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Commercial Division Blog

Current Developments in the Commercial Divisions of the
New York State Courts
Posted: June 30, 2014

Plaintiff may Waive Statutory Damages and Bring a Class Action Despite CPLR § 901(b)

On June 30, 2014, Justice Scarpulla of the New York County Commercial Division issued a decision in Pires v. Bowery Presents, LLC, 2014 NY Slip Op. 24174, denying a motion to dismiss a proposed class action.

The plaintiff and proposed class representative alleged that she had purchased a ticket to attend a play, but that the seller, Bowery, never issued her a paper ticket and prevented her from transferring her ticket to a friend by only “admit[ing] people to the event by checking their identification cards at the door against a list of people who originally purchased tickets.” Plaintiff alleged that this admissions policy violated section 25.30(1)(c) of the New York Arts & Cultural Affairs Law, which prohibits “any operator of a place of entertainment, or its agent, from employing a paperless ticketing system ‘unless the consumer is given the option to purchase paperless tickets that the consumer can transfer at any price, and at any time, and without additional fees, independent of the operator or operator’s agent.’ A consumer injured by a violation . . . ‘may bring an action in his or her own name to enjoin such unlawful act, an action to recover his or her actual damages or fifty dollars, whichever is greater, or both such actions’ and may also be awarded reasonable attorney fees.”

Defendant objected that Plaintiff was ineligible to bring a class action for violations of the ACAL because CPLR § 901(b) prohibits class actions based upon any statute that “creates or imposes a penalty or minimum level of recovery, unless the statute specifically authorizes such recovery in a class action.”

Plaintiff responded by arguing that, because she had waived her claim for statutory damages, her case was outside the coverage of CPLR § 901(b).

The court agreed, following Cox v. Microsoft Corp., 8 A.D.3d 39, 40 (1st Dept. 2004), where the First Department held that a plaintiff who waived statutory damages in a GBL § 349 case could bring a class action because CPLR § 901(b) no longer applied. The court rejected Defendant’s argument that the statutory language allowing plaintiffs to “recover his or her actual damages or fifty dollars, whichever is greater,” made recovery of the statutory damages mandatory in any case where the $50 was greater than the actual damages, holding that this argument was foreclosed by Cox.

This case shows plaintiffs’ attorneys that a class action is possible even where consumer protection laws provide for statutory damages, as long as the proposed class representative is willing to waive that particular claim.

Posted: June 30, 2014

Litigation Trustee Denied Intervention in Lawsuit Between Insureds and Insurers

On June 18, 2014, Justice Schweitzer of the New York County Commercial Division issued a decision in American Casualty Co. of Reading, PA v. Gelb, 2014 NY Slip Op. 31597(U), denying a motion for intervention.

In American Casualty Co., the plaintiff insurers sought a declaration that the insurance policies they had issued to Lyondell Chemical Company and the defendants–Lyondell’s directors and officers–did not cover defense costs from a claim prosecuted by a litigation trust against the defendants in bankruptcy court. The trustee of the litigation trust moved to intervene. The court denied the motion, explaining:

Under New York law, a party may seek intervention as of right under CPLR 1012 (a) or permissive intervention under CPLR 1013 (McKinney). Whether a party seeks to intervene as of right or as a matter of discretion is of little practical significance since a timely motion for leave to intervene should be granted, in either event, where the intervenor has a real and substantial interest in the outcome of the proceedings.

A third party is not entitled to intervene in a pending action in which the rights of the prospective intervenors are already adequately represented, and there are substantial questions as to whether those seeking to intervene have any real present interest in the property which is the subject of the dispute. A non-direct or speculative interest is insufficient to satisfy this burden. Courts also deny intervention where parties in the case adequately represent the proposed intervenor’s interests.

[The] Litigation Trustee, cannot properly intervene in the coverage litigation because he does not have a real and substantial interest in the outcome of the proceedings. The Litigation Trustee’s claims for insurance coverage under the Policies are speculative and indirect. The Litigation Trustee argues he has a real and substantial interest in the outcome of the coverage litigation because the resolution of the matter against the directors and officers may effectively eliminate its ability to recover on its claims against the directors and officers in the Adversary Proceeding. However, the Litigation Trustee’s interest is·first conditioned upon succeeding in the Adversary Proceeding, then obtaining a recovery from the Insureds and, finally, establishing that funding for such a recovery will not exist absent insurance coverage. [The Litigation Trustee] has no legally recognized claim to assert against the Insureds: he has not obtained a judgment against the Insureds, and is not a party or third party beneficiary of the policies. [The Litigation Trustee] has a speculative interest that is not subject to a potential res judicata effect.

