Commercial Division Blog

Current Developments in the Commercial Divisions of the
New York State Courts
Posted: August 31, 2014

Contract That Has Consideration When Entered Into Does Not Fail for Lack of Consideration if Circumstances Change

On August 20, 2014, Justice Ramos of the New York County Commercial Division issued a decision in Trilegiant Corp. v. Orbitz, LLC, 2014 NY Slip Op. 24230, declining to dismiss a breach of contract claim for lack of consideration.

In Trilegiant Corp., the plaintiff in a dispute over a services contract moved for summary judgment on three of the defendant’s affirmative defenses. This post focuses on the court’s decision on the defense of lack of consideration:

[The defendant] has raised the affirmative defense of lack of consideration. [It] contends that there had to be consideration for each quarterly termination payment and that [the plaintiff’s] continued use of DataPass is necessary to its claim against [the defendant]. [The defendant] argues that the consideration for the termination payments was supposed to be [the plaintiff’s] forfeit of potential earnings, earnings that [the plaintiff] cannot forfeit if it is not in the business of DataPass.

The law does not support [the defendant’s] argument. It is well settled that an agreement should be interpreted as of the date of its making and not as of the date of its breach. Additionally, if there is consideration for the entire agreement that is sufficient; the consideration supports every other obligation in the agreement. A single promise may be bargained for and given as the agreed equivalent of one promise or of two promises or of many promises. The consideration is not rendered invalid by the fact that it is exchanged for more than one promise.

Considerations of public policy also support this conclusion, because a promisor should not be permitted to renege on a promise either because that specific promise lacks textually designated consideration or because the promisor wants to avoid performance of multiple obligations when the promisee has already performed and has no further obligations concurrent with the promisor’s performance.

While [the defendant] contends that [the plaintiff] has been unable to forfeit earnings from new DataPass customers since it ceased the practice in January 2010, that fact has no bearing on whether there was consideration for the termination payment provision in the MSA. The termination payments were part of the original MSA, and [the plaintiff] is correct when it asserts that the existence of consideration for the MSA itself, whether consisting of either a benefit to the promisor or a detriment to the promisee, is not a disputed material fact in this case.

Additionally, courts do not look to the adequacy of consideration provided that there was consideration, absent fraud or unconscionability. There are no allegations that the MSA was fraudulently agreed upon or that it is unconscionable.

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

Posted: August 30, 2014

Sophisticated Party Cannot Use Lack of Time as Excuse for Failure to Exercise Due Diligence

On August 6, 2014, Justice Sherwood of the New York County Commercial Division issued a decision in Remediation Capital Funding LLC v. Noto, 2014 NY Slip Op. 32157(U), dismissing a fraud claim for failure to show due diligence.

In Remediation Capital Funding , the plaintiffs asserted claims of fraud and fraudulent conveyance in connection with a failed real estate transaction. One of the defendants moved to dismiss. The court granted the motion, holding, among other things, that the plaintiff had failed to show that its reliance on the misrepresentations it alleged was justifiable because it failed to exercise due diligence, explaining:

To make a prima facie claim of fraud, the complaint must allege misrepresentation or concealment of a material fact, falsity, scienter on the part of the wrongdoer, justifiable reliance and resulting injury. Reliance must be found to be justifiable under all the circumstances before a complaint can be found to state a cause of action in fraud.

The essence of the fraud claim is based on the assertion that defendants misrepresented the value of the Properties upon which [the plaintiff] had made the Loan. [The plaintiff] emphasizes that it did not perform any due diligence of its own in assessing the Properties’ value, because [the plaintiff] lacked sufficient time to obtain its own appraisal. This assertion is unavailing as a basis for a finding of justifiable reliance for a sophisticated party . . . .

