted: March 24, 2015

Chief Administrative Judge Issues Report on Electronic Filing in New York

On March 16, 2015, Chief Administrative Judge Prudenti submitted a Report to the Legislature, the Governor and the Chief Judge of the State of New York on the Electronic Filing Program of the New York State Courts. The report discusses the current state of e-filing and plans for the future. It recommends–wisely, in our view–the continued expansion of e-filing in the state.

Posted: March 24, 2015

First Department Analyzes Strict Compliance Requirement for Letters of Credit

On March 19, 2015, the First Department issued a decision in Ladenburg Thalmann & Co, Inc. v. Signature Bank, 2015 NY Slip Op. 02224, enforcing a demand for payment on a letter of credit notwithstanding the drawing party’s inability to present an original copy of one of the amendments to the letter of credit.

In Ladenburg Thalmann & Co, the plaintiff brought an action against the defendant bank for refusing to honor a letter of credit because the plaintiff presented a “true copy” rather than an original of one of the six amendments to the letter.  The trial court enforced the letter of credit despite the plaintiff’s inability to provide the originals. The First Department affirmed, explaining:

New York commercial law requires strict compliance with the terms of a letter of credit. UCC 5-108(a) states that an issuer shall honor a presentation that appears on its face to strictly comply with the terms and conditions of the letter of credit.

. . .

[T]he production of a true copy of amendment 2, instead of an original, was sufficient even to satisfy the strict compliance standard.

Strict compliance has been said to require that the papers, documents and shipping directions be followed as stated in the letter of credit, that no substitution and no equivalent, through interpretation or logic, will serve, and that there is no room for documents which are almost the same, or which will do just as well. Even slight discrepancies in compliance with the terms of a letter of credit have been held to justify refusal to pay.

The strict compliance rule finds justification in the bank’s role in the transaction being ministerial and to require it to determine the substantiality of discrepancies would be inconsistent with its function. The reason for the strict compliance rule is to protect the issuer from having to know the commercial impact of a discrepancy in the documents.

However, as this Court has recently observed, According to the official UCC commentary, the strict compliance standard does not require that the documents presented by the beneficiary be exact in every detail. The doctrine of strict compliance does not mean slavish conformity to the terms of the letter of credit and does not demand oppressive perfectionism.

. . .

In the matter before us, there is no possibility that the presentation of a true copy of amendment 2, instead of the original, could mislead defendant to its detriment. Indeed, this copy had been prepared by defendant itself, and was provided to plaintiff by defendant’s own attorney. Its accuracy was not in dispute, and there is no dispute regarding the content of the document, which merely extended the expiration date of amendment 2 and which had since been superseded by subsequent amendments. Since the submission of a true copy of amendment 2 would not compel any inquiry by the bank into the underlying transaction, the rationale for the strict compliance rule, to protect the issuer from having to know the commercial impact of a discrepancy in the documents.

(Internal quotations and citations omitted). This decision seems right from a common sense point of view, but it does make the strict compliance rule a bit fuzzy, leaving the bank to determine whether compliance was “strict” enough.

Posted: March 23, 2015

Second Department Enforces Contract Term Shortening Statute of Limitations

On March 18, 2015, the Second Department issued a decision in State of Narrow Fabric, Inc. v. UNIFI, Inc., 2015 NY Slip Op. 02110, enforcing a contract term limiting the period in which to bring a claim relating to a sale of goods.

In State of Narrow Fabric, the trial court dismissed the plaintiff’s breach of contract claims on statute of limitations grounds based on a contract term giving the plaintiff only one year in which to bring a claim rather than the four years provided by the UCC. The Second Department affirmed, explaining:

While UCC 2-725(1) generally provides that a cause of action alleging breach of a sales contract must be commenced within four years after it has accrued, that provision also allows the parties to a sales contract to reduce the period of limitation to not less than one year. Here, the defendants met their initial burden by demonstrating that their invoices containing the one-year limitation period constituted an acceptance that, together with the plaintiff’s purchase order, was effective in forming a contract, and that the one-year limitation period, an additional term set forth in the invoices, was presumed to have become part of this contract between the parties unless one of the three exceptions in UCC 2-207(2) applied. It is undisputed that the plaintiff’s action was not commenced within one year from the alleged breach, as required by the additional term. . . . .

Contrary to the plaintiff’s contention, the abbreviated period of limitation was not against public policy. Absent proof that the contract is one of adhesion or the product of overreaching, or that the altered period is unreasonably short, the abbreviated period of limitation will be enforced. Where the party against which an abbreviated Statute of Limitations is sought to be enforced does not demonstrate duress, fraud, or misrepresentations in regard to its agreement to the shortened period, it is assumed that the term was voluntarily agreed to.

Here, the plaintiff failed to allege or demonstrate duress, fraud, or misrepresentations with respect to its agreement to the abbreviated period of limitations. Moreover, to the extent that the plaintiff relied on the doctrine of equitable estoppel, it did not allege any specific actions by the defendants that kept it from commencing this action within the contractual one-year period.

(Internal quotations and citations omitted).

