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Commercial Division Blog

Current Developments in the Commercial Divisions of the
New York State Courts
Posted: May 10, 2018

Claim Dismissed for Being “Conclusory and Lacking in Factual Specificity”

On May 3, 2018, the First Department issued a decision in Publications International, Ltd. v. Phoenix International Publications, Inc., 2018 NY Slip Op. 03204, dismissing a counterclaim for being “conclusory and lacking in factual specificity,” explaining:

Even accepting the allegations as true and affording counterclaim plaintiff (Phoenix) every possible favorable inference, we find that the “manipulated returns” counterclaim, which alleges that the drop in merchandise returns was the result of a scheme on the part of counterclaim-defendant Publications International, Ltd. (PIL) to avoid its obligations under section 4.9 of the asset purchase agreement, is conclusory and lacking in factual specificity.

(Internal citations omitted).

Cases in the Commercial Division of the New York courts more often that not involve a motion to dismiss at the outset, so this is a big part of our practice. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions about seeking or opposing dismissal of a commercial lawsuit.

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Posted: May 9, 2018

New York Does Not Recognize “Holder Claims”

On April 23, 2018, Justice Kornreich of the New York County Commercial Division issued a decision in Q China Holdings, Ltd. v. TZG Capital Ltd., 2018 NY Slip Op. 30779(U), dismissing a holder claim, that is, a claim for damages for being fraudulently induced not to sell securities, explaining:

QCH has not stated a claim for fraud. It is well settled that claims for both fraud and fraudulent concealment require the pleading of detrimental reliance and out-of-pocket damages. QCH does not plead either element. As discussed, the alleged fraud consisted of the misrepresentations about the status of the Sale, which had actually occurred in December 2015 but which was represented to not have closed until May 2016. QCH does not allege it engaged in any action to its detriment in reliance on these untruths. To be sure, had QCH actually sold its stake in the Company based on the understanding that the Sale had not yet occurred, perhaps it might have a claim for being induced to sell based on a material misrepresentation about the value of the Company. However, QCH never sold its stake.

Moreover, as QCH’s counsel clarified at oral argument, the only damages it allegedly suffered as a result of the fraud is that it held onto its stake in the Company when, perhaps, it might have sold its stake had it not been lied to about the Sale. This is a quintessential “holder” claim that is not permitted under New York law. Damages for being fraudulently induced not to sell securities are not permitted under New York law because, when a claim sounds in fraud, the measure of damages is governed by the out-of-pocket rule, which states that the measure of damages is indemnity for the actual pecuniary loss sustained as the direct result of the wrong. Holder claims are considered impermissibly speculative because it is impossible to know what the plaintiff would have received for its stock had it not been induced to hold onto it. Thus, where, as here, the damages sought are based on what the plaintiff might have received had it sold its stock but for the fraud, the fraud claim must be dismissed because there can be no recovery for such injury under New York law.

(Internal quotations and citations omitted).

Commercial litigation frequently involves fraud-based claims. This decision illustrates a rule created by the New York courts to limit fraud claim relating to securities. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding a fraud-based claim.

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Posted: May 8, 2018

Claim Against New Defendant Did Not Relate Back to Earlier Complaint; New Defendant Was Not Liable for Acts of Original Defendants

On May 3, 2018, the Third Department issued a decision in Belair Care Center, Inc. v. Cool Insuring Agency, Inc., 2018 NY Slip Op. 03196, holding that a proposed claim against a new defendant was time-barred because it did not relate back to earlier claims, explaining:

Plaintiffs’ further contend that the proposed new causes of action against Hickey-Finn, Cool and Treiber are based on the same transactions and occurrences that were alleged in the original complaint in the HITNY action and, thus, relate back to that complaint. Hickey-Finn was named as a broker defendant in the first amended complaint, before any applicable statute of limitations would have rendered plaintiffs’ proposed causes of action untimely. Where the issue is whether a claim may be interposed against a defendant who was named as a party before the statute of limitations expired, the query is limited to whether the earlier complaint gave notice of the transactions, occurrences, or series of transactions or occurrences, to be proved pursuant to the amended pleading.

. . .