[The plaintiff] does not dispute the assertion that it had the means to discover the actual value of the Properties by conducling its own appraisal. That it chose not to so because it wanted to participate in a rushed transaction indicates that it willingly assumed the business risk that the facts may not be as represented. [The plaintiff] has not shown, or even alleged, that it was unable to obtain its own appraisal of the value of the Property so as to adhere to its strategy of maintaining a 50% loan-to-value to ensure an equity cushion that would protect it from market downturns. As stated by the Court of Appeals:

If the facts represented are not matters peculiarly within the party’s knowledge, and the other party has the means available to him of knowing by the exercise of ordinary intelligence the truth or the real quality of the subject of the representation, he must make use of those means, or he will not be heard to complain that he was induced to enter into the transaction by misrepresentations.

On the face of the complaint [the plaintiff’s] reliance on the alleged misrepresentations by [the moving defendant] was unreasonable as a matter of law. As such, [the plaintiff] has failed to establish reasonable reliance.

. . . Here, . . . the valuation of the Property was not something that was within the particular knowledge of Noto and the other defendants. Nevertheless, [the plaintiff] chose to rely on defendant’s rendition of the value of the Property.

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

Posted: August 29, 2014

Defamation Claim Dismissed Where Statements Were Protected By “Fair Reporting” Privilege

On August 28, 2014, Justice Kornreich of the New York County Commercial Division issued a decision in GEM Holdco, LLC v. Changing World Technologies, L.P., Index No. 650941/2013, ruling that a defamation claim arising from a press release explaining a party’s defenses and anticipated counterclaims in a pending lawsuit was barred by New York’s absolute “fair reporting” privilege.

In GEM Holdco, a lawsuit arising from an investment in a renewable fuel company, the plaintiff issued a press release announcing the filing of an amended complaint. Two hours later, one of the defendants issued its own press release that, in substance, outlined its defenses and anticipated counterclaims in the lawsuit. The plaintiff claimed that the statements in the defendant’s press release were defamatory and amended its complaint again to add a cause of action for defamation. Justice Kornreich dismissed the claim, ruling that the statements in the defendant’s press release were protected by the “fair reporting” privilege set forth in Section 74 of the New York Human Rights Law and could not be the subject of a defamation claim:

It is well settled that public policy mandates that certain communications, although defamatory, cannot serve as the basis for the imposition of liability in a defamation action. When compelling public policy requires that the speaker be immune from suit, the law affords an absolute privilege. The absolute privilege applies to statements uttered in the course of a judicial or quasi-judicial proceeding . . . so long as they are material and pertinent to the questions involved notwithstanding the motive with which they are made. Moreover, the absolute privilege attaches not only to the hearing stage, but to every step of the proceeding in question even if it is preliminary and/or investigatory and irrespective of whether formal charges are ever presented. Whether a statement is at all pertinent to the litigation is determined by an extremely liberal test. A statement made in the course of judicial proceedings is privileged if, by any view or under any circumstances, it may be considered pertinent to the litigation. Additionally, the pertinence of a statement made in the course of judicial proceedings is a question of law for the court, and, in answering that question, any doubts are to be resolved in favor of pertinence.

Plaintiffs, however, argue that the common law absolute ligation privilege does not apply to Ridgeline’s press release because such privilege is inapplicable to out-of-court statements made about a lawsuit. While this is true, section 74 of the New York Civil Rights Law provides for a separate “fair reporting” privilege that covers out-of-court accounts of litigation, such as Ridgeline’s press release.

Ridgeline’s press release, which was issued to indicate its intended course of action with respect to plaintiffs’ first amended complaint discussed in GEM’s press release (issued two hours beforehand), does not make any actual untrue statements of fact. Rather, Ridgeline’s press release outlines its defenses and its intention to assert counterclaims. See Dkt. 166 at 6 (“Ridgeline will pursue civil charges including Fraud, Tortious Interference, and additional claims under the Racketeering in Organized Crime Act . . . and Ridgeline will also show that GEM attempted to extort cash payments from Ridgeline”) (emphasis added). These are inactionable expressions of future intent. That such defenses include allegations of plaintiffs’ fraud does not inherently make the press release actionable. Proving the claims’ underlying merit (or lack thereof) is the very point of this lawsuit. That Ridgeline’s press release may be false does not matter because Ridgeline’s recitation of its accusations is a substantially accurate account of its position in this litigation. Such account is protected by the fair reporting privilege. The fair reporting privilege is not vitiated by the claim that the described allegations have no merit so long as the described allegations actually reflect the defendant’s position in the lawsuit.