(Internal quotations and citations omitted) (emphasis added). The court also ruled that the defendants were adequately represented, and thus there was no basis upon which to grant intervention.

Intervention is liberally granted, but as this decision shows, it is by no means automatic.

Posted: June 29, 2014

Breach of Contract Claim Survives Because Nominal Damages Satisfy Damages Element of Claim

On June 19, 2014, Justice Schweitzer of the New York County Commercial Division issued a decision in 37 East 50th St. Corp. v. Restaurant Group Management Services, LLC, 2014 NY Slip Op. 31595(U), holding that nominal damages are sufficient to support a claim for breach of contract.

In 37 East 50th St. Corp., the parties brought claims and counterclaims regarding the defendants’ management of a restaurant.  Among the issues decided by the court was whether the defendants’ breach of contract counterclaim should be dismissed because the defendants’ claims for loss of future profits and reputational harm did not satisfy the damages element of a breach of contract claim. The court agreed that such damages were not recoverable, but nonetheless did not dismiss the claim, explaining:

Loss of future profits as damages for breach of contract under New York law requires that the following elements be shown: (1) it must be demonstrated with certainty that such damages have been caused by the breach; (2) the alleged loss must be capable of proof with reasonable certainty. In other words, the damages may not be merely speculative, possible or imaginary, but must be reasonably certain and directly traceable to the breach, not remote or a result of other intervening causes”; (3) there must be a showing that the particular damages were fairly within the contemplation of the parties to the contract when it was made. Any reputational harm that might result from [the plaintiff’s] termination of its agreements with [the defendants] (assuming they were in breach) is purely speculative, considering that [the defendants] rejected their notice of termination and continues to manage the restaurant. [The defendants have] not alleged that the harm was fairly within the contemplation of the parties at the time they entered into the Agremeents.

[The defendants are] not entitled to damages for reputational harm on the basis of [the plaintiff’s] commencement of this lawsuit. Commencement of a lawsuit is not a valid basis for reputational harm giving rise to damages, unless it is alleged that the lawsuit was initiated maliciously and/or constitutes abuse of process. [The defendants’] counterclaim does not allege that [the plaintiff] has abused process by bringing suit against them. Therefore, they are not entitled to damages on the basis of the fact of the lawsuit itself.

[The defendants are] entitled to bring a breach of contract claim in pursuit of nominal damages. Nominal damages are always available in breach of contract actions. Nominal damages are a way of recognizing the fact that harm is caused by the fact of one party’s breaking its contractual promise to another, apart from any measurable form of damages that might be alleged in a traditional breach of contract claim for monetary damages. A party’s rights in contract arise from the parties’ promises and exist independent of any breach. Nominal damages allow vindication of those rights. Therefore, a claimant need not allege damage in order to be entitled to nominal damages for breach of contract. . . . . Nominal damages satisfy the damages element of a breach of contract claim under New York law.

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

This decision is hard to reconcile with the New York County Commercial Division decision in Saxon Technologies, LLC v. Wesley Clover Solutions-North America, Inc., 2014 NY Slip Op. 30002(U), which dismissed a breach of contract claim for failure adequately to plead damages.  It is a rare situation where a plaintiff is willing to pay to litigate over nominal damages, so as a practical matter, not having a claim and having a claim for only nominal damages usually amounts to the same thing.

Posted: June 28, 2014

Court Should Have Decided Motion for Summary Judgment Even Though Filed More Than 120 days After the Note of Issue

On June 25, 2014, the Second Department issued a decision in Shao v. Cao, 2014 NY Slip Op. 04733, requiring a trial court to hear a dispositive motion even though it was filed more than 120 days after the Note of Issue was filed.

In Shao, the Second Department reversed a trial court decision denying a motion for summary judgment because it was untimely. One defendant, the Second Department found, timely filed on the 120th day after filing the Note of Issue. As to the other defendants, it ruled:

[A]lthough that branch of the motion of the defendants Wei’s Realty Corp., Perfect Funding Corp., and NYC Funding Center, Inc. (hereinafter collectively the corporate defendants), which was for summary judgment dismissing the complaint insofar as asserted against them was untimely, it was made on nearly identical grounds as Cao’s timely motion for summary judgment. Under the circumstances, the Supreme Court should have determined that good cause existed to review the untimely motion for summary judgment on the merits.

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

This decision shows that, at least occasionally, the 120-day deadline for making a dispostive motion is not enforced as strictly as the rules for filing a Notice of Appeal. Still, better not to count on a sympathetic court in this regard.