Treiber was first named as a defendant in the third amended complaint. By stipulation, it was agreed that the causes of action asserted in the third amended complaint would be deemed to have been asserted on December 17, 2012, when the Seacrest action was commenced. Thus, the proposed new causes of action would be untimely unless, as plaintiffs argue, they relate back to the first amended complaint. The relation back doctrine permits a plaintiff to amend a complaint to add a defendant even though the statute of limitations has expired at the time of amendment so long as the plaintiff can demonstrate three things: (1) that the claims arose out of the same occurrence, (2) that the later-added defendant is united in interest with a previously named defendant, and (3) that the later-added defendant knew or should have known that, but for a mistake by plaintiff as to the later-added defendant’s identity, the action would have also been brought against him or her.

Plaintiffs failed to establish the second prong of the relation back doctrine. Unity of interest requires a showing that the judgment will similarly affect the proposed defendant, and that the new and original defendants are vicariously liable for the acts of the other. The proposed amended complaint alleges that Treiber — like all brokers — engaged in a cooperative strategy with CRM to market the trust; however, it contains no allegations that there was a jural, or legal, relationship between Treiber and CRM that would make either vicariously liable for the acts of the other. Thus, Supreme Court properly denied plaintiffs leave to amend the complaint to assert a negligence cause of action against Treiber.

(Internal quotations and citations omitted).

It is not unusual for the statute of limitations to be an issue in complex commercial litigation. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding whether a claim is barred by the statute of limitations.

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Posted: May 7, 2018

Failure to Use Contract’s Pre-Suit Dispute Resolution Process Dooms Claim

On May 3, 2018, the First Department issued a decision in MPEG LA, L.L.C. v America Information Systems, Inc., 2018 NY Slip Op. 03210, dismissing a claim for failure to use a pre-suit audit procedure, explaining:

The claim that Toshiba under-reported and underpaid royalties under the parties’ license agreement was correctly dismissed because plaintiff failed to comply with the agreement’s audit provision, a condition precedent to suit.

(Internal citations omitted).

This decision illustrates one the many rules for interpreting contracts: if a contract contains a pre-suit dispute resolution provision, the failure to comply with that provision likely will bar a claim for breach of the contract. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding a dispute over the interpretation of a contract.

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Posted: May 6, 2018

Transcripts and Videos of Arguments in the Court of Appeals for April 2018 Now Available

On April 7, 2018, we noted a case of interest from the oral arguments before the Court of Appeals in April 2018:

  1. Ontario v. Samsung (No. 57) (argued on Tuesday, April 24, 2018) (“Conflict of Laws — Law Governing Contract Action — in breach of contract action brought by nonresident alleging economic claim that accrued outside New York, whether a contract provision specifying that the agreement is to be “governed by, construed and enforced” in accordance with New York law renders inapplicable New York’s borrowing statute, CPLR 202.”) See the transcript and the video.

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Posted: May 5, 2018

Court Declines to Interpret Arbitration Agreement Where Agreement Leaves That Decision to Arbitrators

On May 1, 2018, Justice Ostrager of the New York County Commercial Division issued a decision in Footprint Power Salem Harbor Development, L.P. v. Iberdrola Energy Products, Inc., 2018 NY Slip Op. 30794(U), denying a motion to stay an arbitration, ruling that under the arbitration agreement, it was for the arbitrators, not the court, to interpret the scope of the arbitration agreement, explaining:

Section 17.2 of the EPC Contract states that “arbitration shall be administered by the International Centre for Dispute Resolution (ICDR) of the American Arbitration Association (“AAA”) in accordance with its International Arbitration Rules in effect at the time of the arbitration, except as they may be modified herein or by mutual agreement of the Parties.” There is no indication that the parties subsequently modified this arbitration provision by agreement, nor is there any other provision of the EPC Contract that can be interpreted as modifying the relevant ICDR Rules.

Petitioner argues that this “modifying” language can be found in Section 17.2 of the EPC Contract which states that the parties agreed “to the jurisdiction of the United States District Court for the Southern District of New York for the limited purpose of enforcing the agreement to arbitrate.” Petitioner argues that this language demonstrates that the parties agreed that New York courts, and not the arbitral panel, would determine issues of enforceability relating to the arbitration agreement. This is not so. This language merely enables either party to move to compel arbitration or enforce an arbitral award in New York courts; it does nothing to modify the clear ICDR Rules which vest arbitrability issues with the arbitrator.