Posted: March 22, 2015

Claim Not Barred by UCC’s Four-Year Statute of Limitations

On March 12, 2015, Justice Pines of the Suffolk County Commercial Division issued a decision in U.S. Nonwovens Corp. v. Pack Line Corp., 2015 NY Slip Op. 25078, discussing the statute of limitations for a claim governed by the UCC.

In U.S. Nonwovens Corp., the plaintiff brought an “action to recover damages for, among other things, breach of contract and breach of warranty.” The parties agreed that the plaintiff’s claims were governed by the United Nations Convention on Contracts for the International Sale of Goods (“CISG”). The defendant moved to dismiss on, among other grounds, the statute of limitations. The court denied the motion, explaining:

[B]ecause the CISG does not provide a statute of limitations, the four-year statute of limitations set forth in UCC 2-275 applies in this case. That section provides, in relevant part:

(1) An action for breach of any contract for sale must be commenced within four years after the cause of action has accrued.

***

(2) A cause of action accrues when the breach occurs, regardless of the aggrieved party’s lack of knowledge of the breach. A breach of warranty occurs when tender of delivery is made, except that where a warranty explicitly extends to future performance of the goods and discovery of the breach must await the time of such performance the cause of action accrues when the breach is or should have been discovered.

Plaintiff claims that the breach of contract cause of action against Nuspark accrued in August 2010 when, as alleged in the Verified Complaint, the installation, integration and testing of the Auto Tubber machine was complete. Nuspark claims that Plaintiff’s claims accrued in December 2009 upon delivery of the Auto Tubber. However, Nuspark’s agreement with Plaintiff clearly and unequivocally obligated Nuspark to perform the installation and commissioning of the integrated machine. As such, the Plaintiff’s causes of action accrued when installation of the unit was complete. Accepting Plaintiff’s allegation that installation was not completed until August 2010 as true, as the Court must do, Nuspark has not met its burden of demonstrating that the time within which to commence the action expired before the action was commenced in May 2014. Although Nuspark may ultimately prevail on this defense, it has not demonstrated entitlement to dismissal under CPLR 3211(a)(5) on this pre-answer motion.

(Internal quotations and citations omitted).

Posted: March 21, 2015

First Department Analyzes Rules for Interpreting Letters of Credit

On March 17, 2015, the First Department issued a decision in BasicNet S.p.A. v. CFP Servs. Ltd., 2015 NY Slip Op. 02080, discussing the rules governing the interpretation of letters of credit.

In BasicNet, the plaintiffs brought an action against a bank that issued two letters of credit to which the plaintiffs were beneficiaries. The trial court denied the plaintiffs’ motion for summary judgment on their breach of contract claims. The First Department reversed, explaining:

Under New York law, in order to recover on its claim that the issuer wrongfully refused to honor its request to draw down on a letter of credit, the beneficiary must prove that it strictly complied with the terms of the letter of credit. The corollary to the rule of strict compliance is that the requirements in letters of credit must be explicit, and that all ambiguities are construed against the issuer. The reasoning is that since the beneficiary must comply strictly with the requirements of the letter, it must know precisely and unequivocally what those requirements are. Where a letter of credit is fairly susceptible of two constructions, one of which makes fair, customary and one which prudent men would naturally enter into, while the other makes it inequitable, the former interpretation must be preferred to the latter, and a construction rendering the contract possible of performance will be preferred to one which renders its performance impossible or meaningless.

(Emphasis added). The First Department went on to hold that one of the conditions that had served as the defendant bank’s reasons for refusing payment was ambiguous and construed that ambiguity against it. Moreover, the First Department held, the defendant’s “interpretation of” the condition would

impermissibly conflict with the Independence Principle, which is the foundation on which all letters of credit are built.

There are three parties to a [letter of credit], the applicant who requests the [letter of credit]; the beneficiary to whom payment is due upon the presentation of the documents required by the [letter of credit]; and the issuer which obligates itself to honor the [letter of credit] and make payment when presented with the documents the [letter of credit] requires. In turn, there are three corresponding agreements: the agreement between the applicant and the beneficiary, which creates the basis for the [letter of credit]; the agreement between the issuer and the applicant; and the [letter of credit] itself.

A fundamental principle governing these transactions is the doctrine of independent contracts, which provides that the issuing bank’s obligation to honor drafts drawn on a letter of credit by the beneficiary is separate and independent from any obligation of its customer to the beneficiary under the contract and separate as well from any obligation of the issuer to its customer under their agreement.

From the beneficiary’s perspective, the independence principle makes a letter of credit superior to a normal surety bond or guaranty because the issuer is primarily liable and is precluded from asserting defenses that an ordinary guarantor could assert. Indeed, a letter of credit would lose its commercial vitality if before honoring drafts the issuer could look beyond the terms of the credit to the underlying contractual controversy or performance between its customer and the beneficiary.

. . .

As interpreted by [the defendant], [the disputed condition] would conflict with the independence principle, as incorporated into both ISP 98 and UCC, and would make [the defendant’s] obligations under the [letters of credit] truly illusory. Rather than performing a ministerial function of determining whether the documents submitted by plaintiffs complied with the requirements of the [letters of credit], under [the defendant’s] interpretation[, it] has the unfettered discretion to decide whether or not it will pay on the [letters] based on its unilateral determination that plaintiffs did or did not fulfill their undefined commitment to [the defendant’s customer].

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