Posted: June 27, 2014

Foreign Statute of Limitations Does Not Apply in Actions Brought Under CPLR § 205(a)

On June 26, 2014, the Court of Appeals issued a decision in Norex Petroleum Ltd. v. Blavatnik, 2014 NY Slip Op. 04802, clarifying the interplay between CPLR § 202, the “borrowing statute,” and CPLR § 205(a), the “savings statute.”

CPLR § 202 provides that, when a cause of action accrues outside New York, the applicable statute of limitations is the shorter of the New York statute and the statute where the cause of action accrued. CPLR § 205(a) provides that if a timely-filed action is dismissed other than on the merits, the plaintiff has six months to file a new action “upon the same . . . transactions or occurrences.”

In Norex Petroleum, the parties were litigating over control of a Russian oil company and its oil reserves. The plaintiff, a resident of Alberta, Canada, began the action by bringing RICO claims and Russian law claims against the defendants in federal court in the Southern District of New York. The SDNY held that RICO was inapplicable to an extra-territorial dispute and declined to exercise pendant jurisdiction over the Russian law claims.

Within six months, the plaintiff brought a new action in New York Supreme Court, asserting Russian law claims and New York claims arising from the same transactions and occurrences as the SDNY action. The defendants moved to dismiss the action as time-barred. They argued that, because the claim was for economic damages only, it accrued where the plaintiff was located, in Alberta, Canada, and Alberta’s two-year statute of limitations does not have a savings statute. The second action would therefore be time-barred in Alberta, where the claim arose. And—so argued the defendants—because the second action would be time-barred in Alberta, under CPLR § 202 it must also be time-barred in New York.

The Supreme Court accepted this argument and dismissed the second action; the Appellate Division unanimously affirmed. The Court of Appeals, however, unanimously reversed and reinstated the action.

Judge Read found that the precedents relied upon by the defendants were unpersuasive or inapplicable. Instead, he looked to the purpose of the two statutes. The purpose of CPLR § 202 is to prevent forum-shopping by plaintiffs whose statute of limitations has run elsewhere, whereas the purpose of CPLR 205 (a) is to protect the right of plaintiffs who filed timely to have their case decided on the merits.

Once [plaintiff] timely commenced its federal court action in New York, the borrowing statute’s purpose to prevent forum shopping was fulfilled, and CPLR 202 had no more role to play . . . . Stated another way, it is irrelevant that Alberta law does not have a savings statute similar to CPLR 205(a) because at the point in time when Norex filed its “new” action in Supreme Court, the borrowing statute’s requirements had already been met. In our view, this reading of the way in which CPLR 202 and CPLR 205(a) interrelate best comports with statutory language, and honors both the borrowing statute’s purpose to prevent forum shopping and the savings statute’s goal to implement the vitally important policy preference for the determination of actions on the merits.

Accordingly, as long as the original lawsuit is timely filed pursuant to CPLR § 202, plaintiffs get the CPLR § 205(a) safe harbor regardless of whether the other jurisdiction has a similar savings statute.

Posted: June 26, 2014

Opportunity to Comment on Proposed Change to Commercial Division Rules

The Office of Court Administration has asked for public comment on yet another proposed change to the rules of the Commercial Division.

The proposed new rule would add a preamble to the Commercial Division Rules

that (a) acknowledges the problems caused by dilatory tactics and counsel who fail to appear for conferences, (b) directs litigants and their counsel who use the Commercial Division to familiarize themselves with the numerous sanctions provisions in the Rules, and (c) advises that Commercial Division judges will impose sanctions as the circumstances warrant in order to enforce compliance with case management orders and discovery schedules.

E-mail comments to rulecomments@nycourts.gov by August 26, 2014.

Posted: June 26, 2014

Breach of Contract Claim Dismissed as Duplicative of Malpractice Claim

On June 17, 2014, Justice Walker of the 8th Judicial District Commercial Division issued a decision in Rich Products Corp. v. Kenyon & Kenyon, LLP, 2014 NY Slip Op. 50937(U), dismissing asserted and prospective claims against a law firm as duplicative of the plaintiff’s breach of contract claims.

In Rich Products Corp., the plaintiff asserted a variety of claims against the defendant law firm in connection with its alleged role in the plaintiff’s failure to obtain two foreign patents. The decision in Rich Products Corp. addressed several issues; this post focuses only on one: the plaintiff’s breach of contract claim.

The court dismissed the breach of contract claim, explaining:

A cause of action for breach of contract relating to a claim of legal malpractice may only be maintained where there is an additional promise by the attorney extending beyond the duty of care an attorney owes his client.