(Citations omitted) (emphasis added).

[NOTE: Schlam Stone & Dolan represented the moving defendants in this case]

Posted: August 28, 2014

Acquirer Not Liable for Tortious Interference With Contract of Company it Acquired

On August 4, 2014, Justice Schweitzer of the New York County Commercial Division issued a decision in American Water Enterprises Inc. v. Tectura Corp., 2014 NY Slip Op. 32182(U), dismissing a claim for tortious interference with contract.

In American Water Enterprises, the plaintiff asserted a claim for tortious interference with contract against a defendant that was in the process of acquiring Tectura, a company that had a contract with the plaintiff. The court granted the defendant’s motion to dismiss the claim, explaining:

To state a claim for tortious interference with contract, plaintiff must allege (1) existence of a contract between plaintiff and a third party, (2) defendant’s knowledge of the contract, (3) defendant’s intentional inducement of the third party to breach or otherwise render performance impossible, and (4) damages to plaintiff.

[The plaintiff] fails to sufficiently plead the third element, that [the defendant] intentionally interfered with  Tectura’s performance of the contract. [The plaintiff] relies on a statement by one of Tectura’s employees that Tectura’s employees had been told to stop working on the Project due to the Acquisition by [the defendant]. [The plaintiff] asserts elsewhere, however, that [it] has no way of knowing who gave those instructions to Tectura’s employees. These instructions, without allegations that [the defendant] told Tectura employees to stop working, does not state a claim for tortious interference with contract. A company’s decision not to acquire certain assets during an acquisition, particularly the decision not to accept assignment of a contract that is already in default, cannot itself be considered tortious interference with a contract.

Even if this court found otherwise, that [the plaintiff] sufficiently pleaded tortious interference by demonstrating that [the defendant] had affirmatively instructed Tectura employees to cease work, the defendant’s motion to dismiss would be granted because [it] put forth a valid economic interest defense. . . .  It is well settled that a corporation that acquires another corporation and then causes one of the acquired corporation’s contracts to be terminated, is not liable for interference with that contract, because it had an economic justification for its actions. While the facts here present a case of first impression, in that [the defendant’s] acquisition of Tectura was not yet finalized when the alleged interference occurred, the law in cases where the interference occurred after a merger closed is equally applicable here. [The defendant] was in the process of acquiring Tectura’s assets and had an existing economic interest in the affairs of Tectura, which it was privileged to attempt to protect. It is immaterial that the acquisition was not finalized when the alleged interference occurred. Even if [the defendant] interfered with the contract between [the plaintiff] and Tectura, although this court finds that it did not, it had an economic justification for doing so.

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

Posted: August 27, 2014

Defendant Can Be Held Liable Statements in Preliminary Offering Materials it Later Disclaimed

On August 5, 2014, Justice Schweitzer of the New York County Commercial Division issued a decision in NRAM PLC v. Societe Generale Corp., 2014 NY Slip Op. 32155(U), holding that the plaintiff had stated a claim for fraud based on statements the defendant later had disclaimed. 

In NRAM PLC, the plaintiff brought “causes of action for fraud, breach of contract, and unjust enrichment in relation to a collateralized debt obligation” against several defendants. One defendant–Societe Generale Corporate and Investment Banking (SGCIB)–moved to dismiss. Among the issues the court addressed in denying SGCIB’s motion were its arguments that it was not liable for the misrepresentations alleged in the Complaint. The court rejected those arguments, explaining:

SGCIB contends that Northern Rock is pointing to alleged misrepresentations in the Pitchbook, and that both the Pitchbook and OC say the offering is being made only through the OC, and that material not contained in the OC may not be relied upon. It is certainly the case in complex financings that there are frequently preliminary and final offering documents that contain such language of limitation. Customarily, large portions of the preliminary document are not excised from the final. Fine tuning and completion is the purpose of the exercise. Not so here, where significant portions of the Pitchbook do not appear in the OC. Much of this material is said to contain misrepresentations made as part of a fraudulent marketing scheme.