Article 19 of the ICDR Rules provides: “The arbitral tribunal shall have the power to rule on its own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement(s)” and that “[i]ssues regarding arbitral jurisdiction raised prior to the constitution of the tribunal shall not preclude the Administrator from proceeding with administration and shall be referred to the tribunal for determination once constituted.” On this point, the decision by the First Department in Life Receivables Trust v Goshawk Syndicate J 02 at Lloyd’s, 66 A.D.3d 495 (2009) is instructive. The Appellate Division in the Life Receivables case was interpreting a provision in the American Arbitration Association Rules which, like the ICDR Rules at issue here, empowered the arbitration tribunal to rule on its own jurisdiction. The Court stated: “Although the question of arbitrability is generally an issue for judicial determination, when the parties’ agreement specifically incorporates by reference the AAA rules, which provide that ‘[t]he tribunal shall have the power to rule on its own jurisdiction, including objections with respect to the existence, scope or validity of the arbitration agreement,’ and employs language referring ‘all disputes’ to arbitration, courts will ‘leave the question of arbitrability to the arbitrators’.” Thus, even if this Court were to accept Petitioner’s assertion that the arbitration agreement is not valid because a condition precedent to arbitrate has not occurred, such an issue would necessarily be within the purview of the arbitrator to determine given the arbitration agreement’s incorporation of ICDR Rules regarding the arbitrability of validity issues.

(Internal citations omitted).

Commercial litigation involves more than courts. Disputes often are–by agreement–decided by private arbitrators. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding a dispute that is subject to an arbitration agreement.

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Posted: May 3, 2018

Specific Performance on Real Estate Contract Inappropriate Where No Evidence of Plaintiff’s Ability to Close

On April 18, 2018, Justice Ash of the Kings County Commercial Division issued a decision in Silvershore Props. LLC v. Dunning, 2018 NY Slip Op. 30715(U), denying specific performance of a contract to sell real property, explaining:

Typically, a contract is not breached until the time set for performance has expired. To prevail on a cause .of action for specific performance of a contract for the sale of real property, a plaintiff purchaser must establish that it substantially performed its contractual obligations and was ready, willing, and able to perform its remaining obligations, that the vendor was able to convey the property, and that there was no adequate remedy at law.

Before specific performance of a contract for the sale of real property may be granted, a purchaser must demonstrate that it was ready, willing, and able to perform on the original law day or, if time is not of the essence, on a subsequent date fixed by the parties or within a reasonable time thereafter. However, when a purchaser submits no documentation or other proof to substantiate that it had the funds necessary to purchase the property, it cannot prove, as a matter of law, that it was ready, willing, and able to close.

In the present matter, the court finds that the parties agreed to waive their original closing for June 24, 2014, however, the parties failed to establish a new closing date whereby performance would be due. Furthermore, the court finds that Plaintiff is not entitled to specific performance due to its inability to show that ii was ready, willing and able to purchase the property on the closing date set forth in the contract or a reasonable time thereafter. The court reasons similar to the court in Internet Hames, Inc. v Vilul/i, 8 AD3d 438, 439 [2d Dept 2004], in finding
that even assuming that the defendants improperly cancelled the contract, the plaintiff still bore the burden to show that it had the financial capacity to purchase the property. The plaintiff’s unsubstantiated assertions that a line of credit could be secured or that a closely-related corporation would supply the funds and the conclusory allegation that it was ready, willing, and able to perform were insufficient to satisfy its burden. It should also be noted that Plaintiff never obtained a loan commitment for the remaining amount required to purchase the property.

(Internal quotations and citations omitted).

We frequently litigate disputes over the purchase and sale of commercial property. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you are involved in a dispute regarding a commercial real estate transaction.

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Posted: May 2, 2018

Whether Signature on Agreement Containing Arbitration Clause Was Forged is for Court to Determine

April 25, 2018, the Second Department issued a decision in Alam v. Uddin, 2018 NY Slip Op. 02763, holding that the question of whether the signature on an agreement containing an arbitration clause was forged was for the court, not an arbitrator, to determine, explaining:

Where a party has applied for an order compelling arbitration, the court shall direct the parties to arbitrate if, among other conditions, there is no substantial question whether a valid agreement was made. Here, the defendant alleged that his signature on the purported partnership agreement was a forgery and thus no valid agreement was made. Contrary to the defendant’s contention, the question of forgery is a threshold question for the court and not an arbitrator to determine. Therefore, the defendant failed to establish his entitlement to an order compelling arbitration and staying all proceedings in the action pending arbitration.

(Internal quotations and citations omitted).

Commercial litigation involves more than courts. Disputes often are–by agreement–decided by private arbitrators. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding a dispute that is subject to an arbitration agreement.

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