[The plaintiff] alleges that [the defendant] specifically agreed and contracted to perform a specific task and/or obtain a specific result regarding the Invention.

However, [the plaintiff] has failed to sustain its burden of proof regarding these claims.

To the extent [the plaintiff] bases its breach of contract claims on implied promises, such claims are contrary to New York Law.

Finally, [the plaintiff’s] breach of contract claims are duplicative of its legal malpractice claims, containing the same allegations of fact, and seeking the same relief.

(Internal quotations and citations omitted).

This decision is yet another example of the courts’ disinclination to allow plaintiffs to assert multiple causes of action based on the same facts.

Posted: June 25, 2014

Available Damages Against Sponsor of Mortgage-Backed Securities Trust Limited By “Sole Remedies” Provision in Governing Documents

On May 29, 2014, Justice Bransten of the New York County Commercial Division issued a decision in Saco I Trust 2006-5 v. EMC Mortgage LLC, 2014 NY Slip Op. 31432(U), ruling that Plaintiffs’ claim for rescissory and consequential damages was precluded by a “sole remedies” provision in the governing documents for a mortgage-backed securities investment.

In Saco I Trust, the plaintiff investors in mortgage-backed securities brought an action against the sponsor, EMC, for breaches of representations and warranties concerning the mortgages underlying the investment. The governing documents for the securitization trusts contained a “sole remedies” clause, which provided:

It is understood and agreed that the obligation under this Agreement of EMC to cure, repurchase or replace any Mortgage Loan as to which a breach has occurred and is continuing shall constitute the sole remedies against EMC (in its capacity as Sponsor) respecting such breach available to the Certificateholders, the Depositor or the Trustee.

Justice Bransten found that this provision barred any recovery “beyond EMC’s contractual obligation to ‘cure, purchase or replace any Mortgage Loan.'” Thus, plaintiffs’ claims for consequential and rescissory damages were precluded.

Justice Bransten went on to hold that, even in the absence of a sole remedies clause, consequential and rescissory damages would be unavailable under the facts of the case:

Consequential damages are “rarely awarded” and are permitted only where the contract conveys that the parties intended consequential damages to be recoverable in the event of breach. Here, Plaintiff points to no language and makes no argument that such damages were within the contemplation of the parties as the probable result of a breach at the time of or prior to contracting. The Court likewise finds no such language. Thus, Plaintiff’s claim for consequential damages merits dismissal.

Plaintiffs’ claim for rescissory damages also fails. As the First Department noted in MBIA Insurance Corp. v. Countrywide Home Loans, Inc., 105 A.D.3d 412, 413 (1st Dep’t 2013), rescission is a “very rarely used equitable tool.” Indeed, the First Department explained that rescissory damages are only applicable where rescission is impracticable and no alternative legal remedies are availing. While Plaintiff maintains that rescission would be impracticable, Plaintiffs claim for rescissory damages lacks merit, since Plaintiff has an alternative remedy – repurchase. Notwithstanding Plaintiffs “pervasive breach” arguments, the sole remedy provision agreed to by the parties limits the Trust’s remedies to repurchase.

(Citations omitted).

This decision illustrates that courts will enforce contractual limitations on damages, and that consequential damages are generally unavailable unless the parties specifically contract for such damages.

Posted: June 24, 2014

Summary Judgment Granted Despite Request for More Discovery

On June 20, 2014, the Fourth Department issued a decision in Resetarits Construction Corp. v. Olmsted, 2014 NY Slip Op. 04633, granting a motion for summary judgment despite the plaintiff’s argument that the motion was premature because the plaintiff had not had an adequate opportunity to take discovery.

In Resetarits Construction Corp., the plaintiff sued the defendant “for, inter alia, breach of contract based on the alleged failure of defendant . . . to pay for work performed by plaintiff pursuant to a construction contract.” The trial court granted the plaintiff’s motion for summary judgment on its breach of contract claim, denying the defendant’s cross-motion compelling additional discovery. The Fourth Department affirmed, explaining that the plaintiff had established its entitlement to judgment and:

the [trial] court properly rejected defendants’ contention that plaintiff’s motion was premature because further discovery was necessary and thus properly denied the cross motion seeking that further discovery. In opposing a summary judgment motion as premature pursuant to CPLR 3212 (f), the opposing party must make an evidentiary showing supporting the conclusion that facts essential to justify opposition may exist but cannot then be stated, and mere speculation or conjecture is insufficient. The opposing party must show that the discovery sought would produce evidence sufficient to defeat the motion and that facts essential to oppose the motion were in the movant’s exclusive knowledge and possession and could be obtained by discovery. Defendants failed to make the requisite showing here.

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