The court knows of no precedent for allowing an offerer of securities to use such a mechanic to amble away from liability for key misrepresentations used to induce investors to urchase securities. Disclaimers are recognized in New York in limited situations, if specifically tailored to alert investors to known risks. Abandonment in plain view of essential pieces of a fraudulent marketing plan is a different animal. If tolerated, malefactors would rush to own one. Markets would be negatively impacted, and the cost of capital inefficiently increased. SGCIB’s position is unavailing.

SGCIB contends that the language of the OC shields it from liability because the OC attributes its contents to the Co-Issuers, legal entities just formed to hold the collateral and issue the Notes. Liability for misrepresentations is said to be quarantined to these corporate entities.
Regarding a similar provision, the court in Allstate Ins. Co. v Morgan Stanley & Co., 2013 NY Slip Op 31130(0), said that defendants may be liable for drafting and distributing statements they knew to be false, regardless of who they credit as the source of the information.

The group pleading doctrine supports Northern Rock’s position of SGCIB’s liability. The doctrine allows plaintiffs to rely on a presumption that statements in prospectuses, registration statements or other group-published information are the collective work of those individuals with direct involvement in the everyday business of the company. Under the doctrine, defendants are responsible for the documents they prepare and distribute because no specific connection between fraudulent representations in an offering memorandum and particular defendants is necessary where defendants are insiders or affiliates participating in the offer of the securities in question.

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

Posted: August 26, 2014

Court Grants Summary Judgment Even Though Defendants Sought More Discovery

On August 15, 2014, Justice Whelan of the Suffolk County Commercial Division issued a decision in Flax v. Shirian, 2014 NY Slip Op. 51229(U), rejecting a request to defer decision on a motion for summary judgment pending further discovery.

In Flax, the plaintiffs sought partial summary judgment on their claims in a business divorce action. Among the grounds advanced by the defendants in opposition to the motion was that the “motion [wa]s premature due to the absence of discovery.” The court rejected that argument, explaining:

CPLR 3212(f) permits a party opposing summary judgment to obtain affidavits or discovery when it appears that facts supporting the position of the opposing party exist but cannot be stated. The rule provides that should it appear from affidavits submitted in opposition to the motion that facts essential to justify opposition may exist but cannot then be stated, the court may deny the motion or may order a continuance to permit affidavits to be obtained or disclosure to be had and may make such other order as may be just. A resort to the rule may be successful where the opposing party has not had a reasonable opportunity for disclosure prior to the making of the motion.

Nevertheless, appellate case authorities have long instructed that to avail oneself of the safe harbor this rule affords, the claimant must offer an evidentiary basis to show upon an evidentiary basis, that discovery may lead to relevant evidence or that the facts essential to justify opposition to the motion were exclusively within the knowledge and control of the plaintiff. In addition, the movant must show that his or her ignorance was unavoidable and that reasonable attempts were made to discover the facts which would give rise to a triable issue of fact, as the mere hope or speculation that evidence sufficient to defeat a motion for summary judgment may be uncovered by further discovery is an insufficient basis for denying the motion.

Here, the defendants failed to meet this standard. Their submissions failed to include affidavits or some other evidentiary basis indicating that discovery might lead to relevant evidence. Nor was it established that facts essential to justify opposition were exclusively in the knowledge of the plaintiffs as the defendants’ familiarity with the terms of the Operating Agreement and their knowledge and participation in the events, occurrences and transactions that form the basis of the plaintiff’s claim of dissolution that is premised upon the failure of unanimous consent provision of such agreement belie such a claim warrant the rejection of any claim of prematurity in the plaintiffs’ motion. Moreover, the absence of any claim of non-[*10]compliance with court ordered discovery coupled with defendants’ failure to move for compliance with their outstanding discovery demands or for any of the other remedies afforded by CPLR Article 31 prior to the interposition of this motion, militate against a finding that the defendants were denied a reasonable opportunity to engage in pre-motion discovery that would lead to the discovery of relevant evidence.

(Internal quotations and citations omitted) (emphasis added). Another way to couch the basis for decision here is to say that court’s are most usually guided by practical realities, and if you cannot show the court why sometihng–like additional discovery–matters, it is unlikely that the court will be swayed by the formalistic argument that it has not occurred.

Posted: August 25, 2014

New York Choice of Law Clause Not Sufficient To Invoke New York Rule Against Punitive Damages Awards In Arbitration

On August 14, 2014, the First Department issued a decision in In re Flintlock Construction Services, LLC v. Weiss, NY Slip Op 05818, ruling (by a 3-2 vote) that a choice of law provision providing that the parties’ agreement was to be “construed and enforced” in accordance with the law of New York was not sufficient to invoke New York’s public policy against the imposition of punitive damages in a private arbitration, and therefore, the issue of punitive damages could be submitted to the arbitrators.

In In re Flintlock, investors in a real estate project commenced an arbitration against real estate development companies and their principals, alleging fraud and breach of contract, and seeking punitive damages. The transactions at issue were governed by two LLC operating agreements, which contained identical choice of law clauses, providing that the agreements “shall be construed and enforced in accordance with the laws of the State of New York.” The defendants moved before the arbitration panel to dismiss the punitive damages claim on the ground that such a claim was not arbitrable under New York law. Specifically, the Court of Appeals held, in Garrity v. Lyle Stuart, Inc., 40 N.Y.2d 354, 356 (1976), that under New York law, arbitrators “ha[ve] no power to award punitive damages, even if agreed upon by the parties.” By contrast, under the Federal Arbitration Act (which applies to any claim concerning a “transaction involving interstate commerce”), punitive damages are available if the parties’ agreement so provides. See Mastrobuono v. Shearson Lehman Hutton, 514 U.S. 52, 58 (1995) (where parties “agree to include claims for punitive damages within the issues to be arbitrated, the FAA ensures that their agreement will be enforced according to its terms even if a rule of state law would otherwise exclude such claims from arbitration”). The panel denied the motion to dismiss “without prejudice to renewal at the hearing, based on a more complete record as to whether the claim affected interstate commerce, and thus, mandated application of the [FAA].” The defendants then commenced a special proceeding in New York Supreme Court to permanently enjoin the arbitration, under CPLR 7503(b), on the grounds that the arbitrators had exceeded their authority, and lacked the power to award punitive damages. The motion court denied the motion, holding that the movants had “charted their own course” by “actively litigat[ing]” before the arbitration panel, and waived any argument as the arbitrability of punitive damages claims.

The First Department, in a decision by Justice Manzanet-Daniels (and joined by Justices Acosta and Saxe), affirmed. The majority rejected the argument that the New York choice of law provision in the contracts mandated application of the Garrity rule barring punitive damages claims in arbitration:

Merely stating, without further elaboration, that an agreement is to be construed and enforced in accordance with the law of New York does not suffice to invoke the Garrity rule. The Supreme Court has made clear that in order to remove the issue of punitive damages from the arbitrators, the agreement must “unequivocal[ly] exclu[de]” the claim (id. at 60). The agreement in this case, which provided only that it was to be “construed and enforced” in accordance with the law of New York, did not unequivocally exclude claims for punitive damages from the consideration of the arbitrators. . . . A New York choice-of-law provision does not constitute a manifestation of unequivocal intent sufficient to invoke the Garrity rule.

(Citations omitted) (emphasis added).

The majority went on to hold that the defendants had waived their right to seeks a stay of the arbitration by their active participation in the arbitration:

Petitioners’ motion to stay the arbitration should be denied for the further reason that they have participated in the arbitration, precluding late resort to CPLR 7503(b). CPLR 7503(b) authorizes motions to stay arbitration by parties “who ha[ve] not participated in the arbitration.” Petitioners participated in the arbitration process for nearly eight months — selecting arbitrators, participating in preliminary proceedings — before registering an objection to the arbitrability of respondent’s claim for punitive damages. Even then, petitioners chose not to move to stay the arbitration, but to make a motion to dismiss the claim, squarely placing the issue of the arbitrability and availability of punitive damages before the arbitrators. Having “charted their own course,” in the words of the motion court, they cannot now avail themselves of the mechanisms set forth in CPLR 7503(b).

Justice Renwick wrote a dissenting opinion, which was joined by Justice Andrias. The dissenters argued that the Supreme Court’s decision in Mastrobuono, on which the majority relied, was distinguishable because the choice of law provision at issue in that case provided only that the agreement would be “governed” by New York law, which the Court interpreted as requiring the application of the “substantive principles that New York courts would apply, but not . . . special rules limiting the authority of the arbitrators” (i.e., the rule precluding the award of punitive damages). The choice of law provision in In re Flintlock, calling for the agreement to be “construed and enforced” in accordance with New York law, had been construed by the New York Court of Appeals, in Matter of Diamond Waterproofing Sys., Inc. v. 55 Liberty Corp., 4 N.Y.3d 247, 252 (2005), to mandate application of New York’s law requiring statute of limitations issues to be resolved by the Court, not the arbitrators. The dissent held that, under Diamond, the choice of law clause at issue in In re Flintlock required application of the Garrity rule precluding arbitrators from awarding punitive damages:

Diamond and its progeny make clear that, even if the FAA applies to an agreement, the parties may still limit the arbitrator’s power by invoking New York law. To do so, however, the parties must not only make the agreement subject to New York law, but must also make its “enforcement” subject to New York law. By using such language, the parties “unequivocally” invoke the limitations on arbitration under New York State law.

The majority, however, finds it significant that the language at issue here, that “an agreement is to be construed and enforced’ in accordance with New York law, has [never] been held to displace Mastrobuono.” The majority finds that Diamond is not controlling here because it “involved application of the statute of limitations and does not speak to the issue sub judice.” The majority’s refusal to acknowledge that Diamond is controlling here appears to be based upon a fundamental difference in its approach to distinguishing between substantive and procedural law. The procedural law establishes whether the arbitrators have the power to address punitive damages claims, while the substantive law establishes whether certain circumstances are proper for granting such remedy.

For example, in an international commercial arbitration case with the situs of New York and with a general choice-of-law clause providing for New York law, New York law would be the substantive law for the dispute, and the FAA would be the procedural law governing the arbitration. New York’s procedural rule would not be the proper procedural law for the aforementioned scenario, absent the critical language limiting the power of the arbitrator. Thus, the Garrity rule prohibiting arbitrators from awarding punitive damages would not be part of the procedural rule governing this international arbitration. In this hypothetical, the arbitrator would have the power to award punitive damages. As New York law is the substantive law for the case, however, New York law would be applied by the arbitrator to determine whether punitive damages are warranted.

The dissent also rejected the argument that the defendants had waived the right to seek a stay by participating in the arbitration:

[T]he majority finds that the motion to stay arbitration of punitive damages should be denied because petitioners “have participated in the arbitration, precluding late resort to CPLR 7503(b).” I disagree. The grant of a permanent stay of respondent’s claim for punitive damages would not interfere with the ongoing arbitration proceeding. Moreover, a waiver is akin to an implicit agreement. Indeed, there can be no implicit agreement to submit punitive damages to an arbitrator where the parties’ “unequivocal choice-of-law provision” is intended to incorporate the Garrity rule.

In re Flintlock is the second significant decision from the First Department this month on arbitrability and waiver issues in the arbitration context. We previously blogged about the Court’s August 7 decision in Cusiamo v. Schnurr, which reaffirmed the broad application of the FAA even to intrastate activities that “affect” interstate commerce. Both decisions demonstrate the New York Court’s implementation of the strong pro-arbitration policy of the FAA, even when that policy conflicts with New York law. The contrasting standards in the two decisions for waiver of the right to arbitrate vs. waiver of the right to move for stay of arbitration illustrate the point: In Cusiamo, the First Department held that the plaintiff had not waived the right to arbitrate, despite filing a lawsuit in New York state court, and only commencing the arbitration when the complaint was dismissed with leave to replead; in In re Flintlock, by contrast, the Court found that participation in preliminary proceedings in the arbitration effected a waiver of the right to move for a stay of the arbitration.

We can expect further litigation in In re Flintlock, since the appellants have an appeal as of right to the Court of Appeals, given the 2-justice dissent in the Appellate Division.

Posted: August 24, 2014

Court Refuses to Vacate Default Judgment Where Defendant Provides no Reasonable Excuse for his Failure to Answer

On August 5, 2014, Justice Whelan of the Suffolk County Commercial Division issued a decision in Wells Fargo Bank, N.A. v. Pasciuta, 2014 NY Slip Op. 32113(U), granting a default judgment.

In Wells Fargo Bank, the plaintiff moved for default judgment against the defendant and the defendant cross-moved to vacate the default and answer. Notwithstanding the liberality shown by courts to defaulting defendants, the court granted the motion for default judgment, explaining:

A defendant who has failed to appear or answer the complaint must generally provide a reasonable excuse for the default and demonstrate a potentially meritorious defense to the action to avoid the entering of a default judgment or to extend the time to answer. Absent a valid jurisdictional or abandonment defense, a party in default may not appear in the action and contest the plaintiffs right to relief unless the defaulter can establish grounds for the vacatur of his or her default.

The cross motion of defendant Pasciuta rests principally on the grounds to vacate defaults and extend times which appellate case authorities have engrafted in CPLR 317, 3012(d), 2004 and 2005. A defendant moving under CPLR 317 must establish that he or she did not personally receive noticeof the summons in time to defend and that he or she possesses a meritorious defense to the claim of the plaintiff. No demonstration of a reasonable excuse is necessary under CPLR 317, since the statute itself provides for same, namely, non-receipt of personal notice of the summons in time to defend. However, an affidavit of merit by the moving defendant or a proposed answer, verified by such defendant containing the assertion of facts which potentially constitute at least one bona fide defense must be attached to motion papers, in which, relief under this statutes is demanded.

Here, there has been no showing that defendant Pasciuta failed to receive notice of the action in time to defend as the record is replete with evidence otherwise. In any event, the absence of any denial of receipt of the mailings of the summons and complaint to the correct address as attested to in the affidavit of the plaintiffs process server are fatal to the defendant’s claim for relief under CPLR 317. His conclusory claims that he only learned of this action in January of 2013 when he first spoke with his current counsel and that he was never personally served with [the plaintiff’s] foreclosure complaint are insufficient to establish that he did not receive notice of the summons and complaint in time to defend. Such claims are also insufficient to raise a successful jurisdictional defense of the type contemplated by CPLR 3211(a)(8). . . .

Motions for relief pursuant to CPLR 3012(d) are governed by a different standard than those made under CPLR 317, although the requirement of a showing of a meritorious defense remains. A defendant who has failed to timely appear or answer the complaint must provide a reasonable excuse for the default and demonstrate a meritorious defense to the action when moving to extend the time to answer or to compel the acceptance of an untimely answer. The determination of that which constitutes a reasonable excuse lies within the discretion of the Supreme Court. Where the delay in moving to vacate is lengthy, the moving party must offer a reasonable explanation for such delay as well as one for the initial default.

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

The court went on to hold, based on the facts presented by the defendant, that there was not a reasonable explanation for the delay. Moreover, the court in addition found that the defendant “failed to demonstrate his possession of a bona fide defense to the plaintiffs claims for foreclosure and sale.”

Posted: August 23, 2014

Statute of Limitations Applicable to Fraud and Breach of Fiduciary Duty Claims Can Vary Based on Nature of Claim and Relief Sought

On August 4, 2014, Justice Sherwood of the New York County Commercial Division issued a decision in Blumenstyk v. Singer, 2014 NY Slip Op. 32124(U), illustrating the analysis used to determine the statute of limitations applicable to claims of breach of fiduciary duty and fraud.

In Blumenstyk, the plaintiffs brought twenty-four causes action against the defendants. Ultimately, most were dismissed. This post looks at the question of the statute of limitations applicable to the plaintiffs’ breach of fiduciary duty and fraud claims. The court reviewed the analysis used to determine the statute of limitations applicable to such claims:

New York applies different statutes of limitations for claims alleging breach of fiduciary duty, depending on the remedy sought. For equitable relief, the six-year limitations period in CPLR 213(1) applies. However, when the plaintiff seeks only money damages, courts interpret the claims as alleging injury to property and subject to the three year limitations period set forth in CPLR 214(4). Claims for breach of fiduciary duty accrue, and the statute of limitations begins to run, as of the date of the alleged breach, not when it was discovered. Generally, the three year statute of limitations to recover damages for injury to property (see CPLR 214[4]) accrues when the injury occurs, irrespective of when the damage was actually discovered.

The statute of limitations may be tolled while a relationship of trust and confidence exists between the parties. In such cases, the statutory period does not begin to run until the fiduciary relationship is repudiated or otherwise ended.

. . .

CPLR 213(8) provides that, as to claims of fraud, there is either a six year statute of limitations running from the time the cause of action accrued, or a two year period from the time the plaintiff discovered the fraud, or could with reasonable diligence have discovered it. However, courts will not apply the fraud Statute of Limitations if the fraud allegation is only incidental to the claim asserted; otherwise, fraud would be used as a means to litigate stale claims. Thus, where an allegation of fraud is not essential to the cause of action pleaded except as an answer to
an anticipated defense of Statute of Limitations, courts look for the reality, and the essence of the action and not its mere name.

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

Posted: August 22, 2014

Exchange of E-mails Did Not Create Binding Settlement Agreement

On August 6, 2014, Justice Schmidt of the Kings County Commercial Division issued a decision in Rubin v. Deckelbaum, 2014 NY Slip Op. 32150(U), declining to find that an exchange of e-mails had created a binding settlement agreement.

In Rubin, the defendant moved for judgment dismissing the complaint based on an out-of-court settlement agreement that the parties and their counsel had negotiated by e-mail but not reduced to a single writing. The court denied the motion, explaining:

CPLR 2104 provides, in relevant part, that an out-of-court agreement between parties or their attorneys relating to any matter in an action is not binding upon a party unless it is in a writing subscribed by him or his attorney. Three pertinent principles are deducible from the decisions applying CPLR 2104. First, for an enforceable agreement to exist, all material terms must be set forth and there must be a manifestation of mutual assent. Second, if the parties to an agreement do not intend it to be binding upon them until it is reduced to writing and signed by both of them, they are not bound and may not be held liable until it has been written out and signed. Third, the attendant circumstances, the situation of the parties, and the objectives they were striving to attain must be considered to determine whether the parties’ words and deeds establish their intent to enter into a binding agreement.

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

The court found that (1) the e-mails were ambiguous as to the nature of the agreement; (2) when negotiating the written settlement agreement, which the parties never signed, the parties reserved their rights to change the terms until it was finalized; and (3) after the parties exchanged drafts of the settlement agreement, they asked for the court’s help in finalizing it, representing that the agreement had not yet been finalized. Based on those findings, the court held that there was no binding settlement agreement.

The court concluded its analysis with this quote: “For the present, email should only be used with care, and not for stipulations on anything really important.”